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Week Ahead

Spiraling deflation?; Coal; Middle East, Venezuela


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Welcome to the latest episode of “The Week Ahead” with your host, Tony Nash! We’ve assembled a stellar lineup.

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[00:00:22.010] – Tony Nash

Hi, and welcome to the week ahead. I’m Tony Nash. Today we’re joined by Alex Gurjevich, Tracy Schuchart, and Albert Marco. We’ve got a few key themes. The first is spiraling deflation, and that’s based on a thesis that Alex has. And we’re going to go into that in detail. We’re then going to talk about coal and us exports and emerging market consumption of coal with Tracy and then with Albert. We’re going to talk a little bit about geopolitics with what’s happening in the Middle east. And we’re also going to talk about Venezuela with some sanctions going back on or coming off or kind of whatever’s happening. So, Alex, thank you so much for joining us. I’m always pleased know people like you or Tracy or Albert will spend time with us, and it’s just impressive that you’ll join us. So I really appreciate it. Obviously, best selling author. The next perfect trade was a fantastic book. I really appreciate. So. So again, thanks for joining us.


[00:01:20.490] – Alex Gurevich 

Thank you for having me. I’m looking forward to it.


[00:01:23.630] – Tony Nash



[00:01:24.190] – Tony Nash

Okay, 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. We also share our major currency forecasts as well as Nikay 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. CA markets free. Look at the link below and get started ASAP.


[00:02:02.970] – Tony Nash

Thank you.


[00:02:04.630] – Tony Nash

So you put out a paper last August titled the real rates tsunami, and you outlined your expectation for the path of rates and inflation and other things. And I think that it’s still relevant, of course, especially as we watch the Fed play out their plan. Can you walk us through that paper and what your view is now? Has that changed much?


[00:02:37.970] – Alex Gurevich 

Okay, I will try to do it in an abbreviated fashion, so feel free to guide me or ask me questions.


[00:02:43.720] – Tony Nash

Okay, great.


[00:02:46.770] – Alex Gurevich 

At the core of the heart, what I was talking about is I was trying to understand what I got wrong in the yes, 2021 and yes, 2022. But that also informed me how I started to think about the yes, 2024 and 2025. Like, if you think symmetrically in 2023, I’m thinking both two years back and two years forward.


[00:03:08.240] – Tony Nash



[00:03:08.890] – Alex Gurevich 

And two years is actually, by the way, key to everything, because I came to the conclusion that everything operates for the two year leg. We can get more into that, but that makes a lot of sense. That’s how I was thinking about the world. And I realized that one of the mistakes of team transitory, so team transitory was correct. Just to step back after Covid, that there were always supply shocks that will be unwound and where we’ll see the bull whip. And actually we have seen that bullwip. One of the very important realizations I came to, or like I pounded my table on, when we saw slowdown in economy or inflation in 2022. 2023, it had absolutely nothing to do, I will repeat again, absolutely nothing to do with the fed raising rates. It did not and could not have. Fed raising rates did not and could not have had any effect yet what was happening, just a natural unwind of certain post Covid shocks. Now, what I did not count on, what I didn’t fully comprehend at the moment, how pernicious the civilian negative real interest rate of 2021 would be. And it does not matter that it was for temporary reasons.


[00:04:32.410] – Alex Gurevich 

But when you have severely negative real interest rates, it leads to further expansion of money supply. People have reasons to build inventory, blow up their balance sheets. Everybody wants to have a big balance sheet. If you have negative real funding rate, if you’re a business, you don’t have incentive to push for high labor productivity, you have no incentive to lay up workers. All of those factors created a very inflationary environment, which became sticky and continued on in 2022. And certain effects we’re still seeing now. So if you think of it to your leg, we’re still in the product of the environment of early 2022, which is the environment with rates only started to go up, which is the environment when inflation was very high. Now, the flip side of that is inflation came down. And people can say inflation came down for various, also transitory reasons, because there was unwind of the supply shock. But for whatever reason, the inflation came down, it created positive real rates environment. And this positive rates environment leads to further deflationary pressures. People have incentive now to contract their balance sheets. They have incentive to increase labor productivity, to start layoffs, to hire less workers.


[00:05:57.720] – Alex Gurevich 

It’s a very slow process. It’s a multi year process. It’s not something that happens overnight. It’s not like guacamole. We think high inflation, let’s raise rate by 75 basis points. Inflation print will be lower next month. Same thing when people say if fed starts cutting rates prematurely, it has a risk of rising inflation. Honestly, I’m going to be disrespectful here. I will say this is absolute gibberish. That is gibberish. That is not even like a sentence that makes any sense to me, that cutting rate, because cutting rates now will affect inflation two years from now, it will have nothing to do with inflation. Come up this year or not. This is just, the evidence is overwhelming to that, that you cannot just affect inflation on a month to month basis. You maybe can affect a little bit headline inflation by pushing on commodity prices up and down. You can maybe affect some high frequency economic indicators with a several month lag by changing financial conditions and changing the sentiment, by pushing stock market around. But you cannot really affect what Fed is really looking at core PCE on anything shorter than one or two year horizon.


[00:07:04.450] – Alex Gurevich 

And one year horizon will be very optimistic. So that is the core of my thesis. And since you ask him about real rate tsunami specifically, I’m going to share one chart, if it’s okay, and then start criticizing me or whatever. So this is the chart. You’ll see three things on the chart. There is one line, the wiggly line, which goes, can people see people well? Right, yes, wiggly line. This is the headline CPI. Now I use headline CPI, I calibrate it to whatever you want. You can use core pc, core pc deflator, core CPI. It’s all truly, it’s going to look similar no matter what you use. It’s the principle of it. I’m not going to do homework for everybody in terms of what to use and this line, but this is not just two years, this is average over two years, because remember, everything operates with two year lags. And this is the average two year software. So that just shows us the rates. Now those charts, well, familiar, don’t say anything. But what’s interesting is when you took the real rates calculated that way, and this is the yellow orange thing, and as you see, it shows us that right now we’re in an environment when the real, average real rates over the last two years were still close to negative 2% by this chart.


[00:08:25.910] – Alex Gurevich 

So when people say the economy has withstood rising rates, again, I will call nonsense on that. I’m not saying, by the way, my thesis is not that recession is inevitable. My thesis is not that inflation will not be able to withstand high rates. My thesis is that it’s entirely premature to even start thinking about whether it has withstood the high rates, because what high rates, real rates, have been on average negative over the last two years. So everything has been stimulative. So, in fact, even this environment, we’re already seeing some moderation of job market and some disinflation. It’s tremendously deflationary in perspective, because when this thing will actually become positive, the deflationary pressure supposedly will dramatically increase. Now, why do I think it’ll become positive? Well, look at the charts. This chart is already not stoppable. Those jaws are closing. And we do know that average software keeps rising. Fed is not going to cut rates to zero next month. Right. So this line is going to keep going up and it’s going to go to like 4% or whatever, depending on how fast the cuts will go. But it will go higher. Inflation, we know, is going down.


[00:09:45.580] – Alex Gurevich 

So there is really very little to stop because as high prints fall out of this, two years of inflation and low prints fall out of software, there was no stop to this thing from going. It doesn’t matter even what the Fed policy is now. That’s going to go positive. And that’s when we’re going to start having to start thinking about, okay, now, the average effect of positive real rate can be assessed. And I’m not saying we know what it’s going to be, but my inclination is to think that given what we’ve seen so far, that it will lead to further deflation. And just, again, not to take too much time. The core of my thesis, what I thought about this paper, that the sequence of events, I think is very different. That’s what Isaac Tony was asking. What is different? In the past, the thesis have been that we start with recession, then we get unemployment, then we get deflation. Now with the policy smoothing out, recessions we’re having, and post Covid whiplash, we’re seeing slightly different thing. The disinflation actually came first. Labor market is still robust, as we’ve seen today, particularly. Right? Yeah.


[00:10:53.470] – Alex Gurevich 

There are some mixed numbers you can say, like, this is pro, this is a con, January report is volatile. This is what’s happening on joel’s. This is what’s happening with claims, tons of things. But overall, nobody, I will challenge people yet to say that the job market is falling apart. Yeah, for sure. Very tough.


[00:11:14.470] – Tony Nash

I want to cover some really basic question. Okay. When you say deflation, when we hear the word deflation, we’re kind of programmed to think that deflation is a bad thing. When you say deflation, does it have a good or bad connotation or is it just a fact? Deflation?


[00:11:36.590] – Alex Gurevich 

To me, it’s more of a fact. First of all, I want to be very clear. I’m a trader. I’m not a policy person. When I always say, like, what the Fed should do, it should be taken with a grain of salt. I always think that fed should do whatever is best for my portfolio. I love that perspective because objective functions are very uncertain. I mean, deflation, I think leads to total society outcomes. Deflation probably leads to high wealth inequality. Deflation will probably will lead. And this is my thesis, that it’s not that unemployment will lead to deflation, it will deflation disinflation, which will have to lead to a loosening of job market.


[00:12:18.830] – Tony Nash



[00:12:19.300] – Alex Gurevich 

Because people, under pressure of high real interest rates, people will have to raise productivity and maybe hire less people. Not everybody thinks it’s a bad thing. Some people could think it’s a healthier adjustment on the economy, but higher real interest rates, they kind of clean a lot of things and they could do it in a painful way, like they kill zombie companies who roll over their debt. They could just really help us to figure out who is who. So it’s not all bad, but it can also cause pain. And then inflation leads to unemployment and to high unemployment. And high unemployment leads to erosion of consumer confidence. Then eventually it can lead to economic slowdown. So that’s a very kind of unusual path. And I think this, however, since the changes that occurred in policy since 2008, I think this might be the new thing we’re looking for. Like recessions don’t lead to stock market falling, for example.


[00:13:23.680] – Tony Nash



[00:13:24.930] – Alex Gurevich 

And unemployment might not start with a recession, but might start with actually deflation first.


[00:13:29.840] – Tony Nash

So your order of things is deflation, jobs, then recession.


[00:13:35.970] – Alex Gurevich 

If recession happens, which is not much, it might not even happen because by the time we have deflation and then job losses, the Fed can cut rate so much that they will have no recession.


[00:13:46.920] – Alex Gurevich 

And right now, when people are saying, like, recession, I was like, what recession? Why would consumers stop spending? There is a great job market and positive real wage growth. Why would people not be spending? And if we have consumers spending, why would we have a recession? I don’t see it yet.


[00:14:04.190] – Tony Nash



[00:14:05.390] – Tony Nash

That’s interesting. Albert, what do you think about that in terms of that order of events?


[00:14:11.230] – Albert Marko

No, he’s right about the order of events. I mean, layoff is the key thing. We’ve talked about this for a long time. Wait for layoffs to happen to start triggering things. And I do think that initially I was on the pro, recession is going to happen, so on and so forth. But as the data has been trickling in and policies have been enacted. I don’t really think that we’re going to see a real recession just because things are so under control from the Fed’s perspective now. Deflation? Yeah, it’s coming. I have a dispute on the timing of it, because right now there’s no real deflation in the United States except for the commercial real estate market. I mean, look at China. However, China is in serious deflation, but that helps the US maintain its inflationary policies. The US has too much wealth versus manpower capacity in the economy, and additionally, fund flows are all supportive of north american markets, since a large chunk of East Asia is just uninvestable to passive investors. If I look at the data, we had rates jacked to 5% and wages are still growing 5% to 6%. So wages were secularly depressed in the US for years, and now it’s time for them to recover.


[00:15:28.980] – Albert Marko

And this is probably one of the policies that Janet Yellen and Leila Brainard has laid out for the time being. So until I see a change in the political intent of wages and whatnot, it’s hard for me to see a deflationary event in the next twelve months. After twelve months, it’s a different world, different thing. And I think that Alex’s thesis is going to play out over the next one to three years, in my opinion. So what do I know?


[00:16:05.030] – Alex Gurevich 

I’m okay with one to three years horizon. Yeah. Do I have to say? My signals and kind of cycle indicators do predict peak deflationary pressure somewhere towards the end of 2024. But if it turns out to be like, you’re more of your timeline, I would not feel too wrong.


[00:16:25.580] – Albert Marko

Yeah. My only issue is it’s just Janet Yellen and Lail Breinard and the Biden administration, they have their hands on policy right now, and it’s been intent on keeping the markets of the economy looking rosy.


[00:16:40.500] – Alex Gurevich 

And my opinion, it’s all, what can they actually do now?


[00:16:47.010] – Albert Marko

Not much anymore, but that’s my point.


[00:16:50.360] – Alex Gurevich 

I don’t think they’re really like, fiscal policy is kind of fixed, it’s fairly expensive, but not the way it was in 2020. Right?


[00:16:58.710] – Tony Nash



[00:17:00.630] – Albert Marko

The only thing I could think of is really like, Congress wanting to boost the markets for their own reelection bid. So you’d see subsidies and legislation come out over the next six months. Short term, temporary garbage.


[00:17:12.400] – Tony Nash

But that’s targeted, right?


[00:17:16.490] – Alex Gurevich 

This is actually. You probably know about this more than I do. Wouldn’t the Congress be somewhat locked pre election in terms of extreme fiscal policies, it would be not in the interest of challenging parties to put very big bipartisan plans out.


[00:17:34.550] – Albert Marko

It depends because it depends. In the past you’d be absolutely correct. But in the last election and this one that’s gearing up, I do see a lot of policy and some legislation looking to help the US workers and basically just give people free money. I mean, this latest piece of legislation gives people like $8,000 if they have a kid just to file taxes. These inflationary policies that they have is just, they’re troublesome to me and they just don’t care. They don’t care what happens in a year. That’s my only issue.


[00:18:09.310] – Alex Gurevich 

Well, one of my theories is that fiscal expansion might be not so inflationary when it’s not accommodated. Because if the Fed is not buying. So if you spend deficit and sell more bonds and more bonds, but the Fed is not buying them and not lowering rates, then somebody has to buy them. So they crowd out other investments. They either have to bring in foreign capital and that will be capital surplus and then has to go up. Or though people talk about it’s all confusing because people might buy them but then hedge the currency. It’s confusing, but somehow in the big picture. Or they have to end up with end users because they cannot all end up on banks balance sheets because of tightening of banking regulation. Right.


[00:18:52.810] – Albert Marko



[00:18:53.520] – Alex Gurevich 

So they have to go somewhere and some people will buy those instead of doing something else with their money.


[00:19:00.410] – Albert Marko

Yeah, no, valid points. Valid points. The only thing I do have, I was discussing something with a partner of mine and he brought up a good point, is like what if Yellen, her idea is using only two and three year bonds and having the fed purchase them. They’re talking about duration of all these things.


[00:19:19.040] – Alex Gurevich 

But right now they’re not purchasing, they’re not selling. Tightening. Like if you would see quantitative easing, for example, if you combine fiscal expansion and quantitative easing, you could see this kind of inflationary mechanism going. This is very theoretical. I actually don’t.


[00:19:35.180] – Albert Marko

Yeah, of course.


[00:19:36.100] – Alex Gurevich 

And I don’t have deep conviction. This is my kind of working assumption. And what I’ve seen is that fiscal expansions don’t actually seem to lead so much inflation impact if they’re not accommodated because then rates go up because the bonds have to clear. Like if the Fed is not buying them, somebody has to. All the bonds have to clear.


[00:19:57.230] – Albert Marko

Yeah, you’re correct. And you actually mentioned that earlier, except for commodities. And I say that’s one of the areas that I’ve focused on intently is commodity inflation probably rising, everything else. You’re absolutely spot on.


[00:20:12.950] – Tony Nash

So I think it’s fascinating that we’re talking about deflation so casually. I love it, because again, there’s always this lining of deflation being a terrible thing, and I love that we’re just talking about it. Yeah, it’s probably going to happen, and this is the order of what’s going to happen. Tracy, we talk about commodity prices. Do you see room for further kind of suppression or decline in commodity prices? Because we’ve seen huge geopolitical events and not much has happened with crude and net gas and other things. So what do you see on the commodity side with this kind of environment that Alex is talking know right now?


[00:20:57.220] – Tracy Shuchart

I think that this kind of environment is what investors are looking at right now. Right. And why they’re kind of scared to get into the commodity sector and not to mention what’s happening in China right now. I mean, we’re seeing a massive slowdown. I don’t care what they say their GDP is, we all know those are all fake numbers. And there’s a massive slowdown in the property sector, a massive slowdown in the manufacturing sector, and you can’t have domestic travel, I. E. Trains, planes, automobiles, et cetera, make up for what is happening in the big sectors of this industry, which I think is largely ignored. But that said, looking at China, I will have to say that I think the market is looking too much on China. I think we’re too dependent on China and looking at China for commodities data, China is doing bad, poorly economically speaking. Then we need to sell commodities. But there’s a lot of up and coming markets. And we’ve talked about this before, Tony, where I think know we’re going to see increases in India, we’re going to see increases in Africa, we’re going to see increases. And we’re already starting to see those increases, particularly in fossil fuels and metals, in those industries that are going to kind of make up for the China shortfall.


[00:22:27.720] – Tracy Shuchart

And so I think the market, in one respect, I think that we have to look at China because they’ve been the major driver of commodities for 20 years now. But I think it is time that investors start looking outside of China, maybe because I don’t think they’re going to be the main driver anymore, even though they’re still a huge country and a large consumer.


[00:22:52.190] – Tony Nash

Yeah, I think I remember when I was at the economist, I don’t know, ten or 15 years ago, and people were asking us, so what’s the next China? And for a decade, it was still China. What is the next China? Well, I don’t know. I mean, it’s going to be hard. That’s a once in a lifetime thing, and so it’s going to be really hard to create another China. And although they export deflation from a demand perspective, an investment perspective, not having another China, I think that strengthens thesis. Where does that demand come from? And we have all this installed capacity, but where does it all go? Because we have population declining in Northeast Asia, we have population declining in Europe. We have population declining in Russia. We have population growing in the US, but we don’t have population growing in a lot of other parts of the world, aside from, say, India and Indonesia, I think.


[00:23:50.330] – Tracy Shuchart

And Africa.


[00:23:51.710] – Tony Nash

And Africa.


[00:23:55.930] – Tracy Shuchart

I think it’s almost better that it’s diversified and that we’re not looking to one country to kind of fortify what we look at demand, particularly in natural resources, since that’s my primary focus.


[00:24:12.190] – Tony Nash

Alex, you said India is the next China. I hope India is the next China. I’m not convinced that. And know I love India. I’ve met with senior officials there. I’ve been there many times. I’ve done a lot of work there. I’m not convinced that India has the institutional capacity to do that. And I think foreign investors have been spoiled by. And this is the old anecdote of arrive at the airport, drive to the factory, and it’s a beautiful drive. The rest of the town can look terrible, but the drive from the airport to the factory is a beautiful drive. India hasn’t really got that down. And I think when foreign investors who are accustomed to investing in a place like China, where it’s a beautiful drive, when they go to India and you land in Mumbai and there’s four year olds knocking on your taxi door to ask for money, that sort of thing, it’s really hard for people to.


[00:25:21.510] – Albert Marko

Yeah, yeah, but Tony. But Tony, India has advantages over China in terms of legal system and the finance system. It’s more trusted than the Chinese would ever be. I mean, they’re based on anglosphere laws and regulations and whatnot. They’re more tied in with the western world than China. China, they can just confiscate everything you own and prevent you from leaving the country.


[00:25:43.230] – Tony Nash

As an investor, yes, but in India, you can be in a court case for 50 years, regardless. In India, you’ll have arbitration in Singapore or in London or something like that for whatever can be decided in a place like Singapore, they’ll continue to do that, but you’ve still got layers of kind of payoffs that need to happen and other things in India. But Alex, I am hopeful. I remember when, I think it was flextronics 15 years ago, made their first investment in Chennai and everyone was hopeful. That was India’s big breakthrough on electronics manufacturing, and it just pretty much fell flat. And now we have other things happening. I think Tata with the nano, what they did, what, ten or 15 years ago, really helped indian manufacturing and supply chains. But I’m just not quite there yet. Again, I’m a big fan. I want it to happen, but I’m not necessarily quite there yet on seeing supply chains in India be as robust as China was even 1520 years ago.


[00:26:42.690] – Alex Gurevich 

That’s fair. I also think that when people think of what I’ve always argued, when people kept saying that China is doing in some ways unique, though, because I think China is unique in a way that China, what China did in the end of 20 century, beginning of 21st century, is what it has done several times over its several thousand years of history, which is reason to economic dominance or close to economic dominance in the world. Had a very big chunk of world population who had very good technology and innovative kind of approach, had a very organized authoritarian state make a bid to become a global power and failed at that bid.


[00:27:32.670] – Tony Nash



[00:27:33.350] – Tony Nash

And I think that last thing you.


[00:27:34.950] – Alex Gurevich 

Said is China did it several times in the history. So in some ways, the counterargument to what I said, India is the next China, which is saying, like, India is not the next China. India is the next India. The next China is China.


[00:27:49.040] – Tony Nash

Yeah, that’s a great point. Can I ask you something, Alex? A little bit. A little bit off topic, but we see this China Russia relationship, and I’ve said for years, because I did work in China for a long time, I don’t believe that the Russians and the Chinese trust each other. And I don’t think that’s an enduring relationship. Do you think those sides can really trust each other? And do you think that’s an enduring relationship?


[00:28:16.990] – Alex Gurevich 

First, full disclosure, it’s outside of the area of my expertise.


[00:28:20.990] – Tony Nash

Okay, but just your personal view.


[00:28:26.050] – Alex Gurevich 

I probably have the same skepticism as, you know, historically, like, you know how there are those books like this kind of geopolitical theory, geography, destiny, and typically us and Russia, natural allies. And Russia’s natural opponents are Turkey and China.


[00:28:50.970] – Alex Gurevich 

Russia’s natural allies are us and England. There was only one time, I think, when England and Russia, for example, found themselves on the opposite side in the crimean war.


[00:29:03.090] – Alex Gurevich 

And every other time they were basically on the same side.


[00:29:07.020] – Alex Gurevich 

Us and Russia found themselves on the same side every single time, except for some proxy wars that can’t really count. And there are geographical reasons for that.


[00:29:19.010] – Tony Nash

Okay, yeah, that’s very interesting. I want to ask you one kind of last thing that you mentioned in your paper. You said that AI could be seen as deflationary. Can you talk us through that? You talked us through some of this job stuff. Can you talk us through how AI can be deflationary?


[00:29:36.170] – Alex Gurevich 

Well, we’re in the early stage of singularity. We don’t know yet how the singularity, which, by the way, has already happened, will spread. And there is this whole thing that has been happening throughout human history that they will come up with some new technology and people will be like, oh, this will lead to job loss, but reality, every new technology just led to restructuring of job markets. So they got rid of stable hands, but now they have car mechanics. Right?


[00:30:09.270] – Tony Nash



[00:30:11.170] – Alex Gurevich 

So drivers of car, whatever, people of sales, sailboats now work on whatever fossil fuel driven boats. Right. It’s the same. What I’m saying. Like any kind of advancement, technology led to actually rising levels of standards of life and created new job opportunities. This revolution could be a bit different because every single time, what happened is that the technology would replace the most manual, the least intellectual part of work, letting people do the more intellectual part. So making humans actually express more their human capacity. But this is kind of a displacement from the top. Like, there was an interesting presentation. I thought about that. Right now, the jobs most displayed by AI are not actually the highest paid jobs, not the lowest paid. Like, if you need some simple legal documents, like, I’ve already used AI to draft legal papers for me without. And saving a few hundred dollars here and there on lawyers.


[00:31:19.950] – Alex Gurevich 

It’s not super critical. Chat GPT will draft you any legal template. I also use it continuously now for second opinions on medical questions. I will still go to a doctor, but if I want to get a second opinion, I use Chat GPT, and it gives very reasonable second opinion usually. Right. So it’s displacing those, really. It’s not displacing gardening. Like, I mean, Chat GPT cannot landscape your garden.


[00:31:48.260] – Tony Nash

Exactly. Yeah, it’s very interesting.


[00:31:52.130] – Alex Gurevich 

Cannot give you a massage yet. Right. It’s not doing anything in that area, right?


[00:31:56.210] – Tony Nash

That’s right. Sorry, Albert.


[00:31:58.890] – Albert Marko

No, he’s right. I mean, the AI is definitely a disinflationary threat. I mean, 80% of finance jobs are just robot calculators, 70% of lawyers are just robot readers. It’s easier to replace those type of people, but I guess you can replace them with Walmart welcomer positions later on.


[00:32:16.410] – Tracy Shuchart

Go to tech school, kids. Go to tech school. Become a carpenter builder.


[00:32:21.600] – Alex Gurevich 



[00:32:22.650] – Tracy Shuchart

You can’t be replaced by AI.


[00:32:26.430] – Alex Gurevich 

To replace physical labor by AI, they will have robots. But that technology is far away, and it’s not easy to implement because hardware is very hard to implement and it’s very hard to make it cheap. It will get there, but it might take the case. While displacement of intellectual professions happens within months, it’s just such a different timeline.


[00:32:51.350] – Tony Nash

I have a son about to enter high school, and one of the tracks that they have that he can specialize in is welding. And as silly as it sounds, we’ve thought about trying to convince him to take some welding classes because so much other stuff can be automated.


[00:33:08.460] – Tony Nash

And so we haven’t convinced him yet, but it is a real thought that we’ve had so that he can learn, have a trade to fall back on as other stuff is automated. Who knows, right?


[00:33:18.420] – Tracy Shuchart

Well, don’t you remember back in school, when I went back school, we had shop classes. We learned how to work with. I mean, that was like our required class.


[00:33:28.900] – Tony Nash

Tracy, I was Woodshop student of the year in 7th grade. Say that proudly.


[00:33:37.950] – Alex Gurevich 

I will say officially, I was absolutely hopeless at shop. So nothing would have to do with. I would totally not survive in the society when you have to rely on dexterity of your hands or kind of your practical intuition. I am absolutely hopeless.


[00:33:53.460] – Tony Nash

Yeah, but you’ve got an amazing mind, Alex. So you make up for being.


[00:33:58.190] – Alex Gurevich 

I’m under pressure. I mean, AI replacement, it’s something that I have to really seriously worry about.


[00:34:04.620] – Tony Nash

But that’s the reality of where we are. Everyone who’s a white collar worker should be worried. If they’re not worried, they’re not aware of what’s out there in technology.


[00:34:15.320] – Tony Nash

I’m worried. Albert’s worried, Tracy’s worried, you’re worried. We should all be worried a little bit. Otherwise we’re unaware.


[00:34:24.950] – Alex Gurevich 

Yeah. It’s nice if you have capital, because what happens that AI only makes your capital have more value? Because capital means access to computational capacity, whether it’s a form of digital assets or whatever. But computational capacity will be key. If AI does everything right. That’s right. Then you need energy to fuel computational capacity. The energy efficiency, increase of energy efficiency will never catch up to the need for computation. So we’re going to need more and.


[00:34:58.460] – Albert Marko

More energy for that, which is interesting.


[00:35:01.970] – Tracy Shuchart

I’ve been writing about that, which is.


[00:35:04.310] – Albert Marko

Interesting because when AI starts flipping the script on renewable energy because it’s not efficient enough, there’s going to be all sorts of political problems happening.


[00:35:12.470] – Tony Nash

That’s a great segue. Let’s talk about cheap energy. Thank you very much for that. 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. We also share our major currency forecasts as well as Nikay 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. CA markets free. Look at the link below and get started ASAP.


[00:35:55.290] – Alex Gurevich 

Thank you, Tracy.


[00:35:56.440] – Tony Nash

Let’s talk about coal for a little while. You had a couple of tweets about coal this week. We’ve discussed the problems with wind and solar companies over the past few months. As interest rates have risen while us coal consumption has fallen, us exports are rising. So we’ve got the tweet on screen. Is this coal headed to emerging markets or developed markets? What are we seeing in this data?


[00:36:19.790] – Tracy Shuchart

It’s mostly heading to Asia, obviously. And so emerging or semi emerging, I’d like to separate because I think know there’s kind of a difference if we’re looking at Pacasia or India, but yeah, most of that’s going to Asia because obviously they have made their plans very clear. They are emerging markets, they want energy security and they want cheap, reliable energy. I mean, if you look at Pakistan, Pakistan hasn’t even been able to afford that gas for a couple of years now and it’s been a persistent problem for them. And so you have to understand that these nations, they need energy security. That’s all they care about. And even India, which is. I’ve heard a lot of things. Well, India’s are. Why is India buying from Russia? Because they’re an ally of the US. Well, first of know, India is focused on their own energy security. For one and two, their relationship with Russia runs deep in its counterbalance to so in the region. So we really couldn’t say anything about that. But if we’re looking at coal. Yeah, absolutely. We’re seeing coal exports because if you look at our numbers, 2007 is really when we peaked at our coal usage.


[00:37:54.490] – Tony Nash

You mean in the US, or globally?


[00:37:56.500] – Tracy Shuchart

In the US. Okay, in the US. And that was mainly for electrical power. And since 2007, we’ve literally declined almost 60%, which is why I think it’s been a rapid decline over a very short time. We don’t use that much coal at all for any more electrical. And I would say it’s completely negligible in manufacturing. It’s nearly nonexistent anymore.


[00:38:27.350] – Tony Nash

Clean coal never happened. The alleged clean coal from the 2008 election never happened.


[00:38:34.100] – Tracy Shuchart

Yes, but companies have largely moved away from that domestically. Why not? Why not use nat gas? It’s a whole lot cheaper than coal, actually, and we have a ton of it, so let’s sell it overseas. And I think one of the reasons we haven’t really seen the big pushback from, say, environmental groups on exports like we have seen on LNG just recently, is because of the rapid decline in usage. And they’re just not really paying attention to it because it’s no longer a significant source of energy in the US anymore.


[00:39:14.760] – Tony Nash

Okay. It’s exports. And we still have. China is still 70 plus percent power generation by coal, is that right?


[00:39:23.690] – Tracy Shuchart

Yes, absolutely.


[00:39:27.110] – Tony Nash

For all the solar and wind and everything else we hear about China developing, they’re still over 70% coal driven for their power generation.


[00:39:36.220] – Tracy Shuchart

Of course. And what you have to understand when we hear all of these, you know, they’ve increased solar know, x percentage, and you have to understand what a low percentage they were coming from. So it makes it sound huge when you’re coming from such a low denominator.


[00:39:56.560] – Tony Nash

Okay, so you mentioned India. I want to go a little bit deeper into India. Modi is looking to coal to shore up energy security as indian power generation is growing by double digits. So going back to is India the next China or whatever, their power generation is growing really fast. So are these coal numbers from India? This is based on a tweet that you put out. Are these coal numbers from India just a blip or do you see this as more of kind of a medium term kind of intention for them to continue growing, using coal to have reliable, cheap electricity?


[00:40:34.980] – Tracy Shuchart

Yeah, I think it’s a medium term thing. I don’t think it’s anywhere part of their long term goals, but I think it’s a cheap interim, easy fix for them. Right. Because they already have plants, they can build that out really easily. They also becoming a really big buyer of LNG and a really big buyer of crude oil. And so I think that when you’re facing such a rapid deployment of energy and you need this for electricity, and you need this to run everything. You’re going to go to your. Go to. What’s the easiest thing that we have means available, then that’s what they’re going to go to. And they’re going to build out those plants. Do I think that they have plans for that forever? No. And they are building out some solar and some wind. But again, that’s not baseload possible.


[00:41:35.470] – Tony Nash

And going back to Alex’s deflation thesis, it looks to me, because interest rates have risen, so the alternative power, the cost of alternative power development is much higher, and so people are substituting with much cheaper generation sources.


[00:41:57.030] – Tony Nash

So that is, at least in terms of headline, that is deflationary. Is that right?


[00:42:03.030] – Tracy Shuchart

Yeah, absolutely. I mean, we’ve already seen. We’ve seen orsted quit plants, quit wind farm projects in the US off the east coast. You had BP literally just say it’s uninvestable in the United States to invest in wind.


[00:42:20.740] – Tony Nash

Beyond petroleum is saying that it’s uninvestable. Remember when they tried to go as beyond petroleum a decade ago? Or.


[00:42:28.830] – Tracy Shuchart

And so, you know, they’ve divested, and so does Ecuador. Ecuador also divested in wind assets of the know. It’s pulling on their balance sheets, it’s pulling down their numbers. It’s not only just rising interest rates, there’s also supply chain problems. You got to deal with China most of the time for a lot of your resources, and it’s just become a huge problem with them and a big drag on their balance sheets. And it’s just at this point, not profitable to sit in these assets. And we have to understand that these companies are here at the behold and are beholden to shareholders that are looking to them to perform well.


[00:43:16.130] – Tony Nash

They need to get margins somehow.


[00:43:17.320] – Alex Gurevich 



[00:43:17.550] – Tony Nash

So they’re trading down in their feedstock costs. Alex, did you have something to add?


[00:43:22.030] – Alex Gurevich 

Well, I have two thoughts. One of them is like something I’m using. Several years ago, I went to a science fiction convention. Yes. I go to science fiction conventions regularly. And one of the presentation was on the economics of terraforming Mars. And one of the key points of this presentation is. So in order to do terraforming projects, you need zero interest rates to begin with, because terraforming projects are so low that any kind of investment yield on such a long project only makes sense in a zero interest rate environment.


[00:43:56.080] – Alex Gurevich 

So that’s kind of an inter. Like. It’s one of the conclusions was immediately derived.


[00:44:00.780] – Alex Gurevich 

Because on any kind of positive real rates, 3% positive real rates, no. 100 year projects ever made sense. But another thought about energy. I have kind of going back to my AI thesis, if you allow me to stay a little science fiction, because it’s Friday and people want a little entertainment. Think about this. You set a group of people who are hungry, and they’re smart and productive and industrious and kind of scrappy. They’ll find food. They’ll start figuring out, okay, where can we hunt? Where can you plant food? What can I do? Now? AI is hungry, and food that needs is energy. No matter how you slice it, AI will start looking for energy. So now we’re having the rise of the greatest, most efficient, most scrappy intelligence, which will start looking for energy. And in my opinion, all paths lead to fusion. Because in the end, even fossil fuels will not satisfy, like neither wind power nor solar panels nor fossil fuels. They will not satisfy the hunger of AI. They will have to turn to nuclear energy. And if they find that nuclear fission is not enough, they’re going to have to eat fusion.


[00:45:16.490] – Tracy Shuchart

I’m all for it. Just tell me when it comes to fruition. I’m 100% for that. I mean, I love the idea. I just hope that we can discover that in time. But absolutely, I think that’s why we’re also finding a nuclear interest in the west that has been long disregarded, particularly after Chernobyl. And, you know, we’re talking about building out these huge data centers that are going to need power and we just don’t have it.


[00:45:53.520] – Tony Nash

Very interesting. Okay, thanks for that. Let’s move on to geopolitics. Albert, I’m really interested in the impact of this. The US approved new strikes on iranian targets on Thursday in retaliation for deaths of us military members. We’ve got the story on screen. Obviously, its proxy has been provoking the US and Yemen, Iraq, Jordan. So none of this is unexpected. But is it surprising that the response has taken so long and that the deliberation has been so visible? I have to believe that the US has kind of some existing list somewhere priorities, or else why would they have an intelligence service? So why did this take so long albert?


[00:46:37.870] – Albert Marko

Well, it’s taking so long because it’s the Persian Gulf area. I mean, it’s the mean. They can sit there and strike a couple proxies and erase a few of them, but what’s that really going to accomplish, especially if everybody in Congress is talking about Iran being behind it? All right? I mean, you can’t go and attack Iran because oil will be $300 the next morning and they’re not stupid. They know this. They’re keen to the realities of this. They’re taking their time. And honestly, as much as I’m critical of the Biden administration, it’s probably the right thing to do, is to take your time and just be more calculated and understand that there could be a wider conflict that you just don’t really want to get into going into 2024, especially with an oil hovering here at $72. Is it right now? Yeah, $72 right now. We could easily surge it. So it’s probably the correct thing to do. But they do need to have a serious response, and the time is ticking away.


[00:47:42.150] – Tony Nash

And also, refinery utilization is below 90% or whatever this month. Those crude prices will translate to higher gasoline prices really quickly if that crude price spikes up.


[00:47:55.830] – Tony Nash

So what are the next steps, Albert? I mean, we talked a couple of weeks ago, and we thought this will be a few months that the US will be involved in Yemen and kind of in the region. And of course, there may be a longer tail on it, but in terms of, say, kinetic action, it’ll be a few months. Do you still hold that view, or do you think this becomes a much more entrenched regional, say, medium term effort?


[00:48:18.420] – Albert Marko

No, I still hold that view. I think that the Biden administration is going to have to lean on the Chinese to put pressure on the Iranians. I’ve said this before, put pressure on the Iranians and even have the Russians put pressure on the Iranians to settle things down for a while. It’s just too much. The Houthis taking shots at ships, iranian proxies in Iraq killing Americans. It’s just too much. And there’s a lot of trade that has to go and don’t want to see any kind of problems going forward, so they’re going to have to. If I was the Biden administration, I would be on the phone with the Chinese immediately and tell them to lean on them. Lean on the Iranians.


[00:48:58.970] – Tony Nash

Do you think that’s already happened?


[00:49:00.890] – Albert Marko

Oh, yeah, for sure. I mean, they’re not that dumb. They’re not that stupid. I mean, I think we saw that a couple of days ago that they said the Chinese were starting to make calls to their reignings to settle things down. Without question, that would happen already.


[00:49:15.780] – Tony Nash

Yeah. I think the coordination is. It seems to me that the coordination is happening with the National Security Council rather than with state.


[00:49:26.870] – Albert Marko

No, not with state. State’s nothing but a postal service. They’re completely dismissive of State Department.


[00:49:33.750] – Tony Nash

Okay, so with the chinese playing ball, this could be a couple months or something and hopefully it’s over before driving season hits or something like that.


[00:49:44.890] – Alex Gurevich 



[00:49:46.250] – Tony Nash

Okay, let’s also look at Venezuela. I know it’s kind of a minor story, but there’s been some news on the wires this week that the US is ordering business to wind down their transactions in Venezuela because of some election reforms that Maduro won’t do. So how much of an impact does this really have? I mean, the Middle east is a bigger geopolitical issue when it comes to crude prices. Does that have a major impact? Are we taking a lot of crude from Venezuela? Do they have the capacity to export to the US?


[00:50:20.000] – Albert Marko

Not really. I mean, this is more of a Tracy question, but I was talking to some of the oil guys and they told me there’s nine blccs still sitting there in port that have yet to make it to the United States. Right? I mean, we all knew that Maduro was going to go back on his word for this democratic election. I mean, it’s just silly, right? It’s just absolutely silly. And the things that I don’t understand why anyone doesn’t talk about, especially in geopolitical world, is the iranian connection in Venezuela, specifically Kaibo. They’ve been siphoning money and sending it back to the. You. Why don’t you take a look at that and start discussing that problem. But the reality is Chevron has to keep their waivers and their sanction waivers intact and that’ll go forward even though that the deadline in April will come and go. Right. And no more american companies are allowed to contract there. Chevron is going to be excluded from that. They still have their waivers and american refineries will be getting supply from chevron into the refineries there in North America.


[00:51:25.300] – Tony Nash

Okay, so tell us a little bit about Maricibos since nobody’s talking about it.


[00:51:29.610] – Albert Marko

Well, Maricibos, back in the, was it the 90s or mid 90s or. No, late 90s, early 2000s when Chavez came to power, he actually invited all the iranian linked groups that were in the tribal region of Paraguay, Uruguay and Argentina and shifted them up to Venezuela. Well, they took over and started siphoning narcotics, arms, oil trade and so on and so forth and shipping that money back. I mean, if you can go to the streets of Maricabo and you can see all the lebanese and iranian influence on the streets there, it’s plain as day. They even put one of the iranian narco terrorists as vice president of Venezuela about two years ago. He was for like six months. I mean, he’s a well known narco terrorist. So this is nothing new, especially to the intelligence community. Just media doesn’t want to cover it for whatever reason.


[00:52:23.860] – Tony Nash

Right. Wow. Okay. Well, guys, thank you so much. I can’t believe how much we covered today. Thank you so much for your time. Alex, thanks so much for joining us for the first time. We really appreciate it. Appreciate it, guys. Have a great weekend. Have a great week ahead.


[00:52:37.160] – Tony Nash

Thank you.


[00:52:37.910] – Albert Marko

Thank you.


[00:52:39.090] – Alex Gurevich 

Thank you.