MacroVoices #498 Louis-Vincent Gave: Which Megatrend Will Reshape The World?

Summary

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• Reflationary Environment: The podcast discusses a global reflationary trend driven by stimulative policies in major economies like the US and China, with emerging markets outperforming developed ones.
• Precious Metals: Gold is in a structural bull market due to a weaker US dollar and central bank purchases, although it's considered expensive relative to other assets.
• US Equities: Despite warnings from experts about a potential top, US equities continue to climb, driven by AI excitement and consumer spending, although risks like a US recession could impact this trend.
• China's Economic Policies: China is pursuing anti-involution policies, reducing excess capacity, and focusing on domestic stability, which is seen as bullish for industrials and emerging markets.
• Geopolitical Tensions: The podcast highlights the US-China tensions, noting that while rhetoric is strong, a kinetic war is unlikely due to mutual economic dependencies.
• Investment Opportunities: Copper and energy are identified as under-owned reflation proxies with potential upside, while Chinese equities are seen as attractive due to stabilizing US-China relations.
• Global Economic Integration: The integration of Russia, China, and India is discussed as a potential megatrend, leveraging each country's strengths in commodities, manufacturing, and labor.
• Market Risks: Key risks include the potential for AI to underdeliver on profits and the US consumer being squeezed, which could impact the reflationary trend and US equity markets.

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Transcript

[Music] This is Macrovoices, the free weekly financial podcast targeting professional finance, high- netw worth individuals, family offices, and other sophisticated investors. Macrovoices is all about the brightest minds in the world of finance and macroeconomics, telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Serzna. Microvoices episode 498 was produced on September 18th, 2025. I'm Eric Townsend. As our countdown to Macrovoices episode 500 continues, our longtime listeners already knew there was just no way we could possibly get through a top five countdown without bringing back Gavcow co-founder and Macrovoic's rockstar Louie Vincent Gav. Louie and I will talk reflation, precious metals, equities, China, energy markets, and much more. Then in our new postgame trade of the week segment, Patrick will translate Louis's bullish view on copper into both futures and options trades. I was also interviewed by the Contrarian Capitalist podcast hosted by Rob Smallbone last week. Interested listeners will find the link in your research roundup email. and I'm Patrick Sesna with the macro scoreboard week overweek. As of the close of Wednesday, September 17th, 2025, the S&P 500 index up 104 basis points, trading at 6,600. The bulls relentlessly holding the market at all-time highs post the FOMC rate cut. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment. The US dollar index down 81 basis points trading at 9701 tested the year low leaving the question if the dollar breakdown is imminent. The November WTI crude oil contract down 24 basis points trading at 6352 remains within a multi-month trade range. The November Arbob gasoline down 150 basis points trading at 197. The December gold contract up 19 basis points trading at 36.89. Gold paused after a strong multi-week advance. The December copper up 22 basis points trading to 463. Uranium up 20 basis points trading to 76.40 and the US 10-year Treasury yield unchanged uh trading at 405. The key news to watch this week is the Bank of Japan monetary policy statement, and next week we have the European and US Flash Manufacturing PMIs, the US GDP, and the core PCE price index. This week's feature interview guest is Gavcal co-founder Louis Vincent Gav. Eric and Louie discuss the global reflation trade, equities, market risks, gold, copper, energy, China, and more. Eric's interview with Louis Vincent Gav is coming up as macrovoices continues right here at macrovoices.com. [Music] And now with this week's special guest, here's your host, Eric Townsend. >> Joining me now is Gavcow co-founder Louie Vincent Gav. Louie, I I think everybody in our audience is already new. We're going to do a countdown from the five best guests. You know, Louis Gav's got to be in there somewhere. Uh, right in the middle at number three. Lots of pressure on two fantastic interviews that we just followed. Before that, there was one from you, the timeless piece. So, you're on the the spot, buddy. You got to outperform that somehow. Where are we going to start? Equities were pretty much certain. Everybody said to to roll over pretty much any time now, except they went the opposite way. And it seems like quite a few other markets. a lot of reflation, gold, uh, you know, lots of things up, copper, not so much. Where's the action here? What should we be thinking about? >> Thanks for having me on, Eric. And I'm very flattered to have made the top five. I'm very flattered to have podium. That sound like a a bronze medal. That's that's, you know, that's pretty exciting. So So thanks a bunch. Look, to your point, the world feels very reflationary right now, right? But I think when you look at markets, you find that pick any major market you care to to pick. You'll find that financials uh are are typically outperforming. Yes, to your point, precious metals have definitely broken out on the upside, but metals in general have been doing pretty well. I think you find that emerging market debt is massively outperforming developed market debt. You'll find that EM equities have started to outperform. Value is no longer sucking wind. It feels pretty reflating. And to be honest, I think that reflects a number of economic realities. The first and perhaps most important economic reality is that in all the major economies, policy makers are following very reflationary policies. I think if you start off with the US, which is obviously the most important when Trump came in for about 6 weeks, we were promised Doge and tightening of fiscal belt and slashing of government payrolls, etc. But it seemed to have lasted about as long as one of my new year resolutions sort of four to six weeks and then it goes on into the dust bin. I think uh when I look at the US today, what you have from policy makers is promise to go pedal to the metal. And you know, Besson said it himself in his April interview. He said, "Look, we're going to grow out of our debt situation and we're going to put pressure on the Fed to give us more money to do so." The US is following reflationary policies. China is following massively reflationary policies. Few people realize this, but the budget deficit this year in China will probably be about 10% of GDP, give or take. I mean, for China's never run budget deficits this big. And this is occurring at a time when interest rates in China are at record lows. So in China as well, you have very, very stimulative policies. And unsurprisingly, Chinese equity markets continue to grind higher. Then you look at Europe, you really have pretty much the same setup except perhaps for France, Britain where those two countries are trying to do some kind of fiscal consolidation, but it's very small at the margin. And then in Japan, you obviously the prime minister just resigned and the two leading candidates are are both promising easier fiscal policy and more spending. So it's like the two guys, well the girl and the guy running, it's more and even more. Anyway, everywhere around the world policy settings, do you remember that spinal tap? Uh it's like these go to 11. Uh it feels like everywhere around the world the dial is set to 11. And that's only I think part of the reflationary picture. Another massive part of the reflationary picture, the one that matters a lot for us in emerging markets is the US current account deficit. The US current account deficit a year ago was 3.6% of GDP. It's now 6% of GDP. That's the fastest deterioration in the US current account deficit on record. It means that concretely the US today is sending to the rest of the world $2 trillion every year. $2 trillion in cash to the rest of the world. And the rest of the world takes that money and then it can decide to reinvest it in the US. It can decide to reinvest it at home. But increasingly, I think what's happening is on the other side of that US current account deficit, you have countries that increasingly feel that maybe they don't need as many US dollars to trade as they did before because most of the growth in trade is actually occurring in emerging markets. We're now in an environment where you get lots of excess dollars. Dollars is is drifting lower, which is always reflationary for for emerging markets. And then finally, I'm sorry for a longwinded answer, but finally, you also have a massive change of policy in China where instead of adding excess capacity onto excess capacity, which is what they've did essentially since the semiconductor embargo of 2018, where you and I discussed in our previous interview, what they're now doing is a policy of anti-involution. That's the new buzzword in China. You know, cracking down on excess competition. Essentially, you stop lending to industry to add excess capacity on top of excess capacity. I think that's actually pretty reflationary for everybody else. If you're Japanese automaker, a Korean ship builder, the fact that China might be done adding excess capacity, at least for a year or two, gives you a little more breathing room. And so, unsurprisingly, industrials are now outperforming everywhere. Korea's outperforming. Japan's industrials have been doing fine. I think yeah the the markets uh you could say are feeling very reflationary but all that corresponds to to an underlying economic reality. >> Louie, my mental model for what reflations are all about is reflations usually set up fairly longasting trends in asset markets and as traders trends obviously are our friends as long as you get in on the game fairly early. So when I look at some of these reflationary trends well clearly gold is trending up. It's part of your reflationary hypothesis. Makes perfect sense. Got to go long gold. Well, wait a minute. Gold's more than doubled, almost tripled in the last few years. Is it already at the end or are we just getting started? How do you tell when you know there's a reflation, but you know it's already run a long way? Where's the entry point? Well, it's the old uh story, right? If uh best time to plant a tree was 20 years ago and you know, second best time is now. So I think for gold we we are in a structural bull market for gold partly because the view of a lot of emerging markets of the dollar shifted massively with the Russian invasion of Ukraine and the seizure all all of Russia's assets. You and I discussed this many times in the past. So is it time to to let go of gold? Look, I think we're starting a new easing cycle from the Fed. Uh I think we're in a US dollar bare market. These are usually tailwinds to gold. They're not headwinds to gold. Given that I am a bearer on the US dollar, I'm not going to tell you to go sell your gold. Now, having said this, there's no doubt today that gold is expensive. When you look at gold relative to oil, when you look at gold relative to copper, to silver, to platinum, when you look at gold relative to US wages, when you look at uh gold relative to US house prices, on any historical measure, gold is expensive. But yes, it has momentum. Yes, the fundamentals are good. Yes, you can play the reflationary environment through gold. I I think at this juncture there's probably better uh assets to own to play the global reflationary environment whether copper whether energy uh I think these probably have more torque now and and more upside potential but to your point gold is in a bull market and in a bull market there's two things to do you you either buy it or you stand aside and look at it but you definitely don't short it so gold is in this this strong bull market you've got buyers that are essentially pricing sensitive like global central banks, you have very little increase in supply because gold miners have been deprived of capital for 20 years. It's I think it's pretty hard to stand in the way of that bull market. Louie, let's move on to US equities. Both the S&P and also the broader indices. So many really smart people, whether it's Goldman Sachs, Mike Hartnett, lots of really, you know, high-profile voices saying, "Hed baby, hedge. We're headed into that difficult time of year. You don't know what could happen in October. Could be a crash. Oh my god. Seems like the market is just loving that wall of worry and climbing right over it. Should we expect this trend to change? Is it long in the tooth? Look, my my own business partner Anatol Kletki just published a couple pieces on this very idea that uh yeah, we may be approaching a top on on US equities. And behind that that idea is I think the main the two main threats to the reflationary environment I've described. Uh because I I do believe we are in in this global reflationary environment. But if we want to take a step back and think okay what could go wrong to this unfolding reflation. I think what could go wrong is one of two things. The the first thing that could go wrong to this global reflationary environment is is a US recession. And I think that the reason you might fear US recession is the there's increasingly a lot of anecdotal evidence that the low-end US consumer is being squeezed. If you look at say the the fast food sale, the latest corporate releases, all all the fast food guys pretty much had very poor numbers. So did a lot of the specialty retail Vegas numbers were were also pretty poor. The all the cardboard sales are about as ugly as they've been for a decade. There's little anecdotal signs here, there, and everywhere that I think between, you know, rising cost of uh of housing because you've got very rapidly rising cost of home insurance, obviously higher mortgage rates, but also higher local taxes. That is, you know, I think the low-end guys are getting a squeeze. Uh rising cost of car insurance because with the tariffs, obviously, replacing a car now costs more. So, that gets reflected in car insurance. And you look at your car insurance costs and they have gone up a lot. I think the low-end consumer in the US and the mid middle range consumer in the US is is getting squeezed. And of course consumer consumption is such a a big part of of the US economy, which incidentally is more or less the the Trump policy. Let's not beat around the bush. The whole Trump policy is we want to bring production home to the US. We want to cut back on consumer. Uh we want to swing back towards the producer. So if that's the policy, should we be surprised that consumption in the US, which is the real driver of US growth, starts to stall a little bit? So I think that's your first big risk to to the sort of reflationary environment that that I've described. I think that the second big risk is the perhaps the growing realization in the market that you know you've had tremendous excitement around artificial intelligence. Chad GPT was released in November 2022. Since then, the US stock market has gone from 40 trillion market cap to 65 trillion market cap. Put things in context that 25 trillion market cap is bigger than all the other markets in the world combined outside of China. The total market cap of China is roughly 18 trillion. But all these other markets, Germany, France, Britain, etc., they're below five. Japan's at about seven. So the US has added more than the rest than the total value of the rest of the world combined. It's it's been simply unprecedented. The wealth creation that has occurred in US equities in the past two and a half years. And under underpinning a lot of this because over that period S&P 600, small cap index and midcap index have done very little. It's essentially been the 50 biggest stocks. They've ripped higher. Underpinning all of this is really the excitement around AI and and the hope that AI was going to leash unleash a new wave of productivity and a new wave of profits. But we're now almost 3 years in and the profits have yet to materialize. Uh the capex has definitely materialized. The capital spending has been off the charts. But will these guys who made the hundreds of billions of investments actually make money from all these data centers and all these, you know, massively expensive chips that they bought? or will that end up being essentially write-offs? And of course, if it's write-offs, then that'll be pretty bad news for the US stock market. It'd be pretty bad news for the US dollar. Again, you go back to the reflationary environment and you think, okay, what are the two big risks? One of them is that essentially AI doesn't fulfill its profit promise. Uh the other is that the US consumer starts to feel the squeeze and and starts to hold back. These for me are the the two big risks in in the system today. Now either one of these risks means that the US equity market goes down. It also means probably that the Fed eases. It means that the US fiscal spending goes up higher. All of which ends up leading to a weaker US dollar. Uh so interestingly of course depending how bad the recession is or how bad the AI face plant is. But you could conceptually argue that to the extent that these you have these two risks should they materialize but not materialize in too severe a way uh all you end up with really is lower Fed fund rates more fiscal stimulus in the US weaker US dollar and that that combination actually turns out decently reflationary for for the rest of the world. It's an interesting juncture because I completely get the argument for lightening up on US equities. Yes, US equities are expensive. Yes, they've had a hell of a run. Yes, they are overbought. Yes, they're essentially held up on the premise that one, the US economy won't have a recession at a time when that premise is at least debatable. And two, they're held up on the premise that profits on AI are going to be magnificent. And the scope for disappointment there is is quite high. But meanwhile, if you see that, does that mean that Chinese equities crater? Does that mean that Latin American equities crater? Does that mean the Japanese equities creator? I'm I'm actually not sure. In fact, all those markets could do quite well because essentially the NASDAQ would stop acting as the big liquidity suck that it's been for the past 10 years or so. >> Okay, Louis. So, big picture, the trend is reflationary. Want to be on assets that are going to benefit from that trend and continue on that trend. Stock market seems a little tired. Probably not the right place to put new money into. That begs the question, okay, what is the trade that benefits from that reflation that's been beat up that you can buy cheap? Uh, how about high-grade copper? The US contract, the one that got absolutely annihilated when President Trump changed his mind five or six times about tariffs on copper. >> Yeah. And he'll probably change it another five times before before this interview's over. We're still way below the 200 day moving average. And you know, that chart got absolutely clobbered. And it seems to me it should benefit and eventually recover. I I guess some of it uh of that real froth well above 5 and a quarter or so was probably due to tariffs anyway, but at least getting back to 540 or so, that ought to be just a matter of a retracement, but it's not happening yet. I agree. I think when you look at the world's reflationary forces around the world, you have parts of the market that have been that continue to participate. We mentioned the financials obviously gold and the other precious metals, silver, all that stuff and other parts that have completely not participated. If all you had were energy charts, if all you had were the copper charts, to your point, you would say what are you talking about reflation? I don't see it. It's nowhere near to be found. And I think, you know, some of that is linked to the fact that Chinese growth has remained disappointing. Let's not beat around the bush. Chinese growth, for all the stimulus, etc., China is still going through some level of balance sheet recession and some digestion of the past few years policy mistakes or whatever else you want to call it that I think has weight on copper it's weight on energy and part of it perhaps is also frankly the lack of policy visibility in the United States you know who who today wants to build a new factory we were just joking oh you'll change it five times again by the time this p this podcast is done but if you're you know an industrialist in the US an entrepreneur this is no laughing matter. Having this this lack of visibility really I think prevents you from really doing big investments. Now copper is the typical uh metal for large infrastructure investments for large capital spending for factories for all that stuff. And whether you're in Vietnam, whether you're in China, whether you're in the US, Mexico, you're dealing with a level of policy uncertainty that you've never dealt with before. So for now, you know, I think a lot of people are still sitting on their hands. And you know, this policy uncertainty won't stay forever. At some point, the US administration will say, "Okay, we have a deal with Vietnam, and this deal is good for the next 10 years." And uh so on and so forth. And then perhaps it'll be a little bit like a coiled copper spring. Quite frankly, I think the opportunity in copper today is an attractive one just as is perhaps the the opportunity in energy. Uh now I know energy has been a dog with fleas and uh it's been a you know a drag on most people's portfolios and including mine. I've been probably too bullish on energy for for the past few years. But you know, here we are in a reflationary world and and usually and it as the world reflates, energy at some point starts to participate. >> Well, if you've got uranium in your energy basket, you're doing just fine. >> Yeah. No, actually it's not been that bad. >> But uh but yeah, I agree on on the oil and gas. It's uh it hasn't quite jumped onto the trend yet. Louie, as we're talking about things like copper, which are absolutely essential to running the global economy and the international trade of them is essential to the the continued operation of the planet. Let's talk about the formative escalatory rhetoric. I think we're still years away hopefully from kinetics here, but awfully strong rhetoric about US and China going to war over Taiwan at some point. I really hope that doesn't happen. But I had a call last week with a bunch of supply chain experts and I was asking them if we're about to go to war with China, what are you supply chain guys doing to figure out how the heck we're going to replace our complete dependence on China for our pharmaceuticals and for so many other things. You guys in the supply chain business must be all over that. And they said, "No, Eric, the reason we're calling you is because we're wondering, nobody in the supply chain business is thinking about that. We're wondering who is." I said, "Oh, I thought it was you guys." So Louie, who's thinking about this? >> Well, I think the Chinese are thinking about it. You and I discussed this before in in 2018 when the US essentially cut off China from semiconductors. China then decided okay uh we have no choice but to build self-sufficiency in everything because whatever we're dependent on on the west for today is a point of weakness that the west will press on in times of stress and or simply press on to prevent us from growing which is of course what the US was doing in 2018 with the semiconductors so you know followed a period of seven years where China invested in all of its money in industry and none of it in in real estates and you see this very clearly in in the bank loan data and that leads us to where we are today and I think when you look at China's I would say posture on the global stage you've had a dramatic evolution in the past seven years you know in 2018 essentially when Trump comes out swinging against China takes the punch it knows it it has no choice but to take the punch again in 21 when there's the Anchorage meeting and blink and Sullivan accuse Wongi of of all the crimes and and all sorts of things. Again, China takes the punch. And then comes 25, Trump comes back in and starts punching against everybody against Mexico, Canada, Europe, India, and China. And China is the only real country that stands up and says, "You know what? Uh, you want to go? Let's go. Gloves off. Let's have this fight. You put tariffs on me, I put tariffs on you. You put an embargo on your semiconductors, I'll embargo my rare earths, and I'll embargo my magnets." Uh, and at this point, I think the US realizes, hold on. Uh, we're now three weeks away from GM plants shutting down because they don't have the magnets. We're now two weeks away from the Lockheed, Martin, and Rathon plants not being able to produce missiles. And this is a real problem because Israel and uh, and Ukraine are firing these missiles at a pretty heated clip. So, what you find is all of a sudden the US has no choice but to meet with China and Geneva, I think, back down. and it brings you to to the sort of equilibrium that uh that we're in now. Now, you mentioned Taiwan. What I find fascinating, I'd invite your your listeners to do a Google trend search, you know, where you can like Google searches the number of mentions of of something in the media and to do it for the US media and you'll find that in the past four months, the mentions of Taiwan have simply disappeared. And 6 months ago, 12 months ago, we kept being told that it was either next week or the week after that China was going to invade Taiwan, etc. Now, nobody talks about it. It's just completely dropped off as a topic. And again, do a Google trend on it. And I find this uh fascinating uh because essentially to me it confirms that the US and China have now reached a sort of stable equilibrium where China doesn't want the relationship to get worse because the main concern of the leadership in China is always to keep domestic stability. It's always to keep domestic peace. So they have no real incentive to pick a fight with the US. But the US now is forced to realize that actually it can't pick a fight with China because if it does, China is going to stop selling it the components it needs for the missiles that it would need for the fight with China. So it the US is now in a sort of of catch 22. Uh and I think this is why you just saw uh the Pentagon release a paper highlighting that you know what the days where the US could essentially keep the peace in Asia are now over in the new age of drone warfare of hypersonic missiles the US fleet can't be protected out in Asia. And this paper suggested that the Pentagon should just have a strategy of focusing just on the Western Hemisphere on the America's continent essentially building Fort Monroe and focusing on on just this. And so I think that you know the the scope you mentioned a kinetic war the scope for a war between China and the US is now going down very very fast which is of course very bullish for China. One of the the big reason everybody thought China was uninvestable. The reason we lived in a world of ABC anything but China was this belief that we were going to have a conflict. As this belief dissipates, what you find is Chinese equities that had spent five years derating continue rerating absolutely every single day. Uh but more importantly, what all this shows is that while the US supply chains are now very very vulnerable to you mentioned the pharmaceuticals, I mentioned the magnets, the rare earths, etc. Well, the US supply chains are actually very vulnerable to potential outside shocks. Uh the Chinese supply chains are now following a massive 7-year effort, extremely resilient. And so I think that's an important shift in the world that we live in. >> Louie, the things that you describe all suggest to me that we really ought to be avoiding any kind of conflict with uh China or any other country for that matter. What should I make of this picture, which nobody in the West seems to be paying attention to, but it freaked me out. You've got Putin with Modi on one shoulder and she on the other shoulder with a look on their faces that just says, "This is the propaganda picture that's meant to send a message to the West that you guys better not mess with us because we're going to respond together." That was the way I perceived that picture. Obviously, I'm reading a lot of meaning into the look on three guys faces. Um, and I and I then last last week, Dr. Anna Alhaji told our listeners about the power of Siberia pipeline which sounds like a massive infrastructure investment to further build the economic connections between China and Russia. Should the US be concerned that I mean is this these forces coming together to come and get the US or are they coming together to defend themselves against a perceived threat from the US? >> Or maybe they're coming together to to do stuff together and the US is is less involved. But yes, look, I think these were all very powerful moments and very and to be honest, world changing moments. First of all, to your point, Modi, she Putin, they looked really happy together on stage. They would looked really happy, you know, all smiles, all hugs. They weren't French kissing, but it it really wasn't that far off. They really seemed keen to to be together. Now, uh I think this is of course to your point a super important message for the world because if we think in terms of the the mega trends that might reshape the world for the next decade or so. Uh in the western world, I think we focus pretty much all of our time on two massive trends. And I'm not saying these trends are are BS. They're very real trends. But the first one, of course, is AI. That's uh that's, you know, how much is that going to change the world? If it really changes the world, how much does that change the workforce? what does that mean for our welfare states etc. lots of questions around the impact of AI. I think that the second big mega trend that that everybody focuses on is the growing realization that most OECD countries and especially the big ones the France the Britain the US the Canada fiscally are cruising for a bruising that even in periods of economic boom they're still running budget deficits of five six% of GDP government debt keeps on expending fiat currencies keep on getting debased at an accelerating pace these are the two big mega trends when I meet with western investors this is all the two things they want to talk about. That's why gold is going up the way it is. That's why Bitcoin has done what it's done, etc., etc. But let us imagine for a quick second now, you could say this is science fiction. It's not going to happen. But given how they were hugging each other on stage, let us imagine a mega trend where the Russian, Chinese, and Indian economies start to integrate more with each other. You start to see more trade. You start to see more exchanges, more trade in their own local currencies, and so on and so forth. university exchanges or you name it. Now, here's here's what's fascinating why I think this could be an extremely powerful trend is Russia for all intents and purposes is the world's biggest commodity producer. It produces everything. Oil, natural gas, coal, iron, ore, you know, you name it. Copper, silver, uranium. Russia produces it and it produces it typically cheaper than anybody else. China is the biggest producer of machine tools by a long shot. It's the biggest producer of consumer goods by a long shot and it has the cheapest cost of capital in the world today. And India of course now has the deepest pool of cheap labor in the world because labor is no longer cheap in China. Let's not kid ourselves. So imagine you match the cheapest commodity producer with the cheapest capital goods, cheapest cost of capital and the cheapest labor. Uh you put all this together in a pot, what comes out could be really really powerful. And here's something funny for you. If you take the top 30 market caps in the world, the top 30 companies by market cap, you find that 24 out of the 30 are American. And then you think, okay, if the big macro trend of the next decade is the integration between these three guys, Russia, China, India, how many of the top 30 companies will benefit from that integration? Maybe 10-centent, maybe Alibaba, maybe Saudi or Ramco. And that's about it. uh as as you go through that list maybe Samsung but as you go through that list of the top 30 most people have equity index portfolios and if you think okay the big macro trend of the next 10 years will be AI then you know then you're fine with your index you're exposed to this you're exposed plenty what if AI turns out to be a bust and the big story of the next 10 years is that economic integration between the three and here you know you and I have discussed this in the past as well but I always say if Hong Kong is really the center of the world. It's the center of the at least demographically speaking. Within a 5-hour flight of Hong Kong, you have more than half of the world's humanity that lives there. Now, you could say, "Yeah, so what? Who cares? It's always been the case." What what's changed? I think what is changing right now in front of our very eyes is that a generation ago twothirds of that half of the world population within that what's called the valer repier circle where more than half the population lives twothirds of that population was rural people living in the countryside very little disposable income living pretty much lives not that different from their grandparents' lives and their greatgrandparents lives etc now twothirds of that population is actually urban now the reason this matters is economic growth tends to happen in cities. This is where you have universities. This is where you have businesses, people exchanging ideas etc. Now all the cities in that valley circle were essentially independent islands uh you know barely talking to one another. Still to this day there are no direct flights between Mumbai and Shanghai or between Delhi and uh and Beijing. It's now you know there's I think there's 24 daily flights between New York and London come back in 5 years in 10 years. How many direct flights between Mumbai and Shanghai? It'll definitely be more than zero. I'm pretty much willing to to bet a lot on that. And so as you get these flights, as you get more telecoms, as you get canals and roads and ports built, as you get exchanges, this is where the growth I think will happen. And to be honest, if all you're doing is owning an index fund, then you're not going to be exposed to it. At least not for a long time until the indexes start to reflect this growth and by then you'll have missed probably at least half of the party. >> Louie, while we're discussing China, uh, Chinese equity markets are starting to rip. Is that the beginning of the trend to jump on? >> Yeah. And look, I think the Chinese equity bull market started in earnest uh, in January 24. That's when the government stepped in to to put a floor under the market and they've stepped in a couple times since then essentially signaling to the market look each time this goes down 10% we'll uh we'll buy in and I think the the there's a lot of drivers to the unfolding equity bull market. The first and biggest driver simply is the difference between today's dividend yields and the the cash the money that uh that the interest rate that people get for cash at the bank. you know that that differential is basically three and a half four percent. And so this means that each time the market dips a little bit, you do see Chinese savings, the individual savings which are very very high because they're no longer buying real estate um and they've just been, you know, so shell shocked they've kept a lot of money at the bank. As soon as stocks fall 10%, you know, the Chinese savings come in and and buy all the high dividend yielders, whether they're Petrochina or China Mobile or uh or Bank of China, all these companies that, you know, people know the government isn't going to let go bankrupt and still offer dividend yields of five, six, sometimes seven, 7%. So I think you you know you do have this rotation and as long as the government is perceived essentially to backs stop equities that will continue and and as long as you have this very high positive differential between again like cash yields on bank deposits and dividend yields on the other. But I think there's there's other drivers that are increasingly emerging. You and I just discussed the fact that the USChina relationship is probably now finding a sort of even keel and isn't going to deteriorate from here. I think we're going to get confirmation of this in late October when President Xi and uh and Trump meet at the APEC meeting in Seoul. And you know, if anything mildly friendly comes out of this, this will be a massive green light for a lot of foreign investors to to participate in in the bull market in China. you know, and last year, China was the best equity, best performing major equity market. This year, again, it's it's outperforming the US. It's actually outperforming most markets. You know, I think there's I I could wax lyrical. There's there's other drivers to the unfolding bull market, but the reality is is Chinese bull markets typically end in one of two fashions. We are in a bull market today. The market has essentially doubled since uh January 24. And most Chinese investors are very momentum driven. things go up, they buy more. They're very momentum driven. And so, and Chinese bull markets typically end in one of two fashions. The first way Chinese bull markets end is the governments decide that enough is enough. They crack down on margin loans. They they raise interest rates. They uh sometimes they crack down on sectors they don't like like the education sector or Jacmar goes missing for for six months. when the the Chinese policy makers make it pretty obvious that we don't want stocks to go up anymore because we're worried about feverish speculation. Uh that's definitely a time for you to get out. Now, today there's absolutely zero sign that it's the case. Quite the contrary, you know, given the weak domestic growth, they're doing everything they can to prop up and boost asset prices. So, right now, the government is fighting in your corner. You don't have to fight the government. The other big usually uh the end of Chinese equity bull markets come around when when you see massive equity issuance when as equity prices go up you start to see a bunch of IPOs you start to see a bunch of rights issues uh essentially companies saying you guys like this paper here's a bunch more of you know in my almost 30 years in China I've often said that perhaps the best indicator for for the Chinese equity market is how thick your copy of the South China Morning Post is because when there's the IPOs and and rights issues etc you get like full page advertisements in the South China and so the the thicker your South China Morning Post copy is the more worried you you need to start becoming today the reality is yes we've seen a pickup in IPOs but it's hardly been the liquidity drain especially when one contrasts with the amount of liquidity that the central bank is still pushing in like I mentioned the budget deficit of 10% of GDP etc so for now yeah I think we are in a bull market in China. The the next leg of the bull market will most likely be driven by Trump and she meeting in soul some kind of arrangement. I would imagine that part of the arrangement will be a a mild revaluation of the remn that will give even more confidence to local investors. Right now we're in a pretty positive cycle. Most people are looking at it from the outside and you know they most people feel well why do I need to be why do I need to bother with China? You know US stocks are doing great. European stocks have been doing great. Good for China. Nice for them to have a bull market, but I don't really care. Not my problem. But I think this is where the big opportunity is today. Let's suppose we want to pursue that big opportunity. Take a heavy position on Chinese equities. As an American investor, some people would say, hey, that's a suicidal thing. Maybe the trend is there. But from a geopolitical standpoint, if US goes to war with China over Taiwan or anything else, it's entirely reasonable to predict that one of China's moves might be to essentially confiscate any o overseas investment until it's over or something. Are you taking a risk there? Would you worry about that if you're a say a US institution thinking about a big position in Chinese equities? Do you worry about a nationalization or or war risk? Or is it just too far of an outlet? Uh, look, I first I think if China and the US go to war, we'll have more to worry about than just our portfolios. >> Well, I agree with that. What you're talking about is World War II Armageddon. So, at that point, uh, you know, and investing for Armageddon seldom works now because, by the way, if they do go to war, what's Nvidia worth? Let's assume they do go to war and TSMC is the first thing destroyed in this war. How does Nvidia produce chips? Uh, where does Apple produce its phones? What is Tesla worth? World view is US and China are going to go to war. Ergo, I'm going to own Nvidia, Apple, and Tesla. You're going to have a nasty surprise the day that hypothetical war comes around. Now, my view is is much simpler than this. Is not only is a war between them unthinkable. It also isn't going to happen because like I mentioned, the US can't produce rockets, it can't produce cars without China's help. And it's going to take at least 10 years, if not 15, for the US to be able to produce its own magnets, for the US to be able to produce its own rare earths. And that's if they start now with a massive industrial policy, an epic industrial policy, and billions and billions, hundreds of billions of dollars in capital investment. And essentially building rare earth refineries in the US at a time when, you know, the not in my backyard, this which is one of the most polluting thing you can do. uh at a time when the non in my backyard forces in the US are are so high etc. Bottom line, how can the US go to war with China when it can't produce weapons without China's help? And if you can't answer that question cogently, then you know that they can't go to war against each other. It's pretty darn clear by that description that they can't. Why are they talking so aggressively, so much rhetoric about going and doing it? I don't get it. Because how do you sell the next aircraft carrier? How do you sell the next F-35s? How do you sell the next big weapons project without an enemy? The US military budget is a trillion dollars a year. It's more than the next 10 countries combined. And it's the US can't cogently be invaded by anybody. How do you justify that? You need to say, okay, well, China's going to invade Taiwan or China's going to invade South Korea. And you need to create the boogeyman, the scary guy. Otherwise, you have no US military-industrial complex. >> So, when you see US senior military officials that are actually writing papers saying, "Look, war with China, we should just accept it's it's inevitable within the next 5 years," you think what they're really saying is, "We need to bump up the defense budget. Let's invent a boogeyman so that we get some public support." >> That's one way to look at it. But I think increasingly, look, I think with this new administration, we have a more isolationist administration than we've had in a long time. I think you you have an administration that acknowledges that the US has fought two wars in the past 20 years to very unsatisfactory results at great costs in blood and treasure. That if the US can't win in Afghanistan and if the US can't win in Iraq, what are the odds that they're going to win in China? The reality is that wars between superpowers are essentially wars between industrial systems. That's the simple reality. And and you look at World War II, and this isn't to take away from the courage of American Marines who stormed the Normandy beaches, etc., etc. They, you know, you needed the courageous soldiers, and the US had them, and it was tremendous. The reason the US won the Second World War is that the US outproduced Japan and Germany by a factor of five when it came to tanks, when it cames to airplanes. There's a great book on this called Valley Forge, which I would recommend to all the readers. The Second World War, and again, I'm not taking away from the valor of of American soldiers or Russian soldiers or British soldiers or anybody, but the Second World War was won in Michigan. It was one in upstate New York. It was one one in the US rust belt that could produce more trucks, more planes more more than anybody else. The reality today is that there is only one global manufacturing and industrial superpower and that is China. You look at China's manufacturing exports. China's manufacturing exports are now greater than the US's, the Japan's and Germany's put together manufacturing exports. So you take the next three, China still does more than the next three combined. So all this to say that we can't go to war with China. Like we the Western world, we can't go to war with China. It'd be absolute madness. It'd be just as stupid as Japan bombing Pearl Harbor. You awaken a giant that can outproduce you 10 to one. It's it's not going to happen. >> Well, Louie, I can't thank you enough as always for another terrific interview. Before I let you go, let's talk a little bit more about what you do at Gavcal. What services are on offer there for our institutional uh listeners and for our retail guys? Where can they follow your work? Uh what do I do apart from bitching about the US military-industrial complex? The uh no jokes aside, yeah, we uh we publish research. We manage money both for institutions and for private clients. Uh you can find the best place to find us is at our website gaffcal.com. I happen to be on Twitter, but I don't tweet all that often. Uh, but people can still follow me on Twitter. Mostly I just uh make silly comments on Twitter, so don't hold that against me. If you have a short fuse, maybe you don't want to uh to follow me. But the uh the best place, the the more serious place to to keep in touch with with what we're doing is our website, gaffcal.com, g-vek.com. >> Patrick Szna and I will be back as macrovoices continues right here at macrovoices.com. [Music] Now back to your hosts, Eric Townsend and Patrick Serzna. Eric, it was great to have Louis back on the show. Now listeners, you're going to find the download link for that postgame trade of the week in your research roundup email. If you don't have the research roundup email, that means you have not yet registered at macrovoices.com. Just go to our homepage macrovoice.com and click on the red button over Louis picture saying looking for the downloads. Patrick, before we dive into this week's postgame chart deck, our new trade of the week segment seems to be getting traction with listeners. So, let's keep it going. One of Louis views was that US copper futures are a value play here in the wake of the Trump tariff whipssaw. Let's talk about specific trading instruments. How would you put a trade on to express Louis copper view? Copper stands out as the quintessential underowned reflation proxy. Tariff saber rattling will no doubt continue, but at this point, copper tariffs look to be in the rearview mirror. If Louie is right about China stabilizing and emerging markets gaining momentum, that all feeds into the softer US dollar impulse, which is another tailwind for copper. Now, copper has been a cyclical lagard left for dead, but that's exactly what makes the asymmetry so attractive. When you overlay convexity, it becomes a really compelling catch-up trade. The way I want to frame this is you own the upside convexity while capping the near-term left tail event risks. Here are two clean ways to do it. Now, trade A is long the December 2025 copper future. This is paired with a protective November 4 1/.5 to 4 and a/4 bare put spread. The put spread costs about 5 cents. And if you look at the chart on page two, you'll see that the bottom of that spread around 4 and a quarter has been a very strong support in the past year. This structure gives you unlimited upside in the reflation catchup while materially softening the draw down risk into November if the timing of the entry is proven early. Subsequently, if the uncertainty persists, you can always roll the hedge. Otherwise, let it expire and let the position run outright. The second way I want to talk about expressing this trade is through a December $5 to 54 bull call spread. This is your classic convex kicker. It also costs under 5 and gives you a 4:1 riskreward if Copper rallies into year end. This is a great way to be positioned for you to profit from a retest of the highs of copper from over the last year. The breakout setup and the full trade specs are on page three of the deck. Patrick, that was a great explanation for our professional audience. We don't have time to delve into all the details of a retail version of this trade. So, how about giving our retail listeners just the quick 10,000 ft overview? Well, Eric, for retail investors who agree with Louis's bullish copper view, but don't want to trade futures directly, there are highly correlated copper ETFs and equities that can serve as effective proxies. And just as a reminder, every Monday I now walk through the retail application of the trade of the week with Big Picture Trading members. So, if you'd like to take a deeper look into how to put the idea into work in your own portfolio, you can sign up for a free trial on our site. All right, Eric, that's it for the trade of the week. Now, let's get to the chart deck and let's talk about the markets. So, what do you see here on the equity markets? Patrick, this market still feels a bit frothy and overbought to me. There's lots of high-profile gurus who are saying hedges are prudent here, including Goldman Sachs, but so far, we're just climbing that wall of worry. Reflation and other arguments can easily carry this much, much higher, but a deep correction is totally possible. I think it's going to be newsflow driven, especially if there's a major legal fail on some aspect of Trump policy and we start to see that the Trump administration is not getting its way. So, I see this as a very risky headline driven market that's way too frothy for new longs and frankly way too uncertain to warrant a short. Well, Eric, let's quantitatively take a look at the concept that the market is frothy and overbought. Well, for just basically from a technical perspective on something basic like an RSI indicator, which is a relative strength indicator, we are now above 70 on this. So, we are now at a stage that is traditionally considered overbought. But there are other things that have to be considered. For instance, uh when just simply looking at both the length and magnitude of this rally relative to every other rally that we've had this decade, uh this is uh the longest and uh the largest in magnitude of a rally that we've had before a 5% market correction. And so we've now gone 165 days and 36% without a 5% or more market correction. So this is uh that in itself doesn't guarantee uh a market correction but it does tell you that we're like in the 100th percentile for the decade in terms of this uh overstretched uh state of this market. Now uh where can this market go? Well, it has now surpassed all sorts of measured moves and so this is really a market that is uh is running just on pure momentum. uh and uh and certainly uh there will in inevitably will be a trigger that spurs a profit- takingaking cycle, but it clearly was not the Fed. The FOMC statement, while not necessarily dovish, certainly hasn't uh spooked the equity investors from wanting to take another uh step higher in these markets. For me, this just makes it super easy to remain hedged here with volatility as low as it is. you can have that uh debit spread hedges trailing behind your long positioning. Therefore, you don't have to abandon being long the market. But yet, recognizing this overbought state, you want to have some sort of tail risk insurance that is uh hedging out that inevitable market correction that will eventually emerge here. All right, Eric, let's touch on that dollar. The Dixie traded briefly below 96 on FOMC day, bottoming just a hair above the July 1 low. Or put another way, this is potentially a double bottom formation, but a break to a new undercut low below the July 1st low would be further confirmation of my bearish outlook. Right now, we're bouncing off the bottom of this horizontal consolidation trading range. Since this just happened off on FOMC day, I got a feeling this bounce has got legs at least for, you know, a week or so. But I do eventually expect that we'll break down below that 96 support level. Maybe that doesn't come until we get a few more swings up and down, but eventually I think we will. The top of the consolidation range is still 100 and only a sustained move above 100 would bring the bearish trend outlook into question. Well, Eric, when we size up the US dollar index technically, uh we can observe that after a prolonged six-month decline throughout the first half of the year, uh we saw the US dollar trade sideways. Now, uh, typically, uh, after such an extraordinary drop, you would expect to see some sort of a Fibonacci retracement or something to just unwind some of this oversold condition, which could have easily seen the dollar index rally to 101 or 103 on the upside before rolling over again. but rather we had one quick pop in July and almost immediately the market uh faded back down below the 50-day moving average and has remained decisively in distribution. Now we are back at that June July low uh and um it could obviously be a double bottom support and a potential bounce but the price action remains incredibly weak. And the way I'm looking at this here is is that if rallies, it's up to the bulls here. If the rallies here continuously are fading uh without getting legitimately to the 98 level, you have to uh be on high alert for a potential breakdown risk of the dollar. And if it does, the only logical downside target of a continuation of trend is going back to the 2021 2022 lows where uh we were down below the 90 level on the Dixie. But more importantly, what I want to highlight is is that the euro broke out to a fresh new high. This is the largest waiting in the Dixie. And while the Dixie itself looks like it's holding support, with the largest component of the dollar index having already broken to a fresh new 52- week high, uh you have to uh really uh be concerned uh about the uh immediate short-term downside risks of of US dollar weakening. All right, Eric, let's touch on that oil chart. Patrick, the market seems to be finding support. Maybe looking for a bottom just above $60 WTI for now at least. A swing as much as $10 lower wouldn't surprise me at all, but it would probably need to be based on news at this point. If it happens, I think it's a major buy on dip opportunity, especially if front of curve backwardation uh persists and even more so if it steepens. >> I want to anchor back on Anas's views from last week. Now overall uh there is a very bearish sentiment and a lot of negativity toward oil but really oil has been consolidating in one big horizontal triangle formation uh and holding pretty much above core fib zones. Now overall that doesn't make me super bullish but we do want to see whether these support lines hold by just connecting a trend line along all its previous highs. we can see that we have the potential for oil to here uh to break out of this trend line, which it hasn't yet, and start trading above the 50-day moving average, which it also legitimately hasn't started doing yet. But if the bulls can start putting together positive price action here throughout the latter part of September, this leaves room for crude oil to gravitate back to the top end of its ranges. And uh that uh is certainly something that's on my mind. Again, we'll see we'll have to see in the week to come whether or not those breakout candles start to emerge. All right, Eric, let's touch on gold. Patrick, the bull market is strong and I think it will continue. But let's put this in perspective. We are so overbought here on a technical basis that a $200 correction down to, I don't know, 3525 or so wouldn't even begin to invalidate the bull trend. In fact, I would welcome such a move just to shake off the overbought technicals and set the stage for the next big leg higher. So, I'm long, I'm bullish, but I would suggest caution on new longs way up here unless you're comfortable riding out a good bit of V. Buy on dip levels on my chart are 35.81, 3525, and 3470. Well, Eric, in the bigger context of that reflation trade and what Louie was sharing with us, the idea that gold continuing to rally is certainly the thesis. Now, from a measured move perspective, there is room for gold to get up to $3,900 to 4,000, but that would really be more of a year-end target with us already having bullishly impulse 300 plus dollars in a month. uh there are plenty of opportunities or uh potential moments where we could see gold do a retracement exactly the way you were highlighting. A lot of your levels for the buy on dip line up with uh what would be a a retest of all the major highs that were established from April to July and Fibonacci zones, 50-day moving averages, all sorts of things lie in those buy zones. So in general uh at some stage the rally will get checked but it should be used as a buying opportunity as there is zero evidence that this primary bull trend uh has stopped or reversed. All right, Eric, let's touch on uranium. The uranium miners ripped higher on Monday on even more bullish long-term nuclear renaissance news flow over the weekend. Tuesday's pullback was perfectly expected. Of course, that happens after a big surge higher like that and not cause for concern. And it looks like we're already bouncing on Wednesday. So, this is a healthy bull market in uranium. So far, my base case is playing out. It's a major bull move from here through uh February or March or so based on the alignment of short, medium, and long-term fundamentals. And finally, we're seeing a constructive evolution of investor sentiment. Now, for anyone unfamiliar with that particular phrase in finance, it's a euphemism, meaning even the stupid people are finally waking up to the freaking obvious, which is the screaming bullish fundamentals that have been painfully obvious to anyone paying attention for well over a year now. Well, Eric, just looking at things from an opportunity perspective, while uranium equities have been on fire and they continue to even make higher highs, uh, for me, uh, as a new entry, it's challenging without there being a correction to be able to buy the dip on. The only natural way to keep participating is through uh a convex trade of putting on bull call spreads to capture some further uh upside impulses. But being delta 1 on a brand new position uh is not very asymmetric. But Eric, what I'd rather focus on is actually the spot prices of uranium through things like the spot physical uranium trust, which we finally have seen uranium prices themselves starting to rise and turn from that uh year-long bare market that we saw on the consolidation. To me, there is far more asymmetry on playing the upside of the uh uranium participation units here, which continued to be bought on dip. And if for instance we see uh the spat physical trust break out of its uh June and August highs uh we could really see the next leg get underway. We'll be watching spot prices of uranium to see whether they continue to support this. All right, Eric, let's have a quick look at copper. Well, it was starting to look like a rally was beginning, but the last two or three days have seen a correction or pullback. Probably just owing to a little bit of turbulence around FOMC day. seems to me like a perfect entry point if you want to put that long copper trade on that Louie talked about and that Patrick discussed earlier in the trade of the week. I'm toying with adding to my longs here, but I was already overweight. If I had no position on, I would be jumping all over the long side of HGUS uh high-grade copper futures here. Well, Eric, I think I talked enough about copper in the earlier session, but I want to move on here and uh just wrap up things by looking at that chart on the 10-year Treasury yield. And this is particularly interesting for me because obviously the FOMC has been the much anticipated event of September. And so uh with us seeing that the rate cuts for the year having pretty much been confirmed with two more cuts still to come uh we were looking to see whether there would be a bullish reaction uh to the bonds and or a further deterioration in yields. At least initially yields strengthened off the 4% level in the first reactions to FOMC. But by no means is this a meaningful trend reversal. And so, uh, while we could temporarily see the 10-year yield work its way to even 410 on the upside, uh, so long as the rallies in the yield are, uh, short-lived, then you have to respect that a new primary downtrend in yields is underway and leaving room for a lot of these bonds to still have another impulse higher in the weeks and months to come. Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Bigpictur Trading. The details are on the last pages of the slide deck, or just go to bigpicturetrading.com. Patrick, tell them what they can expect to find in this week's research roundup. In this week's research roundup, you're going to find the transcript for today's interview, as well as the chart book we just discussed here in the postgame, including a link to a number of articles that we found interesting. You're going to find this and so much more in this week's research roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners and we're always looking for suggestions on how we can make the program even better. Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email at researchroundup@macrovoices.com and we will consider it for our weekly distributions. If you have not already, follow our main account on X at Macrovoices for all the most recent updates and releases. You can also follow Eric onx, Eric S. Townson. That's Eric spelled with a K. You can also follow me at Patrick Serzna. On behalf of Eric Townson and myself, thank you for listening and we'll see you all next week. [Music] That concludes this edition of Macrovoices. Be sure to tune in each week to hear feature interviews with the brightest minds in finance and macroeconomics. 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