Shownotes
Together with Cem Karsan, we take a serious look at how the shifting political landscape and economic pressures are impacting global markets. We discuss the implications of a potential (engineered) recession and what it means for various asset classes, especially in relation to current U.S. policies. With the conversation turning to Europe, we analyze the region's military rearmament and its potential effects on the global balance of power. We also touch on the evolving dynamics regarding Turkey's economic challenges and geopolitical significance. Buckle up for a straightforward discussion filled with insights and practical implications for investors navigating this complex landscape.
-----
50 YEARS OF TREND FOLLOWING BOOK AND BEHIND-THE-SCENES VIDEO FOR ACCREDITED INVESTORS - CLICK HERE
-----
Follow Niels on Twitter, LinkedIn, YouTube or via the TTU website.
IT’s TRUE ? – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written here.
And you can get a free copy of my latest book “Ten Reasons to Add Trend Following to Your Portfolio” here.
Learn more about the Trend Barometer here.
Send your questions to info@toptradersunplugged.com
And please share this episode with a like-minded friend and leave an honest Rating & Review on iTunes or Spotify so more people can discover the podcast.
Follow Cem on Twitter.
Episode TimeStamps:
01:03 - What has caught our attention recently?
05:40 - We are at a populism crossroads
07:09 - Industry performance update
09:02 - The current state and outlook for the global economy
21:03 - The absurdity of lowering yields to maintain a strong dollar
28:47 - The Mar-a-Lago accord - realistic or pure speculation?
35:42 - Are we seeing a new new world order?
42:20 - How the TSMC deal with the US will impact the conflict between Taiwan and China
50:28 - A perfect storm for the Turkish economy
57:20 - The importance of Turkey's position and military power
58:49 - Oil is in a weird spot at the moment
01:03:00 - Could extreme market drops cause policy changes?
Copyright © 2024 – CMC AG – All Rights Reserved
----
PLUS: Whenever you're ready... here are 3 ways I can help you in your investment Journey:
1. eBooks that cover key topics that you need to know about
In my eBooks, I put together some key discoveries and things I have learnt during the more than 3 decades I have worked in the Trend Following industry, which I hope you will find useful. Click Here
2. Daily Trend Barometer and Market Score
One of the things I’m really proud of, is the fact that I have managed to published the Trend Barometer and Market Score each day for more than a decade...as these tools are really good at describing the environment for trend following managers as well as giving insights into the general positioning of a trend following strategy! Click Here
3. Other Resources that can help you
And if you are hungry for more useful resources from the trend following world...check out some precious resources that I have found over the years to be really valuable. Click Here
Transcripts
You're about to join Niels Kaastrup-Larsen on a raw and honest
Speaker:journey into the world of systematic investing and learn about
Speaker:the most dependable and consistent yet often overlooked investment
Speaker:strategy. Welcome to the Systematic Investor Series.
Speaker:Welcome and welcome back to this week's edition of the Systematic
Speaker:Investor series with Cem Karsan and I, Niels Kaastrup-Larsen,
Speaker:with where each week we take the pulse of the global markets through
Speaker:the lens of a rules based investor. Cem, as always, great to
Speaker:be back with you this week. How are you doing? How have you been?
Speaker:Well, I'm in Dallas on the road today, going to see family in
Speaker:Houston. So, back down in Texas and nice warm weather down
Speaker:here. So, it's, you know, getting away from Chicago in early
Speaker:March is not the worst thing. But yeah, speaking at my alma mater
Speaker:at Rice, which will be kind of fun in a kind of full circle moment,
Speaker:which is always good.
Speaker:Very cool, very cool. Good to hear. Great. Well, we got a great
Speaker:lineup of topics that you brought along. So as usual, we'll
Speaker:be tackling them in today's episode.
Butas always, I think maybe
Speaker:at the moment, in a sense, with all the things that goes on
Speaker:in the world, I'm always curious as to kind of what's caught
Speaker:your attention or what's been on your radar the last week or two
Speaker:that's not necessarily related to what we're going to talk about,
Speaker:although it is difficult to separate the world from the topics
Speaker:we cover. But still, is there anything that in particular sort
Speaker:of caught your attention?
Speaker:Yeah, I think really for the last month or so, the kind of move
Speaker:from the crack in the armor of kind of that American exceptionalism.
Speaker:I think we’re starting to see some other markets perform better
Speaker:is a big part of it, which is, you know, in the context of America
Speaker:first is an interesting, reflexive development. One that we
Speaker:actually kind of talked about, by the way.
Notsomething that is
Speaker:a complete surprise to us, but I do find it interesting. I think
Speaker:there's a lot to talk about and unpack about kind of what's happening
Speaker:and why and how we're likely to kind of mean revert from some
Speaker:of these records in the years to come.
Speaker:Yeah, I agree with that. And, and I hope I wrote down to ask you
Speaker:towards the end because now people love to hear your thoughts
Speaker:about what may happen in the near future. But we'll come to that,
Speaker:more about that later. Now, for me, I mean, I completely agree
Speaker:with you. There are a couple of short things that I'd noticed
Speaker:on my side.
Oneis that when you look at what's going on right
Speaker:now and all the various leaders around the world doing their
Speaker:thing, something that maybe not so many people talk about, but
Speaker:it's almost like President Xi is kind of becoming a little bit
Speaker:of the anti-Trump. He's kind of really trying to fight for free
Speaker:trade in an odd way and trying to push lower tariffs on some of
Speaker:their trade partners.
So,I just thought that's an interesting
Speaker:little thing that maybe not too many people are noticing right
Speaker:now. We'll probably come to that later, and feel free afterwards
Speaker:to comment on it.
Theother thing, of course, I noticed, I think
Speaker:it was last night Trump signed some kind of another executive order
Speaker:to establish this crypto reserve in the US. Not a total surprise,
Speaker:but interesting development. I noticed something maybe closer to
Speaker:my side of the table, that Bridgewater, and actually this is
Speaker:not new news, but it's news to me. And that Bridgewater I think,
Speaker:has been working on coming out with their all-weather product in
Speaker:an ETF form with State Street. I thought that's interesting for
Speaker:various reasons.
Andthen finally, and this is maybe a bigger
Speaker:topic which we don't have to discuss today, but I always love
Speaker:to hear your thoughts. It's something that it really settled
Speaker:for me in my own mind on a flight back earlier this week when
Speaker:I was listening to Grant Williams latest episode on his podcast
Speaker:with Ben Hunt. I mean, both of them have been guests on our show
Speaker:and they're very interesting, very thoughtful people. And I think
Speaker:what they hit on the nail is really this thing about that moral
Speaker:is fast disappearing out of this world.
WhatI mean by that is
Speaker:that, and I've talked a little bit about it in the last few weeks,
Speaker:but it's actually something that I've observed for quite a while,
Speaker:and that is that we are now seeing people just do things because
Speaker:they can, not because it's the right thing to do. Which of course
Speaker:ties a lot back to, from a European point of view, at least,
Speaker:what we are seeing happening after the change of administration
Speaker:in the US. You name the Mexican Gulf, the American Gulf,
Speaker:because you can. You want to meddle with Greenland because you
Speaker:can. You probably want to take over the Panama Canal because you
Speaker:can.
Imean,so for me, it's really interesting and it's something
Speaker:that I think has much wider consequences. You've talked a lot
Speaker:about populism over the years. This is Maybe a part of that wave
Speaker:we're seeing now. In any event, it's something that is taking
Speaker:up a lot of my thinking because I think we're very much at
Speaker:the crossroads in many ways.
Speaker:Yeah, I mean, I think, you know, this is all driven by one man.
Speaker:I want to be clear. It is a response to the populism and the
Speaker:‘burn it down’ mentality, and where we are. But I do think it,
Speaker:it is a move that is transactional. You know, we're moving
Speaker:to a world that is transactional. That's essentially
Speaker:what you said.
Andnot that it hasn't always been that, but there's
Speaker:been some semblance of, hey, you know, give up something in the
Speaker:short term to maybe get something better in the long term,
Speaker:and we work together, and maybe one plus one equals three,
Speaker:opposed to trying to get one and a half and get you to a half.
Speaker:And,I just think, yeah, we're in a transactional mode because we
Speaker:have a transactional leader and you can argue whether that's
Speaker:good or bad or not.
Speaker:You know, but in fairness, in a sense, for me, this is actually
Speaker:something that has started way before the last change and maybe
Speaker:even before the last time Trump was in the office, frankly.
Speaker:I mean it has been brewing for a while. It's also this, you know,
Speaker:dramatic decrease in trust in what we are told, even by authorities,
Speaker:all of that.
Soanyways, it's not for today's conversation, but
Speaker:you know, these are the things that I'm thinking about at the moment.
Speaker:I think they're important and I think that they will play a role
Speaker:as we go forward. Before we dive into the topics, let me just
Speaker:quickly give an update from the trend following world, so to
Speaker:speak.
Ithas been a difficult few weeks in trend following land,
Speaker:mainly currencies, US Fixed income, and US equities in particular
Speaker:have been kind of where the challenges have been. But there's
Speaker:also been some interesting currents starting to happen, not
Speaker:least in Europe where the wave of debt that's probably going to
Speaker:be offered to pay for the expansion of their defense over here
Speaker:is certainly having an impact on long term bond yields in Europe.
Speaker:And so interesting evolution right now.
Myown trend barometer
Speaker:finished at 50. That's kind of an improving level in the last few
Speaker:days. Hopefully we'll see that in performance in the next week or
Speaker:so. From a performance perspective, The BTOP50 index is
Speaker:up 46 basis points for the month, up 34 basis points for the
Speaker:year. The SocGen CTA index up 31 basis points for March, we're
Speaker:in March, but down 1.46% so far this year. SocGen Trend index
Speaker:is up 16 basis points, but down almost 3% for the year. And
Speaker:the Short-Term traders index up 1.2% in March, but flat for the
Speaker:year.
Intraditional world, MSCI World is down 1.96% for the
Speaker:month, but up 62 basis points for the year. 20-year Bond index
Speaker:from the S&P in the US is down 1.83% this month, but still up 4%
Speaker:for the year. And the S&P 500 Total Return index down 3.6% as of
Speaker:last night, and down 2.22% so far this year.
Allright, Cem. So,
Speaker:in a sense, I think the first topic you brought along is something
Speaker:I think we can all feel at the moment, but we may feel it and we
Speaker:may think about it a little bit differently because it certainly
Speaker:seems like that the world and the world economy is facing some
Speaker:headwinds at the moment. So, talk to us about the current state
Speaker:of play from your perspective.
Speaker:You know, let's start in the US There, you know, we have a new
Speaker:administration obviously that realizes that the next four years,
Speaker:the setup is very bad for them given that there is a stagflationary
Speaker:setup. Inflation was starting to break out as they came in. Again,
Speaker:the 10-year was breaking higher. There was a significant move
Speaker:coming into January, over the course of a month, month and a half.
Speaker:And,you know, that was forcing monetary policy to not just
Speaker:pause but think about, okay, do we need to go the other way? How
Speaker:are we going to deal with this inflation?
Ontop of that, I had
Speaker:mentioned this separately here, and in other places. But, you
Speaker:know, starting in about three to six months there is the five year
Speaker:anniversary of the low in interest rates and a massive bubble
Speaker:of refinancing and people coming to market, whether it's venture,
Speaker:or private equity, or in bankruptcies, were it’s starting
Speaker:to tick up. So that whole setup, they fully appreciated, was
Speaker:very dangerous. And, you know, this isn't the same administration
Speaker:from 2016 to 2020. You have a big corporate elite involved in it.
Speaker:You have Bessent and some adult leadership on the Treasury
Speaker:side.
Youknow, you have an administration that is really thinking
Speaker:and has had time also to think about where things are going and
Speaker:where things go. And so, Bessent has come out and been very,
Speaker:very vocal, very clear about what they want to do in order to
Speaker:get out of this mess.
Andthat is look, we need to get demand down,
Speaker:we need to get the 10-year under control. That’s the first priority,
Speaker:only priority for them right now. And the way they're going to
Speaker:do that, and again he's been very clear. There are many videos
Speaker:I can source and point to that show the same exact kind of direction.
Speaker:They say, they obfuscate the language a little bit to your average
Speaker:person but it's pretty clear if you listen to it which is we need
Speaker:to take money away from people at the bottom, we need to pull demand,
Speaker:and we need to respond with supply side economics. They're like,
Speaker:well, it worked for Reagan, you know, this is the only way we're
Speaker:going to turn this boat around.
No,I don't think they have
Speaker:as good a demand, an understanding of history and, and
Speaker:kind of the political whims or maybe they think they can control
Speaker:the political whims, and that's up for debate. We could talk
Speaker:about that. But they do know that the only cheat code in the whole
Speaker:system is supply side economics.Why? We've talked about
Speaker:that here. But just to be clear, because if you send money
Speaker:to the top, it's not inflationary, those people don't
Speaker:spend. It's asset inflationary, and asset inflation
Speaker:actually reflexively pushes kind of demand in the whole system
Speaker:as things go up - provides more and more capital to the top
Speaker:and corporations and bigger profits etc. So that's the response.
Speaker:And they've also shown us through the budget, right?
Youcan
Speaker:tell me what you want to do all day long but, you know, show
Speaker:me, right? You know, we have a saying here in the US, I'm from Missouri,
Speaker:which means it's the ‘show me’ state which means like show me don't
Speaker:tell me. This is not a political comment, these are facts.
Speaker:They’re shutting down Snap payments, so, payments of food to
Speaker:the poor. They're cutting housing, poor housing support. They
Speaker:are taking away school lunches from public schools. They are cutting
Speaker:Medicaid. And then they are on top of that cutting government workers,
Speaker:from the system. Those are all taking directly away from demand.
Speaker:Additionally,separate from the budget, they stopped all payments
Speaker:to Ukraine, which are meaningful, significant that were
Speaker:in process. Everything that's been kind of sent, which is actually
Speaker:going to US contractors, right here in the US as well.
So,there's
Speaker:a direct attempt to really cut any fiscal money coming out and particularly
Speaker:to the middle to lower cohorts. And then, you know, what
Speaker:are they doing in terms of stimulus?
Well,they're continuing
Speaker:the massive tax cut for corporations. 90% of those tax cuts
Speaker:go to corporations. They are taking down regulation, so they're
Speaker:cutting the IRS and, and tax oversight. So, that's actually an
Speaker:even bigger tax cut. They are thinning out consumer financial protections.
Speaker:Theyare taking out any regulation tied to, again, the beneficial
Speaker:ownership of companies which was required to be disclosed has
Speaker:been removed. So, there's a full kind of deregulation of corporate
Speaker:oversight as well as stimulus. So now the problem here is twofold.
Speaker:Ifyou do supply side economics and you kind of, go away
Speaker:from sending money to demand instead of to supply, yes, that's
Speaker:a cheat code. It works for, in the long term, getting things going
Speaker:in the right direction for markets, and you can bring down inflation
Speaker:at the same time.
There'sa big problem is, one, that's not what
Speaker:they voted him in for. You know, that's not populist. That's
Speaker:the opposite of populist. And my guess is that people could have
Speaker:the wool pulled over their eyes with social issues and other
Speaker:things for some time, but at some point, you know, this is not
Speaker:a 70/30 Trump world. This is a 50 to 48 Trump world. And, and with
Speaker:time, that, I think, will be a problem and there's precedent for
Speaker:that. We can dive into that in a second.
Butthe other problem,
Speaker:which is more timely and more kind of short term is those two things
Speaker:don't work on the same timeline. The demand removal, you
Speaker:take checks that people were getting away next month, that money
Speaker:just isn't there and it cuts demand dramatically. We've seen GDP
Speaker:expectations for the first quarter in the US go from around
Speaker:3.5% positive to almost 3% negative in like two months.
It'sdramatic.
Speaker:Real estate values in Washington D.C., which is obviously
Speaker:very specific to the DOGE kind of cuts and everything else, are
Speaker:down 20% in a month. 20%, that's a huge move for a major metropolitan
Speaker:center.
Andthat demand cuts very quickly. So, GDP, you know…
Speaker:And they're doing it early. This is on purpose. They're doing
Speaker:it early to, you know, be able to point the finger at the last guy
Speaker:and you know, then take credit for fixing the problem.
Onthe other
Speaker:end, the supply side stuff takes a while. It doesn't happen
Speaker:overnight unless it's QE. QE can hit markets a bit quicker, but
Speaker:particularly to the economy It has a lag. It can get corporations
Speaker:moving, but the, you know, kind of trickle down and whatnot
Speaker:is less severe.
Andso, my guess is that they're hoping the
Speaker:markets go down so they can also do QE and balance this quickly.
Speaker:And they want that sooner rather than later. Actually, Bessent
Speaker:has been quoted, maybe 20 times at this point, as saying 6
Speaker:to 12 months, 6 to 12 months, like our timeline is 6 to 12 months.
Speaker:So,I think they really are looking to manufacture a decline
Speaker:in markets and the economy to force the Fed on board and also,
Speaker:you know, not only stop QT, which I think will stop in March
Speaker:here, but quickly.
AndI think it's probably in three to six months,
Speaker:because he says six to 12 months, that they'll be responding
Speaker:with QE before too long, or at least some version of it. There are
Speaker:a lot of ways to express that, that's not directly QE. So, again,
Speaker:this has been well telegraphed. I'm not like projecting.
Speaker:There are plenty of things pointing in that direction. But again,
Speaker:the problem is twofold.
One,there's a timing issue, and
Speaker:markets themselves reflexively take out liquidity from the system,
Speaker:and you have to respond with a lot of QE to move things. And you
Speaker:know, is the Fed willing to turn that quickly and to be that
Speaker:aggressive?
Howdeep is a recession, and how deep a market
Speaker:decline do you need for that? It could be dramatic, could be significant
Speaker:before that comes on. And you're dealing with this, as I mentioned
Speaker:before, at the top of the show, that with a big liquidity overhang
Speaker:that already exists, the world needs to come back in.
Andwhether
Speaker:it's IPOs or venture capital, private equity, or commercial real
Speaker:estate, there's a massive refinancing reinvestment cycle where
Speaker:liquidity is kind of coming off the table. And that's happening
Speaker:right at the same time. And that's actually starting, not right
Speaker:now, it's starting in about three to six months.
So,are you
Speaker:going to be able to counteract all of that overhang of liquidity?
Speaker:It's a good plan if it works, but can you control it? And then,
Speaker:lastly, what about all the other effects that we're not talking
Speaker:about, like the dollar?
Whatif the dollar doesn't cooperate?
Speaker:And they're starting to talk more about the dollar, by the way,
Speaker:just this last couple days. They want a strong dollar all of
Speaker:a sudden. They're being very vocal about that.
Theyknow that
Speaker:the Achilles heel of this whole strategy is if the dollar sells
Speaker:off, they're not going to be able to control the inflation. It's
Speaker:going to be a real headwind, a major way. And austerity plus QE
Speaker:plus… tends to correlate with a weaker currency.
So,obviously,
Speaker:in the US, you could argue, a reserve currency, maybe not. But
Speaker:there's plenty of a cases out there. If we, if the US, starts to
Speaker:go into massive kind of free fall economics, GDP wise, and the
Speaker:rest of the world is kind of hanging in, and we're responding
Speaker:with QE and lower interest rates, that's not good for the dollar.
Speaker:Everything points to the dollar kind of coming down if that's
Speaker:the case.
Yet,they're sitting in there starting to say we want
Speaker:a strong dollar. Well, I mean, okay, maybe you can manipulate the
Speaker:markets and try and hold them and who knows. There are plenty of
Speaker:levers of power, but sometimes the markets are bigger than you can
Speaker:manage.
Ifthe Fed and the government could always handle the
Speaker:volatility in markets we would never have any. And we know that's
Speaker:not true. So, color me skeptical. What’s clear is the first
Speaker:step, which is moving demand out of the system and that moves
Speaker:very quickly. And GDP is, you know, we're heading into something
Speaker:that looks like a recession very, very quickly.
Speaker:But isn't it a little bit counterintuitive? You think you can
Speaker:lower yields and maintain a strong dollar.
Speaker:Correct, that's what I'm saying. Yeah, I'm saying the same
Speaker:exact thing.
Speaker:Yes, I mean, but it sounds crazy. You have these smart guys
Speaker:coming out with that objective.
Speaker:The reality is markets are relatively efficient and you can
Speaker:try and manipulate, and try and do X, Y, and Z, but market adjustments
Speaker:on the other side, unless you run a kind of a closed system where
Speaker:you can control everything like China, you know, it's very hard
Speaker:to control the rebalancing that then takes away the benefit
Speaker:of what you're doing. That's just how markets work. And so, yeah,
Speaker:it's going to be harder than they think, in my opinion.
Andyou
Speaker:know, there's, like I said, historic precedents for this. Nixon,
Speaker:and we've talked to Trump as Nixon as an analogy, maybe beat it
Speaker:to death at this point. But I do think it's incredibly relevant.
Speaker:We keep seeing the same dang things. And what did Nixon try and
Speaker:do when he came in in 1969? What were his policies?
Bythe way,
Speaker:the real push, inflation started during Nixon. It had started
Speaker:before, but it was really kind of coming down. And then it really
Speaker:took off during Nixon's administration.
Andwhy did it start
Speaker:during Nixon's administration? It's weird because think about it,
Speaker:Nixon came in as a Republican. He said, look, this inflation's a
Speaker:problem. I need to do supply side economics. What did he do? He
Speaker:opened up China. He did Bretton Woods, which is the original
Speaker:QE, allowed the US to readjust their payments.
Andthen on top of
Speaker:that, he brought in Arthur Burns, and started doing heavy kind
Speaker:of monetary policy. You can argue he definitely didn't try and
Speaker:cut demand as much as this administration is. He tried to keep
Speaker:that demand going while still stimulating on the other side - the
Speaker:monetary policy side. But he really did that in the face of a
Speaker:recession that was already happening. So, he didn't have to
Speaker:slow demand. Demand was already slowing on its own. You know,
Speaker:we had a recession in ’69, ‘70.
So,you know, we saw this and,
Speaker:and how did it work out? Well, it ended in price controls, and Watergate.
Speaker:And the angry mobs only got angrier as we went into the early
Speaker:‘70s. I think it's important to politically not lose sight of
Speaker:the things that we know. Politically, every four years we
Speaker:have a dramatic increase and it's an increasing rate of increasing
Speaker:of baby boomers die and millennials increasingly becoming
Speaker:the dominant political force.
Trump'saverage voting age, the average
Speaker:supporter is 52 years old, 53 years old. That's because he has
Speaker:a lot of older voters, a lot more. And, you know, he came to power
Speaker:with a ‘burn it down’ kind of mandate, and he's burning it down
Speaker:all right, but is he burning it down in the way… Do people understand
Speaker:what burn it down means?
Idon'tthink so. I think they're just
Speaker:angry. And you know, that anger, that emotion is leading to
Speaker:a window to dismantle a lot of the services that actually go to
Speaker:those people. And if you respond to a populist rhetoric with
Speaker:the opposite of populism, which is, you know, supply side economics,
Speaker:that's the thing that caused all the anger in the first place.
Speaker:And so, you're not solving the problem. It's only going to make
Speaker:people more angry.
Andpolitically, you know, the odds
Speaker:aren't, in any administrations, whether it was Trump
Speaker:or somebody else, the odds aren't in the favor of making people
Speaker:happy regardless. You know, there was actually populist progress
Speaker:despite a lot of the dysfunction of the last four years.
Speaker:People were still unhappy because of the inflation. So, this
Speaker:has got to play out over a period of 10 to 15 years, this kind
Speaker:of populist thing that we've talked about.
Andyou can divert
Speaker:the path, you can try and fix the rock in a hard place that puts
Speaker:the administrations in. But the more you do that, the more you're
Speaker:going against the political will and making people angrier.
So,I
Speaker:think that's a problem. I think, you know, there's one of two
Speaker:paths, to talk short term path, because I know people always
Speaker:want to think about that, like what does that mean for the next
Speaker:year? I mean, I think they both lead to the same place.
Butone
Speaker:is, you know, the 10-year continues to come down as GDP responds
Speaker:even worse than expected here in the US, you know, and then QE
Speaker:isn't big enough. You don't have enough of a response. And so,
Speaker:markets kind of fade because of just a deeper recession than people
Speaker:expect, coming quicker than people expect.
Butthere's another
Speaker:one which is, okay, they get the markets down, they get the economy
Speaker:down, and in a couple of months when we're officially in recession,
Speaker:QE or monetary policy responds aggressively, and aggressively enough
Speaker:to really juice markets. But then, right as that happens, you're
Speaker:getting this big refinancing period where there was a ton of demand
Speaker:for debt, and the 10-year then goes back above 5 relatively quickly.
Speaker:I think that's the one thing nobody thinks is possible right now.
Speaker:I think that's a higher probability than people expect right
Speaker:now.
Verycounterintuitive into a potential recession. But I
Speaker:think again, it's a supply and demand story. And if that were to
Speaker:happen with a recession and the QE response, I mean that's really
Speaker:bad, that's even worse for markets.
Soyeah, you get a rally
Speaker:back and a knee jerk and you know, everybody's oh, maybe things
Speaker:are not so bad and then it gets worse because you know, the
Speaker:ten-year kind of brings things down.
So,I think those kind of both
Speaker:lead to a bad place. Again, our view has been pretty clear that,
Speaker:you know, we think that a bigger decline is coming. I'm not
Speaker:saying that this is it, here. I think this is kind of that warning
Speaker:shot and we again, we time this to the almost the day Feb Opex
Speaker:was the start. Not a coincidence everybody points to but
Speaker:the window had opened. All the mix of a combination of things that,
Speaker:you know, this macro stuff I was talking about was all on the
Speaker:horizon. We could see it coming but the timing is very important.
Speaker:So,I think yeah, Feb, March here has been the window for some
Speaker:pullback, some initial kind of vol expansion, a bit of a, again,
Speaker:warning shot which we often see before a bigger move, months
Speaker:before a bigger move. Whether it's ‘99, you know, or you go into
Speaker:‘07, you have similar things like that.
I'mnot saying that, you
Speaker:know, these are the same, it's a different kind of move, but I do
Speaker:think a bigger one is coming and I think it's coming in this year
Speaker:or sometime in the next, call it 12 to 18 months, I think. And
Speaker:we're not talking about garden variety 10%, 20%. I'm talking about
Speaker:something bigger.
Speaker:Yeah, so we'll definitely come to that. I want to flush out a little
Speaker:bit more about this. I mean, you know this much better than I
Speaker:do. You follow it probably also much closer. But, in what you're
Speaker:saying is yeah, they can kind of engineer, or they'd like to engineer
Speaker:some kind of recession. Okay, that's fine. Ten-year yields can
Speaker:come down like that.
Partof it is, also, I imagine that they
Speaker:probably realize that they need to get the current account deficit
Speaker:down, save some money. But there's another way of saving money
Speaker:and I think it's been talked about as the Mar-A-Lago Accord, something
Speaker:to replace the Bretton Woods Accord, meaning forcing your, I don't
Speaker:know if allied, former allied (whatever we define them as) to basically
Speaker:buy 100-year bonds and get zero interest on that debt. So essentially,
Speaker:in this case, the US would save a hell of a lot of money in
Speaker:financing the deficit. Is that something you pay attention to? Do
Speaker:you think it's realistic or is this just kind of the rumor mill
Speaker:and saying, oh, yeah, they can get away with something like that?
Speaker:Yeah.
Speaker:I mean, I know it's pure speculation.
Speaker:You're the third person who's asked me about this in 24 hours,
Speaker:which I think is very interesting. It's always interesting
Speaker:when that happens. Yeah, I think it's a lot of… First of all,
Speaker:do you think Europe's going to do it?
Speaker:At this moment in time? I'm not so sure. Had you asked me a month
Speaker:ago, maybe.
Speaker:Yeah. Not too politically popular. You know, it's a bad look
Speaker:for everybody. And at some point, you know, everybody, all the
Speaker:“allies”, like you said (I used air quotes) will get together
Speaker:and just say, hell no, we won't do it. And the US can't do
Speaker:it fully alone as much as it likes to think it can.
Atsome point,
Speaker:the rest of the world combined is bigger than the US. Like, it's
Speaker:that simple. And I think it's super naive to think that you can
Speaker:bully everybody into doing whatever you want. You can't.
Atsome
Speaker:point the rest of the world will get together and just say no,
Speaker:and you know, start pulling you back. So, yeah, I mean, again,
Speaker:I think that's highly unlikely. I think it's speculation.
Speaker:Now, I do think, you know, where there's smoke, there's fire.
Speaker:I think things like that are on the table.
WhenI say things like
Speaker:that, what am I talking about? I think we are heading towards a
Speaker:likely (for lack of a better term) debt jubilee. That sounds really
Speaker:dramatic. But what does that probably look like in practice?
Speaker:Ithinkit looks like what Japan did, or something along those lines.
Speaker:And it's not overnight. Jubilee makes it sound like it's
Speaker:instantaneous event. I think it's a slow rolling train wreck.
Speaker:I think, you know, we're going to monetize our debt in some form
Speaker:or another. There's only one way out. And with the exorbitant
Speaker:privilege of the US dollar, or at least while we still have it,
Speaker:you can do that. And if Japan could do it, I'm guessing the US
Speaker:can do it. But understand, Japan did that and was able to do
Speaker:that with the backing of the United States. And I thought it was
Speaker:really when…
Speaker:When you say they did that, I want to understand exactly what you
Speaker:mean because from my understanding is that they haven't
Speaker:done it technically. They're just… It's just a BOJ buying all
Speaker:the debt.
Speaker:What's the difference?
Speaker:Well, it's not canceled. Do you know what I mean? They could
Speaker:probably cancel it out, I imagine. Of course with a piece of
Speaker:paper.
Speaker:Yeah, of course they could. They could hit a button on a computer,
Speaker:and it would be gone tomorrow.
Speaker:Yeah.
Speaker:And it would have zero effect. It'd be just like from one or the
Speaker:other.
Speaker:Sure.
Speaker:That's why that 250%, whatever it is, GDP…
Speaker:In their case it doesn’t really matter.
Speaker:It's irrelevant. And honestly, it doesn't mean that much in the
Speaker:US. We have, I think it's 27% of US debt is external of which,
Speaker:by the way, Japan I think has 8%. So, you know, and again, going
Speaker:to Japan early, and those conversations, and then coming back
Speaker:and saying things like, turns out we don't have as much debt as
Speaker:we thought. You know, I don't think that's a coincidence either.
Speaker:Ithink,I think the roadmap is Japan's going to play a much bigger
Speaker:role in this whole debt jubilee than people realize, first
Speaker:of all. There's going to be some cancellation of external debt
Speaker:from Japan. You can bet your life on that. The Japanese central
Speaker:bank will be involved in doing whatever it needs to do along the
Speaker:way. And again, I think we'll cancel the other 73% of internal
Speaker:debt in some form or another.
Again,it's not this simple. Again,
Speaker:people are going to at me and kind of be like, come on, you can't
Speaker:do this. Blah, blah, blah. Technical, this really talking like
Speaker:big picture. Like, there are ways, and in a world where, you know,
Speaker:in a Trump transactional world where you don't really care about
Speaker:orthodoxy, you're going to do whatever, they'll do it. They'll
Speaker:find a way. Just like Nixon, by the way, found a way. like Bretton
Speaker:Woods would never have been… You know, everybody would have thought
Speaker:that was insanity to just unpin us from gold. But they did
Speaker:it.
Speaker:Yeah. And I think actually that you're right in saying that.
Speaker:I think the last few years have shown us that, you know, the
Speaker:unimaginable can happen, right? I mean, we have to be really
Speaker:careful about putting limits our own imagination. That's for sure.
Speaker:Yeah. And honestly, Niels, it's, it's logical. Like, it's all
Speaker:incentives. The whole thing is incentives all the way down. And
Speaker:if you're the US, and you have this kind of debt that's been built
Speaker:up, and interest rates are going up, the payments to the budget
Speaker:are XYZ and you are in an America first world, right?
Speaker:Yeah.
Speaker:Your objective is to get rid of those debts and to take care of
Speaker:it by, you know, pushing and calling in favors and using your
Speaker:muscle and your central bank to do it. And so, they're going to
Speaker:do it. Just talk about how - get to the details.
Speaker:Revalue the price of gold, the book value of your gold.
Speaker:I've heard that argument too. I just think that gold's not as relevant
Speaker:as it used to be in that context. If gold was really relevant…
Speaker:No, no, but it might help on the accounts, of course.
Speaker:Sure, sure, you can do that.
Speaker:Okay, well, I mean, I know we've got other topics to go through,
Speaker:but I actually want to maybe, stay on this but move across the
Speaker:Atlantic, because the other things we're going to talk about
Speaker:are maybe not so much focused on sort of the economy, and so on,
Speaker:and so forth. And, obviously, you have roots in Europe, as do I.
Speaker:And I think we are really also at a crossroads over here.
Andso,
Speaker:from your perspective, sitting where you do, keeping an eye on the
Speaker:things, in the last few days we've heard some incredibe announcements
Speaker:being made in this rearming of Europe and the cost associated with
Speaker:that, and everything that comes with it. Really a lot of us,
Speaker:in a sense, we focus on the military side. But there's a lot
Speaker:of other things that come with a change like this.
I'veseen some
Speaker:people say that this is for Germany alone, it's a potential expansion
Speaker:of 10% to 20% of GDP. I mean, this is not small change.
I'djust
Speaker:love to hear your thoughts, if you have some, in terms of what you
Speaker:think this change might lead to from a European perspective and
Speaker:maybe the role Europe could play. I mean, we talk a lot about
Speaker:a new world order.
Imean,are we seeing a new, new world order?
Speaker:And could this be the beginning of a different power balance
Speaker:if Europe succeeds with this? If they fail, okay, not good. But
Speaker:hey, they might pull it off. Who knows? So, I'm just curious about
Speaker:this because we often talk just about the US but I know you
Speaker:have good views on more than that.
Speaker:Look, Europe has… There’s one thing I think Trump has gotten right.
Speaker:Europe, I think, by all measures, and it's not just Europe,
Speaker:there are other entities outside of Europe, but Europe is
Speaker:kind of historically our greatest ally. And, you know, our
Speaker:close relationship has depended on the US way too much.
Speaker:It's made it complacent.
Speaker:Yeah.
Speaker:It's made it unwilling to make the hard decisions because it wasn't
Speaker:under pressure to do that. These are hard decisions. Like you
Speaker:said, 20% of GDP like, that's hard. But resilience and strength,
Speaker:more broadly, comes out of leadership. It comes out of making
Speaker:the hard decisions. It comes from having a meaningful seat at
Speaker:the table because you are doing what you need to do.
Andso,
Speaker:I think this is a wakeup call to Europe, and I think it's a good
Speaker:one. Not as an American, but as also a European. I think it's
Speaker:a good one.
Speaker:Yeah.
Speaker:I think America needs strong allies. Not ‘me too’, allies. And
Speaker:not just America, the world needs that if you believe in kind
Speaker:of Western democracy and individual freedoms. And so, yes,
Speaker:I think Europe, which is right there at the scene of where things
Speaker:are actually happening, probably needs to have a bigger military
Speaker:and probably needs to be able to take care of themselves. And I
Speaker:think building that resilience, in the long run, is probably
Speaker:a good thing for America as well.
So,I think the same is true
Speaker:in Japan, and the same is true in other places in the world. And
Speaker:I think those conversations are also happening, which I think
Speaker:is important, especially given what we see in the world broadly
Speaker:and how dangerous the world probably is for the next 20 years.
Speaker:So, that's just the military part.
ButI think, from an international
Speaker:law, from a global leadership perspective, from a business perspective,
Speaker:Europe also needs to take leadership. If it doesn't, by the
Speaker:way, it really is a big global question between freedom and authoritarianism
Speaker:in this world. I really believe that. And I think if it doesn't,
Speaker:I do think there's a risk of a bigger problem beyond 20 years.
And,you
Speaker:know, Europe, which of all places kind of is the seat of liberalism
Speaker:and democratic values in this day and age, needs to take responsibility.
Speaker:And, hopefully, this starts at least having making those hard conversations
Speaker:happen. So, I think it's a good thing for Europe too.
Inthe
Speaker:short term it feels painful. But, it will get, I think, Europe
Speaker:more likely out of the mud, and making kind of the harder decisions,
Speaker:and being more strategic. We'll see. On the short term, obviously,
Speaker:change is good in Europe. Things have been kind of dragging
Speaker:along the bottom in a lot of ways. And so, I think this is probably
Speaker:a good thing. And, probably again, crisis brings people together.
Speaker:We've talked about this again and again, like you kind of need
Speaker:crisis to get things moving in a good direction eventually.
Speaker:Yeah. I don't disagree with the fact that Europe needs to be
Speaker:able to fend for itself much more, and the reliance on the US
Speaker:has been way too big. I guess I wish for two things.
One,that
Speaker:the European politicians, although this was obviously (for
Speaker:those who may not be aware of it, I hope I recited correctly),
Speaker:it is kind of part of the agreement between the US and Europe
Speaker:that the US would do one thing, namely the protection part,
Speaker:and we would do other things.
Unfortunately,Europe should have
Speaker:realized decades ago that you can't just leave everything for the
Speaker:US to do and you have to, you know, do your own stuff as well,
Speaker:in that sense. So anyways, that's that.
ButI agree with you.
Speaker:I mean, this could be a good wake up call, but it'll be painful
Speaker:and, of course, the circumstances and the way it's being
Speaker:done is probably something that I…
Speaker:That we can agree with. It could have been handled better.
Speaker:It could have been handled a little bit differently, yeah, for
Speaker:sure.
Allright, okay. So now we move to more sort of different
Speaker:type of topics that you wanted to talk a little bit about. What's
Speaker:really interesting, the one thing I really thought about last
Speaker:week when I saw the president of TSMC or whatever they're called,
Speaker:the chip maker in Taiwan, standing in the White house, signing
Speaker:another $100 billion investment in addition to the $65
Speaker:billion, I think he said, they had already invested in the US. Now
Speaker:we're going to be producing all these chips. Now, of course,
Speaker:it's a super smart thing for the US and for Trump to be able to
Speaker:force them to, or maybe I should say invite them to do this.
Speaker:But,the first thing I thought about was, okay, this will maybe
Speaker:also change the appetite from the US to come in and defend Taiwan
Speaker:should something happen. Anyways, you have something about
Speaker:China and Taiwan you wanted to talk about.
Speaker:Yeah, look, we haven't talked about this for a while. And actually,
Speaker:when nobody's talking about, it's actually the right probably
Speaker:time to talk about it. But you know, I just want to raise the specter
Speaker:of, if China still wants to move eventually. They’ve, I get it,
Speaker:vocally said this for some time. This is not just that that
Speaker:Taiwan is a part of China and will eventually be fully integrated
Speaker:into China one way or another. That's the view.
Andso, if we believe
Speaker:that and the question is, well, when? Can you tell me, if you're
Speaker:sitting in Xi's seat, like just in terms of incentives, when
Speaker:would make sense?
Imean,if you're talking about, well, you know,
Speaker:last year, right, we talked about, or last two, three years,
Speaker:we said, well, they're definitely not moving until they
Speaker:know the results of this election. We were very vocal about
Speaker:that. You have a new president.
Andagain, similar to
Speaker:what we said in December, I said look, there's a likely coming
Speaker:“détente,” and like a softening of rhetoric with China
Speaker:tied to the Russian kind of also relationship. That's part of
Speaker:why we kind of gave the big green light on Chinese equities.
Speaker:One of the reasons.
Butthat also means that… And, by the way,
Speaker:Trump said this in July last year. It's actually part of what
Speaker:caused a little bit of volatility to start, and then had
Speaker:that August dip, was China very vocally said, well, Taiwan,
Speaker:if you want help from us, you better pay for it.
AndI think Trump
Speaker:has totally telegraphed that he's not doing anything in Taiwan.
Speaker:He's not even sending military support because he's just removed
Speaker:military support from Ukraine. If he's not sending military support
Speaker:to Ukraine, do you think he's sending it to Taiwan?
So,all right,
Speaker:if you single all this, and you're pretty clear and open about
Speaker:this, what is the deterrent to China? Is Europe going to go defend
Speaker:Taiwan? Who is going to defend Taiwan? No one. The Taiwanese. Good
Speaker:luck.
So,it doesn't mean it has to be a military incursion. I
Speaker:don't want to like… It may make sense. You know, it very well
Speaker:could be an embargo. It could be other kinds of pressure that eventually
Speaker:end in that.
Butif you think, it's eerily quiet over there, given
Speaker:the incentives, isn't it? And my guess, some people might think
Speaker:this is conspiracy, is that Russia wants this deal in Ukraine
Speaker:done, finished, cleaned up. There's a timeline for that to happen.
Speaker:It's happening. And then I would expect the next order of business
Speaker:to begin.
Soput on your radar, you know, if you're not thinking
Speaker:about it, you know, now you probably should be. This is the time
Speaker:to be thinking about that. And I honestly think that could be this
Speaker:Q4 of this year.
There'sa lot of kind of talk about… By the way,
Speaker:if the US goes in a recession, the US government saying 6 to 12
Speaker:months and the markets are swooning, and the end of the year,
Speaker:and the US is kind of dealing with its own mess., it kind of sounds
Speaker:like a perfect time to kind of do whatever you need to do to take
Speaker:advantage of that big strategy.
Speaker:Let's just pause with that a little bit because you say, put it
Speaker:on your radar. Okay, but what are investors to do? Are they just
Speaker:going to take any investments out of that region or what are you
Speaker:thinking when you say that?
Speaker:There’s any number of trades there and we could go…
Speaker:Well not specifically in a sense because obviously we don't
Speaker:want to give people investment advice and all of that stuff. But
Speaker:just generally speaking, I mean are you thinking of this as
Speaker:a kind of a strategic tilt to a certain part of the world, or out
Speaker:of a part of the world, or what do you, what would you expect?
Speaker:Maybe we should frame it like that.
Ifindthat very difficult
Speaker:nowadays to actually, even if you know what the event is, it's
Speaker:sometimes very surprising in terms of how the markets react. I
Speaker:mean, I think a lot of people maybe were a little bit surprised
Speaker:and as soon as the Fed cuts of yields on the ten-year went sky high.
Speaker:Imeannot exactly what we talked about it maybe. I know but
Speaker:I think you're very…
Speaker:We talked about it, we were very vocal about when they do that,
Speaker:the ten-years going higher.
Speaker:Sure, but still, these are not kind of…
Speaker:Sure, but still, these are not kind of …
Speaker:Yeah, yeah, intuitive.
Speaker:Yeah, fair, well, here's a small one again. This is just something
Speaker:that's in the back of my mind, but how this information helps and
Speaker:how you should be thinking about these things. You know, by
Speaker:the way, I think it was on this show that called almost an exact
Speaker:top on Nvidia when it happened, in real time. You know,
Speaker:kind of on the top but is very much been pressing and we called
Speaker:that as it was, you know, really…
Speaker:This was related to Taiwan, right? This was when they came out
Speaker:and said, if you want protection, you need to pay for it.
Speaker:That was how and when you framed it back then.
Speaker:Still relevant.
Speaker:Yes.
Speaker:And so, when people look at this Nvidia movement and they're
Speaker:like, this is crazy. Look at the growth we're seeing in Nvidia.
Speaker:This is a value stock now.
Youknow, first of all, everyone's
Speaker:bullish and it seems like it's an obvious buy, yet it keeps going
Speaker:down. Maybe you should be careful. Maybe there's something
Speaker:that you're not thinking about.
So,one, I think Nvidia is
Speaker:tied to all the AI stuff. If the market goes down, that liquidity
Speaker:will be a problem to Nvidia. The spend, which has been dramatic
Speaker:there, will get pulled back very quickly. I think that's part
Speaker:of, you know, the move.
So,expectations of growth, which
Speaker:are at X, just like they dramatically increase, could dramatically
Speaker:decrease. But I think the other big one is, you know, there's
Speaker:another shoe to fall. There's another thing sitting out there which,
Speaker:you know, imagine a scenario where, you know, Nvidia is swooning
Speaker:still. It continues to swoon as the market does, as the leadership
Speaker:people start, you know, getting forced.
Theybuy it here,
Speaker:and then are forced to liquidate even lower. And the market's
Speaker:swooning. And then all of a sudden, imagine something happens
Speaker:in Taiwan. Well, where's the last place you want to be?
Imean,that
Speaker:might be the buy the dip event. But it's going to be a big
Speaker:dip. If that's the case. You know, maybe you need to be more careful
Speaker:with that Nvidia trade.
Yeah.That's one example of how to
Speaker:be mindful and thoughtful of maybe risk you're not thinking about.
Speaker:Yeah, no, fair enough, fair enough. All right. Then you brought
Speaker:something in your notes that is kind of close to your own roots
Speaker:because you talk about Turkish debt.
Speaker:Yeah, I don’t talk about Turkey very often, right?
Speaker:No, exactly.
Speaker:Partially because it's, you know, it's an emerging, it's a bit
Speaker:kind of smaller player in the grand scheme of things. But, just
Speaker:to give people a little insight into something they probably
Speaker:don't know much about, you know, Erdogan is up for an election
Speaker:in about three years, two and a half years. And it's for the first
Speaker:time in really like 20 years. There have been like, minor, okay,
Speaker:is he going to get reelected, blah, blah, blah. But, like, he's
Speaker:amidst a two year economic crisis. Inflation has been completely
Speaker:out of control.
Imeanwe talk about inflation in the US and Europe,
Speaker:you know, we're talking about 80%, 100% inflation which, by the
Speaker:way, wasn't the case. It wasn't standard in Turkey for quite
Speaker:some time. Inflation had been very stable, and he's managed it,
Speaker:and he's done a lot of things throughout that two year period,
Speaker:or two and a half year period, because he's been able to manage
Speaker:it, actually, honestly, shockingly well given what's going
Speaker:on. It's because of not just a strong political base but importantly
Speaker:a lot of support from Russia.
Russiawas sending oil and gas to
Speaker:Turkey for free, basically, not only at reduced cost but not
Speaker:asking for payment. And so, there's a massive debt there. You
Speaker:talk about transactional, Putin's no dummy. He knows that he
Speaker:doesn't have to charge now. He's building up a debt that will
Speaker:come due. And more than in financial ways. The question is when
Speaker:do you call that debt and you use that debt as a bludgeon when
Speaker:it suits you just right. And so Erdogan is going to be coming
Speaker:under increasing pressure here.
Hiscentral bank has done something
Speaker:that they haven't done in a while which is dramatically increase
Speaker:interest rates in the last year. You know, hurting, yes, it
Speaker:is having effect on inflation. Interest rates are 40%. He doesn't
Speaker:like it. That's not what he does. The way he's built his economy
Speaker:is essentially running really loose monetary policy in the face
Speaker:of all these things. That's why we have inflation.
So,the question
Speaker:is, you know, is he going to be able to continue to keep rates
Speaker:that high? As things get worse here, you know, is he going to be
Speaker:able to manage it? And again, he's managing it with external help
Speaker:because he's valuable to both sides and he's been playing both
Speaker:sides.
Butinterestingly, and this is, I think the important takeaway
Speaker:is, what if, now, Russia and the west are not at war? What if
Speaker:we're now friends, right? What if Russia doesn't need Turkey as
Speaker:much and the West doesn't need Turkey as much?
So,all of a sudden
Speaker:who loses power in that situation? It's the swing players.
Speaker:Same applies to India as it relates to China, by the way, there's
Speaker:truly going to be some detent. So, it's not a surprise that Indian
Speaker:markets have not been doing well. I think India is also in bad
Speaker:shape in this environment given the run and excitement there's
Speaker:been around it too.
ButI actually think Turkey can really
Speaker:be hurt in that environment. And, unlike India, which, its economy
Speaker:has been doing great and things are, you know… Turkey's economy
Speaker:was already in the gutter and everyone's coming up for reelection.
Speaker:So, it's a particular kind of perfect storm in Turkey.
Now,there's
Speaker:also this element of Syria and not many people talk about what happened
Speaker:in Syria. We kind of skipped over that pretty quickly. But I have
Speaker:a theory in Syria, again, some people will disagree with this. There's
Speaker:no way to know for sure. But I have a theory that the Biden administration,
Speaker:who essentially removed military support, pulled away from
Speaker:holding back ISIS and kind of those forces who, by the way, for
Speaker:a decade plus had been held back consistently, no problems, to
Speaker:the point that all of a sudden, shockingly, they just, you
Speaker:know, made their way all the way to Damascus and took over the
Speaker:administration.
IthinkRussia was also busy at the time, in Ukraine
Speaker:and other places. So, there's an opportunity, but the US clearly
Speaker:let that happen in my mind. It doesn't happen that quickly after
Speaker:all that time. And those forces were backed by Turkey. Like,
Speaker:they're a Turkish vassal group, basically funded by the Turkish.
Speaker:That's pretty open. That's not like a unknown thing.
Whywould Biden,
Speaker:all of a sudden, do that at the end of his term? To me it's pretty
Speaker:clear. You see a Trump administration who's friendly with
Speaker:Russia coming in, right. And you know that the US and Russia are
Speaker:going to make good and that probably means Syria goes to Russia.
Speaker:Pretty clear. So, what do you do?
Well,you take the old NATO counterweight
Speaker:of Turkey and you try and give them Syria to help be a counterweight
Speaker:to Russia in the next administration. I think that's what
Speaker:happened. I don't know that. There's no way to prove that. It
Speaker:makes complete logical sense.
Ifyou just walk through the progression,
Speaker:it's seems like a no brainer. You, you know, and Syria is an important
Speaker:counterweight in the region for lots of reason reasons in the
Speaker:Middle East. And you’d rather have a strong Turkey. At least Biden
Speaker:would have, right, to counterweight Russia. And so, Turkey
Speaker:of course, saw this as wow, this is a huge opportunity for us.
Speaker:Erdogan is very, you know… But now, it puts him in direct opposition
Speaker:With Russia as well. At a time when he already has problems. So,
Speaker:he got stuck in a bad position.
So,I think Syria and the
Speaker:fate of Syria could also hang (this is more of a political than
Speaker:economic thing) in the balance, and become a chip as part
Speaker:of this Russia. US pressure. Russia is going to also want to lean
Speaker:all over Turkey. Sorry, Russia/Turkey. Russia is going to
Speaker:want to lean all over Turkey for that as well.
So,I think Erdogan
Speaker:is in a tough spot and I'll call it now. I think there's a decent
Speaker:chance of a currency crisis in Turkey, which is the odds of that
Speaker:are increasing globally with a lot of the things going on. We've
Speaker:talked about that with David George. I think Turkey is a particularly
Speaker:dangerous spot there in the Middle East.
Speaker:Last question on Turkey. Just for my own knowledge here. Is Turkey
Speaker:more important to Europe today, given the fact that it has,
Speaker:I think, the second largest military in NATO and given the “scratches”
Speaker:that we see in the alliance, so to speak, between the Europeans
Speaker:and the US? Is Turkey more important now because of that?
Speaker:It's always been important. But yes, yes, when Europe is, you
Speaker:know… It’s that Turkey is in such a strategic position in the
Speaker:world. It's a big, relatively big population. It's almost 100 million
Speaker:people. And, yeah, I think it's always been a very strategic,
Speaker:important ally, particularly for Europe, given a counterweight
Speaker:to Russia. That's why it was brought into NATO. And yeah, if the
Speaker:US is not going to support as much, that would be very strategic
Speaker:for Europe to try and shore up. And maybe that's where the help
Speaker:for Erdogan comes from, you know, counterintuitively.
Asmuch
Speaker:as he's really tried to push Europe away and appeal to other countries
Speaker:and other things. So, TBD. But something to watch and an important
Speaker:kind of linchpin in the whole kind of global strategic geopolitical
Speaker:landscape.
Speaker:Let's tackle two small things before, and I say “small” in air
Speaker:quotes before we wrap up today. We've talked a lot about a
Speaker:few different things. But you also wanted to talk a little bit
Speaker:about oil.
Imean,oil, surprisingly, we've seen all this
Speaker:tension in the Middle East, and, well, globally, really. We had
Speaker:Adam on, I think, last week I spoke to him.
Interestingly,unlike
Speaker:gold, that has had some pretty good days and a good period, oil
Speaker:has been pretty subdued in terms of volatility.
Speaker:Yeah. Well, we've been saying for how many years now, three years,
Speaker:the trade… And we actually said this, by the way, I don't know
Speaker:if you remember, when oil vol was high because it had just rallied
Speaker:big and then come off big, and gold was in the gutter and had been
Speaker:very nonvolatile. Do you remember? You know, this was three
Speaker:years ago or so. We were very vocal. We said look, this is all
Speaker:backwards. This is raw.
Goldis not just the thing that's
Speaker:going to perform better in the long run. They'll both perform well
Speaker:in this decade plus environment, but it's going to be
Speaker:the one that is much more volatile in the trade. We've been
Speaker:very vocal, which has been an amazing trade for three and a half
Speaker:years is to buy gold calls and sell oil puts. And those are very
Speaker:different ways to be long of an asset.
Andso, I still believe
Speaker:that to be true. I think oil has supply issues that will support
Speaker:it. It also has geopolitical deglobalization, global conflict
Speaker:that help underpin it. And you know, gold, as a currency, gold is
Speaker:not an industrial commodity that has anything to do with demand.
Speaker:Idothink oil, I'm still bullish of oil in the next, you know,
Speaker:this whole kind of longer multi year period. I don't think
Speaker:the ‘drill baby drill stuff,’ all the things that are kind of putting
Speaker:it under pressure are the things that ultimately matter. I
Speaker:think it's a short.
Theenergy trade is becoming more unpopular,
Speaker:which I love. Again, I think the dollar, which is the one thing
Speaker:that you're going to hear the administration try and talk more
Speaker:about, is in for potential for the first time in a while, in for
Speaker:some potential pain. And if that's the case, that's very supportive
Speaker:of oil.
IfChina's coming back online, it's been the one thing that
Speaker:in theory has been keeping demand, global demand down. Yeah,
Speaker:we could go into a recession here in the US but maybe a billion
Speaker:people in China are now consuming more.
So,there are some
Speaker:counterintuitive things here that, again, I understand on a superficial
Speaker:level does not look like a good setup for oil. I get it. But
Speaker:if you start seeing kind of continued unrest in the Middle East,
Speaker:stuff starts happening in other parts of the Middle East as
Speaker:I mentioned, which I think probably will because, again, Russia
Speaker:is not going to kind of stop despite Its newfound relationship
Speaker:with the US.
Ithinkthere's a lot of reasons to believe that that
Speaker:oil could, again, I don't think it's going to be a spike, it's
Speaker:not going to be volatile, but could really find its footing and
Speaker:go higher back towards the middle of its range that it's been
Speaker:in and eventually work higher.
So,I think, particularly relative
Speaker:to other assets, I think that the way it probably plays out candidly
Speaker:is markets come down in the next year and energy actually kind
Speaker:of hangs in and then coming out of the next, whatever this decline
Speaker:is, I think energy, and oil broadly sees a really positive performance
Speaker:coming out.
Speaker:So, one last question, and it may sound political, it's not meant
Speaker:to be political, but I'm trying to think about sort of other
Speaker:things that may surprise us a little bit.
So,we know, of course,
Speaker:most people listening to this podcast, of the involvement of Elon
Speaker:Musk in the US administration. It strikes me, frankly, that a lot
Speaker:of people do things that may benefit themselves.
Also,I think
Speaker:the way that the whole tech sector in the US has kind of lined
Speaker:up with Trump, I think they realize it's probably better to be
Speaker:on his side than against him. And of course, Elon Musk has done
Speaker:lots of things already.
Andwhat we are seeing, over here
Speaker:at least, I don't know about the US, is that consumers are starting
Speaker:to vote with their feet. The sales of Tesla is down a lot in the
Speaker:last couple of months. The stock price of Tesla is down quite
Speaker:a lot in the last month or so.
AndI'm just wondering, I mean, it's
Speaker:pure speculation, of course, but I'm just wondering, can things
Speaker:like that, do you think, the fact that his company comes under
Speaker:so much pressure, which by the way, you would think maybe at some
Speaker:point some of the larger investors, like, I don't know, the
Speaker:Norwegian sovereign wealth fund, might say, well hang on, you're
Speaker:spending way too much time away from Tesla on other things.
Speaker:Anyways,could things like that… It's almost to the point where
Speaker:you think if markets really tank, could Trump, because he loves
Speaker:to be at all-time highs in the markets, even though he says I don't
Speaker:look at the market. I mean, I'm pretty sure he does. Do you think
Speaker:things like this could actually change policy just because
Speaker:they're kind of coming under pressure in their businesses, so
Speaker:to speak?
Speaker:Yeah, I think if the market drops 40%, which I think it will
Speaker:in the next year and a half, or 30% to 40% call it, I think there's
Speaker:going to be a response. People are going to be a little bit less
Speaker:friendly to the administration. And that's political
Speaker:from people who are losing their jobs, but it's also going to
Speaker:be from wealthy individuals who…
Speaker:But I mean, also to a point where people like Trump and Musk
Speaker:will change their policies because they feel that.
Speaker:I don't even think it's a question. 100%.
Yeah,this is the
Speaker:whole Nixon, the whole point with Nixon, like he started with
Speaker:supply side economics, and I can't think of a more populist kind
Speaker:of response than price controls. So, yeah, I think it's
Speaker:inevitable.
Ithinkthe market, I've said this before, leads
Speaker:the economy. Market also leads political outcomes. You know, actually,
Speaker:I think somebody, I forget who it was, I think it's the, an economist,
Speaker:who’s opinion I think I may have mentioned on here, which referred
Speaker:to the market as the fifth state. You know, the fourth state
Speaker:being media, which largely doesn't have as much control as it
Speaker:used to. And could be a check and balance on government. And I
Speaker:think it will be. I do think markets will become a check on Donald
Speaker:Trump in this administration.
Speaker:Very cool. Well, appreciate your insights all the way from Texas
Speaker:this morning for you, this afternoon for me. And I'm sure everyone
Speaker:listening out there also appreciates all of these thoughts
Speaker:and insights. And of course it will be fascinating to see how this
Speaker:story unfolds, the market reactions.
Andas you said, so far,
Speaker:it's playing out to the way you saw it. And, of course, we will
Speaker:follow up with Cem on a regular basis to see if things changes
Speaker:from his point of view.
Ifyou want to leave a rating and review
Speaker:in appreciation for Cem putting all this work into these
Speaker:conversations, by all means head over to your favorite podcast
Speaker:platform and leave a rating and review. We very much appreciate
Speaker:that, and it helps more people actually discover the show and listen
Speaker:to conversations like this.
Nextweek I'm back with Andrew and
Speaker:Tom and that will be an interesting conversation. It's obviously
Speaker:a little bit more in the CTA space, but nevertheless super interesting.
Speaker:We did mostly global macro today.
SoonI'll be back with something
Speaker:new together with Cem. We'll tease that a little bit very shortly,
Speaker:but keep your ears out for something very special coming soon.
Speaker:And I'll leave it at that for now.
Iwilljust say from Cem and
Speaker:me, thanks ever so much for listening and we look forward to
Speaker:being back with you next week. And until that time, take care of
Speaker:yourself and take care of each other.
Speaker:Thanks for listening to the Systematic Investor Podcast series.
Speaker:If you enjoy this series, go on over to iTunes and leave an honest
Speaker:rating and review. And be sure to listen to all the other episodes
Speaker:from Top Traders Unplugged. If you have questions about systematic
Speaker:investing, send us an email with the word question in the subject
Speaker:line to info@toptradersunplugged.com and
Speaker:we'll try to get it on the show.
Andremember, all the discussion
Speaker:that we have about investment performance is about the past, and
Speaker:past performance does not guarantee or even infer anything
Speaker:about future performance. Also, understand that there's a significant
Speaker:risk of financial loss with all investment strategies, and you
Speaker:need to request and understand the specific risks from the investment
Speaker:manager about their products before you make investment decisions.
Speaker:Thanks for spending some of your valuable time with us and we'll
Speaker:see you on the next episode of the Systematic Investor.
