Gold & Silver Are Trapped By Liquidity | Daniel Lacalle
Summary
Fed Outlook: Inflation was largely energy-driven and the guest expects the Fed to hold rates, warning hikes risk a credit slowdown and liquidity squeeze for SMEs.
Global Liquidity: Massive money supply growth globally is pushing flows into U.S. dollar assets and equities while bonds, gold, and silver have lagged.
US vs. Developed Markets: The U.S. remains resilient while the UK, Canada, Japan, Germany, Italy, and France face stagnation or recession, reinforcing a tilt to U.S. assets.
Defensive Stocks: Recession-proof names (e.g., staples and healthcare exemplified by Campbell Soup and Johnson & Johnson) are regaining momentum due to attractive valuations and steady earnings.
IPO Liquidity Drain: “Giga IPOs” like SpaceX may temporarily drain liquidity and pressure risk assets, but positioning should normalize after these offerings.
Precious Metals: Bullish medium-term on gold and silver as rising global money supply and a wall of sovereign-debt maturities imply more monetary accommodation.
Oil Prices: Bearish near-term view on crude given backwardation, weakening momentum, and potential deleveraging of crowded long positions.
US Dollar: The de-dollarization narrative has stalled; in stress, global demand for dollars rises, though he plans to reduce net-long USD as geopolitical fears ebb.
Transcript
I'm not worried about a US recession in any shape or form. Not worried about a US recession. I am worried about stagnation in the developed economies. While we discuss openly all the time in US media what's happening to the smallest detail in the uh United States, we have already seen the UK stagnate. Uh Canada in recession, uh Japan may border uh recession. About an hour and a half ago, we got the CPI data out of the US. 4.2% is the is the reading. And uh we have to figure out is the Fed now trapped or is the Fed being pushed into a certain direction. Do we have to talk about a rate hike in in about 7 days time? Of course, we got a new Fed chair and the position is quite clear. He is more dovish than hawkish perhaps right now. But I'm I'm curious, what will the Fed do? What should they do? I just looked at the Fed watch tool and the Fed watch tool meaning like the market doesn't price in any percent or 0% of a Fed hike here at the next meeting in 7 days. Personally, I think that's too low. I've invited back Daniel Akai. He's the chief economist over at Treses and he's a fantastic guest to exactly discuss that. Where are we headed? What is the Fed going to do? And before I switch over to my guest though, help us out with the algorithm. It helps us out tremendously if you hit that like and subscribe button and leave a comment down below. Thank you so much for doing that. Now, Daniel, it's a great pleasure to have you back. Very, very timely. We just got the CPI print. Thanks for making it. >> Thank you so much for inviting me. Always a pleasure. >> Yeah, really looking forward to the discussion, Daniel, because the CPI print that we just got about 90 minutes ago is is really interesting. Um Jonathan Pharaoh on on Bloomberg said a meat is a beat and the market was briefly optimistic about that as well. meaning like inflation didn't go rampant and it stayed within expectations. The question is did it stay in within expectations for you Daniel? >> Uh it did stay within expectations. I have to say that the core CPI figure was better than what I expected and I did not expect core CPI to be down month. So I think that all those things add to why the market is expecting that the Fed will stay put in terms of of of rate hikes. If we look at the CPI figure, 65% of the rise came from energy. And if energy had not been so abruptly high, what we could have seen was a a CPI of 1.7%. No. Uh so what considering that oil prices are now correcting that commodity prices are correcting and that uh freight charges are also correcting many uh investors are looking ahead and maybe thinking hey in June we are likely to see a very significant reduction in the CPI print and that is probably why consensus is discounting zero rate cuts or hikes in uh in the in the next Federal Reserve meeting. But I agree with you. I would not say it's 0%. Because there are certainly uh a number that is that should not be uh denied of of of participants in the Federal Reserve that consider that inflationary pressures are more uh persistent than what than what we see uh in that month on month or since the war uh move of the of the of the core CPI. Therefore, I would not say 0%, but I do think it's going to be a low percentage of probability of a rate hike. >> Yeah, I'm curious because the Fed keeps emphasizing, well, full employment and inflation are our two mandates, right? Inflation little little higher, but as you said, like the trend might be going lower again. Uh oil is below $90 a barrel as we speak here, Daniel. Um but employment is also fairly strong. All right. So, is that enough to stay neutral then? I think that that's why I I don't see a 0% because uh remember that the beige book and the initial figures of jobless claims and ADP employment were a little bit sluggish at the beginning of the year but they've strengthened very very rapidly into the uh months of February March and more interestingly they have strengthened in the middle of a geopolitical risk challenge and with the uh obviously uh difficulties that any type of geopolitical conflict like the Iran war can generate. So that is one of the elements that the Fed can cling on to saying that that job creation is strong. However, when we look at labor force participation and the overall unemployment rate, I think that the Fed may uh think okay uh it's a it's a good solid employment uh environment but it is not the type of environment that we should have i.e. It is still below the average of 2018 2019. No. So, you know, it's going to be very difficult for the Fed to make a decision. If I were Kevin Walsh and any of the members of the Federal Reserve, I would be doing something completely different. I would be looking at what is happening with credit growth, what is happening with money supply and money velocity. And if you look at money supply, money velocity, and credit growth, those are actually signals that tell you you should not be hiking for a very simple reason. It's showing you that money supply growth has stalled in the last months. Uh money supply growth has stalled in the last months. We have also seen that money velocity is slightly weaker and that credit growth is something that is not strengthening as much as uh uh let's say robust uh economy would dictate. No. So those levels of uncertainty tell you that if they did decide to hike rates there would be a very significant risk which is the following. if they decided to hike rates. It's not a question of what 25 basis points mean for the cost of credit. Is that a lot of banks are simply not going to lend because it's more uh profitable and certainly less risky to hoard government bonds than to lend to uh business and families. So what happens is that if you hike rates you may generate a big credit shutdown and a significant uh reduction in liquidity for the overall economy particularly for small and medium enterprises. All of those elements, if I put them all together, I would I would be more on the position of thinking it's better to hold rates than to make a policy mistake that can uh immediately generate a negative domino effect for small and medium enterprises and for families. More importantly, uh rate hike is not going to change oil prices. is not going to make anything and move in terms of the geopolitical risk premium in energy prices. Therefore, that is something that they also need to look uh in a different perspective. So, I would say stay stay put because there's no reason to hike uh despite those relatively stronger numbers and the inflationary pressures on the headline figure. >> Yeah, it's really interesting. Fed Wars or Fed Kevin War's first Fed meeting there next week in exactly seven days which could be very interesting. Do do you expect a big headline statement or any anything from him in in in any direction? Do do you expect fireworks? >> I think it's going to be super prudent. I don't think No, some people are expecting Mr. Wars to say something that will make uh President Trump very angry or that will make President Trump very happy. I am almost I wouldn't say 100% because I'm never 100% sure of anything except that that we're all going to die at some point. But um I am very confident that he will be very prudent that he will talk about core inflationary pressures uh being very subdued. that he will talk about a strong but with uh challenges labor market and that he will probably be more inclined to be talking about uh a different perspective uh which is to be very prudent not to try to be political on either side. >> Kevin Worsh used to be known for maybe wanting to tighten the Fed balance sheet and and reduce it as well. >> Just the last few months the Fed has extremely expanded its balance sheet. Uh Michael Howell I think mentioned $600 billion through indirect and uh direct QE although nobody calls it this calls it this QE anymore this these days but um like what do you think he'll do in that regard like you just mentioned M2 money supply has slowed down um but liquidity seems to be starting to become an issue when I look at the markets here >> I agree with you as well and that's why if you look at monetary aggregates then you should be quite uh cautious about rate hikes No, but if I were Kevin Wars or a member of the Fed, what I would definitely do is knowing that there is robust and very very solid demand for treasuries that every single auction is coming at 2.3 2.5 times overs subscribed. What I would certainly do is instead of delaying the normalization of the balance sheet, I would accelerate the normalization of the balance sheet while maintaining a strong level of liquidity in the repo market and the reverse re repo market which I think is is is critical and at the same time not not hike rates. So taking the opportunity to reduce the balance sheet of the Federal Reserve is a great opportunity uh in because it means that it's giving the world confidence about the demand for treasuries and at the same time that the Fed is uh let's say really focused on normalization. So I would certainly look at uh accelerating or at least maintaining the path of of uh reduction of the balance sheet. >> Is the market reacting corresponding to to what you're seeing what the the macro picture is telling us what you just described? Is the market in accordance with that or is it acting completely independent? Um I'm looking at the S&P near record highs although it's it's trending lower now. Um but also other asset classes are struggling. Bonds, gold and silver for example. um like how is the market respond to what what you've just mentioned? How do you see that correlate? >> Yeah, I think that the market is on the one hand responding to what is pretty evident which is enormous liquidity all over the world. It's not money supply growth in the United States alone is out of control. Money supply growth from China. Also, the Euro zone is increasing money supply three times faster than what the economy is growing. All these are elements that are important. No. And because there is at the same time you have high uh global money supply growth while at the same time you have a concern about geopolitical risk and a sort of uh riskoff mentality. Most of that money supply growth is going to US dollar assets. So there therefore it makes sense that the S&P the NASDAQ etc are close to all-time highs although now there seem to be trending a little bit lower whilst uh other markets bond markets in particular are not behaving accordingly because people are afraid of both geopolitical concerns and inflationary pressures. So I think that it's it's there is a disparity in the way that markets are reacting relative to fear about more inflation for longer while at the same time being very optimistic or significantly more let's say bullish about global money supply uh earnings and and valuation of stocks. So it's an interesting risk on risk off situation. You're basically selling gold, selling silver, selling bonds, and at the same time you're buying the dollar and you're buying equities. And that is something that the old people like myself are not used to. No, usually when you when you saw oil prices go up, the dollar would be going down. The dollar and oil are going in tandem. It's incred it's almost it's not incredible. It is basically the fact that the United States is the largest oil and gas producer and the largest oil and gas exporter. No, but I think that all those elements are uh need to be clarified at some point throughout the next couple of months in terms of whether the market um steers to the side of persistent inflation and therefore higher risk in bonds, gold and silver or uh uh less risk about inflation. And therefore we can see uh that shift of money supply growth going back to the havens that used to protect you against the destruction of the monetary of the monetary base. No, >> I want to go a bit more micro with you because we we're seeing a lot of uh you know giga IPOs about to happen here. um SpaceX on Friday here in a couple of days time, $1.77 trillion valuation, $75 billion um capital that they want to raise here as part of that IPO. Um we were talking about liquidity, those giga IPOs, are they drain of liquidity? Is that why gold is going down, silver is going down, Bitcoin is going down, bond deals are shooting up? Um you you name it. Even the S&P 500 is going down. Maybe some rotation even happening in the big caps in the AI names. Um, do do you see that as a as a positive or a negative here, Daniel? I think I think obviously that what you're saying is absolutely right that we are seeing a significant drain of liquidity saved to participate in those enormous uh IPOs that bring uh completely different perspective to the to the market and in which there is a huge debate about valuations and about whether those are likely to work or not to work or whether those are going to create a market crash or not. I don't think that they're going to create a market crash, but I do think that once those uh two uh particular large uh IPOs uh pass, then it is likely that we will start to see a normalization in the uh in the the in the investment positioning of uh most most global investors. Global investors right now seem to be uh betting at one thing and the opposite at the same time. A temporary uh inflationary burst, but at the same time fear of persistent inflation. Those two things uh don't add up and uh they don't account in any shape or form for the likelihood of a recession. uh and obviously if there was a persistent inflationary pressure that would be a risk that should be embedded in in investors uh uh books. So those IPOs for me are an opportunity. It's an opportunity for those that are not comfortable with the valuation of SpaceX or any of those giga giga IPOs or basically don't want to see what's the flow. uh it's an opportunity to look at those assets that have been underperforming recently or have corrected in order to buy at a better at a better price because I think that the the overriding factor is the one that we talked about previously is that global money supply growth not just the United States is soaring. No. >> No. And maybe the US is the only home for that liquidity in general as well because it's the only one that can sort of facilitate that liquidity. >> Exactly. Absolutely >> right. >> Mhm. Um, you you just mentioned something interesting like stocks catching a bit that might have been unloved. Um, I had the pleasure of chatting with Gareth Soloway yesterday. He's a chief market strategist over at Verified Investing and we looked at uh some charts during our conversation. Uh, we looked at Campbell Soup, we looked at Johnson and Johnson and a couple others, more of the recession proof stocks that tend to catch a bit uh when there's maybe a thunderstorm on the horizon. Um, meaning a recession perhaps. And we haven't used the Rword here on the program in the last few weeks. um it it es and flows. Um how worried are you about a recession right now? It seems everything based on what we're seeing is hunky dory though. >> I'm not worried about a US recession in any shape or form. Not worried about a US recession. I am worried about stagnation in the developed economies. While we discuss openly all the time in US media what's happening to the smallest detail in the uh United States, we have already seen the UK stagnate. uh Canada in recession. Uh Japan may border uh recession. Germany is is close to close to recession. Certainly stagnation. Italy, France. We're talking about a G8 in which only one economy, the United States is doing pro is doing is doing well. Therefore, I think that that is a very significant risk that needs to be included. What the market seems to be doing with these stocks is uh finally understanding that there is uh there the there are bulletproof stocks that have a very good combination of valuation and earnings growth. The big risk on those names was actually earnings growth. No. And I think that with the last earnings uh uh publications we have seen that investors have become uh a lot more let's say uh excited about names that were almost uh forgotten by many many of the many of the of the global investors. So the combination of higher demand for US dollar assets with an environment in which the United States is not in recession but the rest of the developed economies are either in stagnation or recession that may generate some uh momentum in those names. >> Absolutely. No, it's it's an interesting tidbit. We saw the charts yesterday and uh they all broke out from the trend lines as well. So give give me a little pause. So, I was like, "Okay, I'm trying to figure out what this means." Were they just so unloved it was time for them to catch a bit or is there more trouble on the horizon? Because we're looking at the copper chart um to together as well at the time and he's looking at a breakdown potentially in the copper price. Um so, negative price action which would correlate of course Dr. Copper telling us what's happening in the economy which would correlate again with a recession fear perhaps. >> Yeah. But but copper is a very interesting theme that I absolutely love to look at because on the one hand it's a absolutely a great bell weather for the economy but it's also a very significant one about a shift in industrial demand and the energy transition of many economies. And what we are seeing is that a lot of those developed economies are either backing away or at least moderating their uh energy transition, electrification etc. uh policies that obviously erodess a very significant chunk of copper demand uh from the from the market in the future. No, but but but we need to look at it from from also that perspective. I think that um the commodity complex is super interesting right now because I think it has broken a lot of myths. No, the geopolitical risk is is only going to make prices rise because that is that is uh affecting uh commodities with a very uh inelastic demand. And what we're seeing is actually the opposite. So with copper I would be also including the variable of Germany, France, the UK, Italy and obviously Canada but particularly those four first have massively uh let's say moderated if slowed down if not fully eradicated their uh complete energy transition and electrification of the transport system. >> No, you're you're absolutely right. I think copper we need to look at it differently as you pointed out and coming from the mining side we know exactly how much new supply is coming online and at some point price will regulate demand we'll see that so maybe there is a bit of a decoupling from the economic activity in general because the demand has changed over the recent years as well. So very good points you're making there Daniel. Um, I want to come back to something you mentioned earlier. It's a dolorization trend. And I I'm curious. Um, we haven't spoken in a while, Daniel, but it feels like the US was able to slow down that dilization trend with their military action. Venezuela first, Middle East second here in starting in March. Um, would you agree with that? Because it seems like the world is flow flocking back towards the US dollar. Turkey for example and many other countries having to buy or sell reserve assets to buy US dollar to buy oil which is more or was more expensive for a short while and it definitely was more expensive in uh Southeast Asia. I heard Sri Lanka had to pay close to $290 a barrel at one point to get access. Um has the dolization trend slowed down here? >> I think it has virtually stopped. I think is is complete because one of the things that a lot of these economies have found out is that uh in serious trouble environments you need dollars. It doesn't work with yuan. It doesn't work with rubles and it doesn't work with rupees. I'm really really sorry for those that believe so but it doesn't work at all. And this is what we have found out. We have found out that the ddollarization trend was actually a bull market construct. It was it was viewed as something that uh did not take into account that there is a moment in which many developing economies need to sell their gold in order to pay for uh current account or elements that that are you know uh uh required at the very moment and that you cannot simply say oh I'm going to pay you in uh local currency further even less I'm going to pay you in yuan or in or in rupees. Therefore, I think that the ddollarization myth has been broken by the first signal of geopolitical risk. Does that mean that the dollar is going to strengthen in price relative to other fiat currencies? Not necessarily. The ddollarization requires substitution. And the only thing that we have been able to at least get very very clearly is that there is no substitution. There was a defiat currencyization if that were I've just made a word. The defiatization that central banks were buying more gold and hoarding less uh reserve assets coming from sovereign debt from developed economies. That is different because there's been no substitution and the dollar remained the strongest of those fiat currency reserves. However, when things get tough, then the tough get going. And what we have seen is that people really need dollars. Um, is it going to [clears throat] last forever? No. The moment that geopolitical risk erh is eliminated and it needs to be eliminated from the perception of the global market then uh it is very likely that those central banks will resume big purchases of gold will continue to rebalance their ownership of treasuries and euro bonds or uh Japanese bonds in their balance sheets uh relative to gold 100%. % >> one thing you haven't mentioned is that gold is being used for transactions and I think we've seen a bit of an uptick in that trend as well like China opening like vaults in Saudi Arabia so they can use gold sort of as an medium of exchange here and don't have to use the yuan and stay out of that yuan system perhaps um why haven't we seen more of a shift towards gold then why hasn't uh is is it just because the US dollar is so established that it just takes too long to establish a new monetary system >> at a whim here >> it's a notion of convenience, liquidity, and legal and investor security. Think about this. Yes, of course, you can use gold for transactions and you're absolutely right. The use of gold for transactions is rising, but you cannot simply cannot uh let's say make a meaningful change in the world monetary system from dollar to gold and especially physical gold as you are mentioning for a very simple reason. It's it's it's so difficult from a storage from a from from every every aspect that you want to that you want to consider that it makes it virtually impossible. So, China, yes, obviously what China is trying to do and rightly so, is to try to find a way for the market and for countries like Saudi Arabia in this case to be convinced that trading in yuan is safe because there is a certain back backing of physical gold. That makes sense. Why? because it's the only way for China to make people accept a currency that has uh no uh free uh floating in the market that has capital controls and where the system doesn't have legal and investor security that but that again is moving in the margins in very very small margins. So ultimately we we uh as investors we take liquidity for granted until it stops until there is what you everything that we have mentioned in this program is a direct consequence of liquidity going from ample to limited >> talking about limited liquidity. We're we're about to head into the summer or summer is already started. A lot of the US schools are already out of session here. Um what is your summer playbook, Daniel, just based on everything we've just discussed? Like how are you approaching the next two and a half months here? >> The way that we're looking at it is continue to be exposed to US equities, looking at opportunities in those sectors that we like. Uh we like technology, but we like technology with profits. We're not going to participate aggressively in any of those giga uh IPOs. And what the other thing that we're looking at is gold, silver. Look at those as opportunities to purchase into the next leg of uh money supply growth and aggressive uh indebtedness. I just saw this article from Bloomberg about the massive wall of maturity of sovereign debt coming in the next months from developed economies. Well, that obviously is money printing. So that leads you to take more exposure. Happy to take more exposure on gold and silver. Happy to take more exposure on uh continue to have exposure on gold. be very prudent, very very prudent actually very under uh under underinvested in sovereign bonds especially in large in duration and uh reduce the netlong exposure to the US dollar as uh these geopolitical concerns become I wouldn't even say that they end you just it just the fact that that the entire bluff has been blown in terms of geopolitical risk and and the disaster of Ormouth and supply constraints etc. I think that that is likely to shift the the movement from more exposure to the US dollar to more uh to gold and silver. >> If we were to speak on let's say September 15th, where do you think the oil price will be at that time? >> Oh, I think it's going to go lower. I think I think the the chart on oil is super toxic. I've I've traded oil for many many years. I something something that we are not currently discounting may happen and I'm not obviously going to say it's going to predict the future but the combination of a curve in deep backwardation that has steepened the backwardation and has lowered the price in the back end plus the momentum. Look at the momentum. you know the oil prices move a little bit up with with geopolitical concerns then they resume the way down the higher the highs are lower than the previous highs and the lows are lower. So the the momentum is really really dangerous and you also have to remember [snorts] that oil may see the same situation that gold saw at the beginning of the year. Remember what created the sell-off in gold was that there were too many bets that were super indebted, super levered on uh on gold with uh negative bias on the US dollar. And obviously when margin calls started to appear, no equity leads to having to unwind those trades. Unfortunately, because of the Iran war, we saw a lot of increases in ultra-levered bets on oil prices. No. And most of them actually started not at 80 but at 95. No. So that is that is another thing for me. The chart, the momentum, the news flow and how every time that Iran says something, virtually nobody cares. And at the same time, you're seeing how infrastructure and supply are changing. I would be very very cautious. I would be very cautious. Something may happen. I'm not going to say [laughter] that because we can all get surprises, but I'm it doesn't it looks like a very toxic uh like a very toxic uh trend to me. >> I I I agree with you. $40 seem to be in the cards. That's just what my gut is telling me. looking at a chart like >> if oil prices cross the support level of $85 it's it's it's a stone there's it's like a falling knife. I don't see where where it stops. I don't know if it's $40. I don't know if it's 50. But I remember 2008 when uh one week I was hearing stat oil now it has different names say oil prices are going to go to 200 to oh my god they're going to go to 20. So so >> I'm going to buy an inflatable pool by the way just so I can fill it up with some oil like when it goes negative again. >> Be cautious. Just be cautious. None of the doomsday scenarios have happened and all of the uh justifications for the doomsday scenario are behind us. So that that's what tells me that you have to be a little bit cautious. >> Absolutely. Daniel, what a wonderful conversation. Tremendously appreciate your time obviously. Um where where can we send our audience to follow more of your work? Daniel, >> thank you so much. It's it's very easy. Just just follow me on Twitter on X, sorry, that's da_ia. That's my account in English. Um, I have [clears throat] a an account in English and an account in Spanish. Same in my website daay.comen and also in my YouTube channel in English. Remember that if you Google me and you find first, which would be the logical thing, the Spanish account, that there is an English account fully fully translated and and with no need to use uh uh artificial intelligence. >> Fantastic. Awesome, Daniel. Tremendously appreciate your time. Really appreciate you coming on on sore financially. Really insightful. Much appreciated. Now, everybody else, thank you so much for tuning in as well. What a wonderful conversation here with Daniel Laya. Lot lots happening. the US dollar stronger than ever perhaps. We we'll see. Uh, of course, gold and silver are still waiting to catch a bid here, but long term, I think Daniel has agreed as well. There's no other alternative than gold and silver in my opinion, and I fully agree. Lot lots going on. Watch the Fed meeting here in a week. I'm quite excited. I'll have the popcorn ready. Uh, maybe we'll do a live episode. Should we do a live episode right after the Fed press conference? Let me know down in the comments. It also shows me who's watched the episode to the end. Thanks so much for tuning in. Have fun. Hit that like and subscribe button and don't let the emotions run your investments for you. Take care out there.
Gold & Silver Are Trapped By Liquidity | Daniel Lacalle
Summary
Transcript
I'm not worried about a US recession in any shape or form. Not worried about a US recession. I am worried about stagnation in the developed economies. While we discuss openly all the time in US media what's happening to the smallest detail in the uh United States, we have already seen the UK stagnate. Uh Canada in recession, uh Japan may border uh recession. About an hour and a half ago, we got the CPI data out of the US. 4.2% is the is the reading. And uh we have to figure out is the Fed now trapped or is the Fed being pushed into a certain direction. Do we have to talk about a rate hike in in about 7 days time? Of course, we got a new Fed chair and the position is quite clear. He is more dovish than hawkish perhaps right now. But I'm I'm curious, what will the Fed do? What should they do? I just looked at the Fed watch tool and the Fed watch tool meaning like the market doesn't price in any percent or 0% of a Fed hike here at the next meeting in 7 days. Personally, I think that's too low. I've invited back Daniel Akai. He's the chief economist over at Treses and he's a fantastic guest to exactly discuss that. Where are we headed? What is the Fed going to do? And before I switch over to my guest though, help us out with the algorithm. It helps us out tremendously if you hit that like and subscribe button and leave a comment down below. Thank you so much for doing that. Now, Daniel, it's a great pleasure to have you back. Very, very timely. We just got the CPI print. Thanks for making it. >> Thank you so much for inviting me. Always a pleasure. >> Yeah, really looking forward to the discussion, Daniel, because the CPI print that we just got about 90 minutes ago is is really interesting. Um Jonathan Pharaoh on on Bloomberg said a meat is a beat and the market was briefly optimistic about that as well. meaning like inflation didn't go rampant and it stayed within expectations. The question is did it stay in within expectations for you Daniel? >> Uh it did stay within expectations. I have to say that the core CPI figure was better than what I expected and I did not expect core CPI to be down month. So I think that all those things add to why the market is expecting that the Fed will stay put in terms of of of rate hikes. If we look at the CPI figure, 65% of the rise came from energy. And if energy had not been so abruptly high, what we could have seen was a a CPI of 1.7%. No. Uh so what considering that oil prices are now correcting that commodity prices are correcting and that uh freight charges are also correcting many uh investors are looking ahead and maybe thinking hey in June we are likely to see a very significant reduction in the CPI print and that is probably why consensus is discounting zero rate cuts or hikes in uh in the in the next Federal Reserve meeting. But I agree with you. I would not say it's 0%. Because there are certainly uh a number that is that should not be uh denied of of of participants in the Federal Reserve that consider that inflationary pressures are more uh persistent than what than what we see uh in that month on month or since the war uh move of the of the of the core CPI. Therefore, I would not say 0%, but I do think it's going to be a low percentage of probability of a rate hike. >> Yeah, I'm curious because the Fed keeps emphasizing, well, full employment and inflation are our two mandates, right? Inflation little little higher, but as you said, like the trend might be going lower again. Uh oil is below $90 a barrel as we speak here, Daniel. Um but employment is also fairly strong. All right. So, is that enough to stay neutral then? I think that that's why I I don't see a 0% because uh remember that the beige book and the initial figures of jobless claims and ADP employment were a little bit sluggish at the beginning of the year but they've strengthened very very rapidly into the uh months of February March and more interestingly they have strengthened in the middle of a geopolitical risk challenge and with the uh obviously uh difficulties that any type of geopolitical conflict like the Iran war can generate. So that is one of the elements that the Fed can cling on to saying that that job creation is strong. However, when we look at labor force participation and the overall unemployment rate, I think that the Fed may uh think okay uh it's a it's a good solid employment uh environment but it is not the type of environment that we should have i.e. It is still below the average of 2018 2019. No. So, you know, it's going to be very difficult for the Fed to make a decision. If I were Kevin Walsh and any of the members of the Federal Reserve, I would be doing something completely different. I would be looking at what is happening with credit growth, what is happening with money supply and money velocity. And if you look at money supply, money velocity, and credit growth, those are actually signals that tell you you should not be hiking for a very simple reason. It's showing you that money supply growth has stalled in the last months. Uh money supply growth has stalled in the last months. We have also seen that money velocity is slightly weaker and that credit growth is something that is not strengthening as much as uh uh let's say robust uh economy would dictate. No. So those levels of uncertainty tell you that if they did decide to hike rates there would be a very significant risk which is the following. if they decided to hike rates. It's not a question of what 25 basis points mean for the cost of credit. Is that a lot of banks are simply not going to lend because it's more uh profitable and certainly less risky to hoard government bonds than to lend to uh business and families. So what happens is that if you hike rates you may generate a big credit shutdown and a significant uh reduction in liquidity for the overall economy particularly for small and medium enterprises. All of those elements, if I put them all together, I would I would be more on the position of thinking it's better to hold rates than to make a policy mistake that can uh immediately generate a negative domino effect for small and medium enterprises and for families. More importantly, uh rate hike is not going to change oil prices. is not going to make anything and move in terms of the geopolitical risk premium in energy prices. Therefore, that is something that they also need to look uh in a different perspective. So, I would say stay stay put because there's no reason to hike uh despite those relatively stronger numbers and the inflationary pressures on the headline figure. >> Yeah, it's really interesting. Fed Wars or Fed Kevin War's first Fed meeting there next week in exactly seven days which could be very interesting. Do do you expect a big headline statement or any anything from him in in in any direction? Do do you expect fireworks? >> I think it's going to be super prudent. I don't think No, some people are expecting Mr. Wars to say something that will make uh President Trump very angry or that will make President Trump very happy. I am almost I wouldn't say 100% because I'm never 100% sure of anything except that that we're all going to die at some point. But um I am very confident that he will be very prudent that he will talk about core inflationary pressures uh being very subdued. that he will talk about a strong but with uh challenges labor market and that he will probably be more inclined to be talking about uh a different perspective uh which is to be very prudent not to try to be political on either side. >> Kevin Worsh used to be known for maybe wanting to tighten the Fed balance sheet and and reduce it as well. >> Just the last few months the Fed has extremely expanded its balance sheet. Uh Michael Howell I think mentioned $600 billion through indirect and uh direct QE although nobody calls it this calls it this QE anymore this these days but um like what do you think he'll do in that regard like you just mentioned M2 money supply has slowed down um but liquidity seems to be starting to become an issue when I look at the markets here >> I agree with you as well and that's why if you look at monetary aggregates then you should be quite uh cautious about rate hikes No, but if I were Kevin Wars or a member of the Fed, what I would definitely do is knowing that there is robust and very very solid demand for treasuries that every single auction is coming at 2.3 2.5 times overs subscribed. What I would certainly do is instead of delaying the normalization of the balance sheet, I would accelerate the normalization of the balance sheet while maintaining a strong level of liquidity in the repo market and the reverse re repo market which I think is is is critical and at the same time not not hike rates. So taking the opportunity to reduce the balance sheet of the Federal Reserve is a great opportunity uh in because it means that it's giving the world confidence about the demand for treasuries and at the same time that the Fed is uh let's say really focused on normalization. So I would certainly look at uh accelerating or at least maintaining the path of of uh reduction of the balance sheet. >> Is the market reacting corresponding to to what you're seeing what the the macro picture is telling us what you just described? Is the market in accordance with that or is it acting completely independent? Um I'm looking at the S&P near record highs although it's it's trending lower now. Um but also other asset classes are struggling. Bonds, gold and silver for example. um like how is the market respond to what what you've just mentioned? How do you see that correlate? >> Yeah, I think that the market is on the one hand responding to what is pretty evident which is enormous liquidity all over the world. It's not money supply growth in the United States alone is out of control. Money supply growth from China. Also, the Euro zone is increasing money supply three times faster than what the economy is growing. All these are elements that are important. No. And because there is at the same time you have high uh global money supply growth while at the same time you have a concern about geopolitical risk and a sort of uh riskoff mentality. Most of that money supply growth is going to US dollar assets. So there therefore it makes sense that the S&P the NASDAQ etc are close to all-time highs although now there seem to be trending a little bit lower whilst uh other markets bond markets in particular are not behaving accordingly because people are afraid of both geopolitical concerns and inflationary pressures. So I think that it's it's there is a disparity in the way that markets are reacting relative to fear about more inflation for longer while at the same time being very optimistic or significantly more let's say bullish about global money supply uh earnings and and valuation of stocks. So it's an interesting risk on risk off situation. You're basically selling gold, selling silver, selling bonds, and at the same time you're buying the dollar and you're buying equities. And that is something that the old people like myself are not used to. No, usually when you when you saw oil prices go up, the dollar would be going down. The dollar and oil are going in tandem. It's incred it's almost it's not incredible. It is basically the fact that the United States is the largest oil and gas producer and the largest oil and gas exporter. No, but I think that all those elements are uh need to be clarified at some point throughout the next couple of months in terms of whether the market um steers to the side of persistent inflation and therefore higher risk in bonds, gold and silver or uh uh less risk about inflation. And therefore we can see uh that shift of money supply growth going back to the havens that used to protect you against the destruction of the monetary of the monetary base. No, >> I want to go a bit more micro with you because we we're seeing a lot of uh you know giga IPOs about to happen here. um SpaceX on Friday here in a couple of days time, $1.77 trillion valuation, $75 billion um capital that they want to raise here as part of that IPO. Um we were talking about liquidity, those giga IPOs, are they drain of liquidity? Is that why gold is going down, silver is going down, Bitcoin is going down, bond deals are shooting up? Um you you name it. Even the S&P 500 is going down. Maybe some rotation even happening in the big caps in the AI names. Um, do do you see that as a as a positive or a negative here, Daniel? I think I think obviously that what you're saying is absolutely right that we are seeing a significant drain of liquidity saved to participate in those enormous uh IPOs that bring uh completely different perspective to the to the market and in which there is a huge debate about valuations and about whether those are likely to work or not to work or whether those are going to create a market crash or not. I don't think that they're going to create a market crash, but I do think that once those uh two uh particular large uh IPOs uh pass, then it is likely that we will start to see a normalization in the uh in the the in the investment positioning of uh most most global investors. Global investors right now seem to be uh betting at one thing and the opposite at the same time. A temporary uh inflationary burst, but at the same time fear of persistent inflation. Those two things uh don't add up and uh they don't account in any shape or form for the likelihood of a recession. uh and obviously if there was a persistent inflationary pressure that would be a risk that should be embedded in in investors uh uh books. So those IPOs for me are an opportunity. It's an opportunity for those that are not comfortable with the valuation of SpaceX or any of those giga giga IPOs or basically don't want to see what's the flow. uh it's an opportunity to look at those assets that have been underperforming recently or have corrected in order to buy at a better at a better price because I think that the the overriding factor is the one that we talked about previously is that global money supply growth not just the United States is soaring. No. >> No. And maybe the US is the only home for that liquidity in general as well because it's the only one that can sort of facilitate that liquidity. >> Exactly. Absolutely >> right. >> Mhm. Um, you you just mentioned something interesting like stocks catching a bit that might have been unloved. Um, I had the pleasure of chatting with Gareth Soloway yesterday. He's a chief market strategist over at Verified Investing and we looked at uh some charts during our conversation. Uh, we looked at Campbell Soup, we looked at Johnson and Johnson and a couple others, more of the recession proof stocks that tend to catch a bit uh when there's maybe a thunderstorm on the horizon. Um, meaning a recession perhaps. And we haven't used the Rword here on the program in the last few weeks. um it it es and flows. Um how worried are you about a recession right now? It seems everything based on what we're seeing is hunky dory though. >> I'm not worried about a US recession in any shape or form. Not worried about a US recession. I am worried about stagnation in the developed economies. While we discuss openly all the time in US media what's happening to the smallest detail in the uh United States, we have already seen the UK stagnate. uh Canada in recession. Uh Japan may border uh recession. Germany is is close to close to recession. Certainly stagnation. Italy, France. We're talking about a G8 in which only one economy, the United States is doing pro is doing is doing well. Therefore, I think that that is a very significant risk that needs to be included. What the market seems to be doing with these stocks is uh finally understanding that there is uh there the there are bulletproof stocks that have a very good combination of valuation and earnings growth. The big risk on those names was actually earnings growth. No. And I think that with the last earnings uh uh publications we have seen that investors have become uh a lot more let's say uh excited about names that were almost uh forgotten by many many of the many of the of the global investors. So the combination of higher demand for US dollar assets with an environment in which the United States is not in recession but the rest of the developed economies are either in stagnation or recession that may generate some uh momentum in those names. >> Absolutely. No, it's it's an interesting tidbit. We saw the charts yesterday and uh they all broke out from the trend lines as well. So give give me a little pause. So, I was like, "Okay, I'm trying to figure out what this means." Were they just so unloved it was time for them to catch a bit or is there more trouble on the horizon? Because we're looking at the copper chart um to together as well at the time and he's looking at a breakdown potentially in the copper price. Um so, negative price action which would correlate of course Dr. Copper telling us what's happening in the economy which would correlate again with a recession fear perhaps. >> Yeah. But but copper is a very interesting theme that I absolutely love to look at because on the one hand it's a absolutely a great bell weather for the economy but it's also a very significant one about a shift in industrial demand and the energy transition of many economies. And what we are seeing is that a lot of those developed economies are either backing away or at least moderating their uh energy transition, electrification etc. uh policies that obviously erodess a very significant chunk of copper demand uh from the from the market in the future. No, but but but we need to look at it from from also that perspective. I think that um the commodity complex is super interesting right now because I think it has broken a lot of myths. No, the geopolitical risk is is only going to make prices rise because that is that is uh affecting uh commodities with a very uh inelastic demand. And what we're seeing is actually the opposite. So with copper I would be also including the variable of Germany, France, the UK, Italy and obviously Canada but particularly those four first have massively uh let's say moderated if slowed down if not fully eradicated their uh complete energy transition and electrification of the transport system. >> No, you're you're absolutely right. I think copper we need to look at it differently as you pointed out and coming from the mining side we know exactly how much new supply is coming online and at some point price will regulate demand we'll see that so maybe there is a bit of a decoupling from the economic activity in general because the demand has changed over the recent years as well. So very good points you're making there Daniel. Um, I want to come back to something you mentioned earlier. It's a dolorization trend. And I I'm curious. Um, we haven't spoken in a while, Daniel, but it feels like the US was able to slow down that dilization trend with their military action. Venezuela first, Middle East second here in starting in March. Um, would you agree with that? Because it seems like the world is flow flocking back towards the US dollar. Turkey for example and many other countries having to buy or sell reserve assets to buy US dollar to buy oil which is more or was more expensive for a short while and it definitely was more expensive in uh Southeast Asia. I heard Sri Lanka had to pay close to $290 a barrel at one point to get access. Um has the dolization trend slowed down here? >> I think it has virtually stopped. I think is is complete because one of the things that a lot of these economies have found out is that uh in serious trouble environments you need dollars. It doesn't work with yuan. It doesn't work with rubles and it doesn't work with rupees. I'm really really sorry for those that believe so but it doesn't work at all. And this is what we have found out. We have found out that the ddollarization trend was actually a bull market construct. It was it was viewed as something that uh did not take into account that there is a moment in which many developing economies need to sell their gold in order to pay for uh current account or elements that that are you know uh uh required at the very moment and that you cannot simply say oh I'm going to pay you in uh local currency further even less I'm going to pay you in yuan or in or in rupees. Therefore, I think that the ddollarization myth has been broken by the first signal of geopolitical risk. Does that mean that the dollar is going to strengthen in price relative to other fiat currencies? Not necessarily. The ddollarization requires substitution. And the only thing that we have been able to at least get very very clearly is that there is no substitution. There was a defiat currencyization if that were I've just made a word. The defiatization that central banks were buying more gold and hoarding less uh reserve assets coming from sovereign debt from developed economies. That is different because there's been no substitution and the dollar remained the strongest of those fiat currency reserves. However, when things get tough, then the tough get going. And what we have seen is that people really need dollars. Um, is it going to [clears throat] last forever? No. The moment that geopolitical risk erh is eliminated and it needs to be eliminated from the perception of the global market then uh it is very likely that those central banks will resume big purchases of gold will continue to rebalance their ownership of treasuries and euro bonds or uh Japanese bonds in their balance sheets uh relative to gold 100%. % >> one thing you haven't mentioned is that gold is being used for transactions and I think we've seen a bit of an uptick in that trend as well like China opening like vaults in Saudi Arabia so they can use gold sort of as an medium of exchange here and don't have to use the yuan and stay out of that yuan system perhaps um why haven't we seen more of a shift towards gold then why hasn't uh is is it just because the US dollar is so established that it just takes too long to establish a new monetary system >> at a whim here >> it's a notion of convenience, liquidity, and legal and investor security. Think about this. Yes, of course, you can use gold for transactions and you're absolutely right. The use of gold for transactions is rising, but you cannot simply cannot uh let's say make a meaningful change in the world monetary system from dollar to gold and especially physical gold as you are mentioning for a very simple reason. It's it's it's so difficult from a storage from a from from every every aspect that you want to that you want to consider that it makes it virtually impossible. So, China, yes, obviously what China is trying to do and rightly so, is to try to find a way for the market and for countries like Saudi Arabia in this case to be convinced that trading in yuan is safe because there is a certain back backing of physical gold. That makes sense. Why? because it's the only way for China to make people accept a currency that has uh no uh free uh floating in the market that has capital controls and where the system doesn't have legal and investor security that but that again is moving in the margins in very very small margins. So ultimately we we uh as investors we take liquidity for granted until it stops until there is what you everything that we have mentioned in this program is a direct consequence of liquidity going from ample to limited >> talking about limited liquidity. We're we're about to head into the summer or summer is already started. A lot of the US schools are already out of session here. Um what is your summer playbook, Daniel, just based on everything we've just discussed? Like how are you approaching the next two and a half months here? >> The way that we're looking at it is continue to be exposed to US equities, looking at opportunities in those sectors that we like. Uh we like technology, but we like technology with profits. We're not going to participate aggressively in any of those giga uh IPOs. And what the other thing that we're looking at is gold, silver. Look at those as opportunities to purchase into the next leg of uh money supply growth and aggressive uh indebtedness. I just saw this article from Bloomberg about the massive wall of maturity of sovereign debt coming in the next months from developed economies. Well, that obviously is money printing. So that leads you to take more exposure. Happy to take more exposure on gold and silver. Happy to take more exposure on uh continue to have exposure on gold. be very prudent, very very prudent actually very under uh under underinvested in sovereign bonds especially in large in duration and uh reduce the netlong exposure to the US dollar as uh these geopolitical concerns become I wouldn't even say that they end you just it just the fact that that the entire bluff has been blown in terms of geopolitical risk and and the disaster of Ormouth and supply constraints etc. I think that that is likely to shift the the movement from more exposure to the US dollar to more uh to gold and silver. >> If we were to speak on let's say September 15th, where do you think the oil price will be at that time? >> Oh, I think it's going to go lower. I think I think the the chart on oil is super toxic. I've I've traded oil for many many years. I something something that we are not currently discounting may happen and I'm not obviously going to say it's going to predict the future but the combination of a curve in deep backwardation that has steepened the backwardation and has lowered the price in the back end plus the momentum. Look at the momentum. you know the oil prices move a little bit up with with geopolitical concerns then they resume the way down the higher the highs are lower than the previous highs and the lows are lower. So the the momentum is really really dangerous and you also have to remember [snorts] that oil may see the same situation that gold saw at the beginning of the year. Remember what created the sell-off in gold was that there were too many bets that were super indebted, super levered on uh on gold with uh negative bias on the US dollar. And obviously when margin calls started to appear, no equity leads to having to unwind those trades. Unfortunately, because of the Iran war, we saw a lot of increases in ultra-levered bets on oil prices. No. And most of them actually started not at 80 but at 95. No. So that is that is another thing for me. The chart, the momentum, the news flow and how every time that Iran says something, virtually nobody cares. And at the same time, you're seeing how infrastructure and supply are changing. I would be very very cautious. I would be very cautious. Something may happen. I'm not going to say [laughter] that because we can all get surprises, but I'm it doesn't it looks like a very toxic uh like a very toxic uh trend to me. >> I I I agree with you. $40 seem to be in the cards. That's just what my gut is telling me. looking at a chart like >> if oil prices cross the support level of $85 it's it's it's a stone there's it's like a falling knife. I don't see where where it stops. I don't know if it's $40. I don't know if it's 50. But I remember 2008 when uh one week I was hearing stat oil now it has different names say oil prices are going to go to 200 to oh my god they're going to go to 20. So so >> I'm going to buy an inflatable pool by the way just so I can fill it up with some oil like when it goes negative again. >> Be cautious. Just be cautious. None of the doomsday scenarios have happened and all of the uh justifications for the doomsday scenario are behind us. So that that's what tells me that you have to be a little bit cautious. >> Absolutely. Daniel, what a wonderful conversation. Tremendously appreciate your time obviously. Um where where can we send our audience to follow more of your work? Daniel, >> thank you so much. It's it's very easy. Just just follow me on Twitter on X, sorry, that's da_ia. That's my account in English. Um, I have [clears throat] a an account in English and an account in Spanish. Same in my website daay.comen and also in my YouTube channel in English. Remember that if you Google me and you find first, which would be the logical thing, the Spanish account, that there is an English account fully fully translated and and with no need to use uh uh artificial intelligence. >> Fantastic. Awesome, Daniel. Tremendously appreciate your time. Really appreciate you coming on on sore financially. Really insightful. Much appreciated. Now, everybody else, thank you so much for tuning in as well. What a wonderful conversation here with Daniel Laya. Lot lots happening. the US dollar stronger than ever perhaps. We we'll see. Uh, of course, gold and silver are still waiting to catch a bid here, but long term, I think Daniel has agreed as well. There's no other alternative than gold and silver in my opinion, and I fully agree. Lot lots going on. Watch the Fed meeting here in a week. I'm quite excited. I'll have the popcorn ready. Uh, maybe we'll do a live episode. Should we do a live episode right after the Fed press conference? Let me know down in the comments. It also shows me who's watched the episode to the end. Thanks so much for tuning in. Have fun. Hit that like and subscribe button and don't let the emotions run your investments for you. Take care out there.