Michael Howell: Time To Start Thinking About The End Game As Liquidity Cycle Nears Top
Summary
Liquidity Cycle: The current liquidity cycle, which began in late 2020, is nearing its peak, with expectations of a downturn by 2026, making it crucial for investors to consider the "endgame" and prepare for potential challenges.
Monetary Inflation: The rise in gold and Bitcoin prices is attributed to ongoing monetary inflation, driven by significant monetization of debt, as central banks and governments continue to inject liquidity into the financial system.
Debt and Liquidity Dynamics: The global financial system is heavily reliant on debt, with approximately 80% of lending being collateral-backed, making the integrity of high-quality government debt crucial for maintaining liquidity.
Federal Reserve and Treasury Dynamics: The shift from Fed QE to Treasury QE aims to direct liquidity into the real economy, with strategic industries receiving government support, highlighting a transition towards more government intervention in markets.
Asset Allocation Strategy: Investors should focus on monetary inflation hedges like gold and Bitcoin, as these assets are expected to perform well amid ongoing monetary inflation and geopolitical tensions.
China's Role: China's significant liquidity injections and gold purchases are influencing global commodity prices and the gold market, as the country seeks to manage its high debt liquidity ratio and stabilize its financial system.
Geopolitical Considerations: The evolving geopolitical landscape, including US-China tensions and the strategic weakening of the US dollar, necessitates a focus on geopolitics over traditional economic indicators for investment decisions.
Transcript
And so what you're seeing in US markets right now is that the growth of bank holdings of uh treasuries and agency securities is outpacing money supply very significantly. In other words, is monetization. That's what's going on. Uh you know, think about why the why the gold price is up. Think about why Bitcoin has been a dramatic performer. It's all about monetary inflation that's going on. Michael Hal, CEO of Crossber Capital, an investment advisory firm, author of the book Capital Wars: The Rise of Global Liquidity, and the author of the very popular Substack, Capital Wars. It is so wonderful to welcome you back to the show. Great to see you as always, Michael. Really appreciate you taking the time. Well, really good to be here, Julia. There's there's a lot going on in Marcus right now, so uh lots to talk about, I think. So much to talk about and I feel like gosh it's been way too long since we've last had you on. I want to say it was back in the spring and you're right so much is transpiring in the markets and so I want to start Michael as you know where we always start more of that big picture where we are today the framework in which you're looking at the world and I know the global liquidity cycle is so critical to that framework. So let's start big picture where we are today the framework the outlook that you see ahead what is on your radar these days and as you know Michael on this show you can take all the time you need to set the table when it comes to that big picture view. Okay. Well, I think the the place to start is really with with liquidity and the liquidity cycle. And there's a slide I've actually put up that you can hopefully see which is looking at uh the cycle unfolding really since the mid 1960s. And this is looking at money flows that are moving through world financial markets um over that time span. And it's very cyclical. You can see that. But after all, that's the experience we've had. we we've had very cyclical markets uh over that time frame. Clearly, there's a trend, but it's the cycle that we're really interested in. And really since um what 3 years ago uh late 2022, in fact, almost exactly 3 years ago, uh this bull market started with a big upswing in liquidity. Now, as you can see from the graph, we're still in that upswing. Uh the red dotted line is a sine wave that we put on top of that cycle um around what 2020. So uh it's had a long history to unfold as you see there. Uh in other words, it's pretty much unfolded as you would have expected with a fairly regular 5 to six year cycle. And it looks as if that cycle is pretty close to topping out. We're not there yet. We may have a little bit more to go, but we've got to be thinking much more about the endgame rather than the beginning. And um the downswing you know through 2026 may be uh a challenging period. So we got to think about this pretty carefully. U this is the cycle of liquidity. Let me stress it's money flow through financial markets. It is not measuring the tempo of economies. And I would say actually in reality since the COVID crisis we've seen economies flatlining. And I don't think economies have made a huge amount of difference to financial markets over that period. They've been a kind of red herring in many ways. uh you know leading people down wrong avenues um and in fact in fact we've faced an absolutely plain vanilla uh investment cycle everything has gone pretty much according to normal script that is such a great framework to look at this um okay a couple of things I would love to explore with you further you talk about how we are late in that cycle maybe 2026 might it might start to be a more challenging period but you also note that we need to be thinking about the endgame game rather than the beginning. Can you walk us through like the thinking around the end game? How do you need to think about that? Sure. Well, in fact, if you look at the next slide I've put up, what I've done is to try and put this in context. So, the red line on the chart is looking at the current cycle. The zero point that we plotted right in the middle of the graph is the low point in liquidity. Um, and that has evolved uh counting months from that trough. Uh as you move to the right hand side, the black dotted line is an average cycle averaging the data since 1970 and you can see that broadly speaking we're following a fairly normal liquidity cycle. Uh it hasn't it's not falling. I mean one's got to stress that but it looks as if it's sort of laboring to get new highs and that's certainly the concern that we've got. Now your your question your or the relevant question is what actually causes the top? what causes the crisis and I think there's a there's a number of things that we can cite but I mean foremost is really what central banks are doing because central banks have been so instrumental uh in launching this bull market and what we want to really understand is what's going to end it now uh if I sort of shift on maybe a few slides to um what's happening in terms of um liquidity I'll come back to the other thing this This slide here is uh admittedly a schematic diagram but it basically tells us how the global financial system works and it shows you not only the upswings but it also describes the down swings and the point about the modern financial system is it's integrated or liquidity is integrated really closely with debt. We live in a debt dominated world and I can't stress that enough. It's a really key point. The thing is that the paradox that is behind the whole system is that debt needs liquidity and liquidity needs debt. Debt needs liquidity for refinancing and liquidity is often built on a collateral base where that collateral base is highquality uh government debt which is used as collateral. Now if you get any dislocations between those two wings of the diagram, you can get financial crisis. Now the key thing to understand is and this is a development that has evolved principally since the global financial crisis um you know 15 years ago or so. It's that something like 80% of all lending in the world economy now is collateral backed. In other words, it has as collateral either real estate value, thinking of the home mortgage uh case, or if you're looking at financial transactions, the collateral is mostly uh pristine government debt such as US treasuries or German buns. Now, the integrity uh of those bonds of that collateral is really key to understanding the liquidity process. And what we say on the left hand side there is there are two indicators that everyone can monitor that are pretty good bellweathers of that particular process. One of them is the move index which is a measure of bond volatility. So if you've got a lot of volatility in the bond markets then you're going to have a lot of volatility in financial markets generally and ultimately liquidity will contract and that will be a bad bad environment. The other is which may be a precursor to that is to look at something which is a bit wonkish but is called sofa spreads. Now sofa interest rates are the interest rates that have replaced euro dollar rates. They're the ones that are really the key interest rate in the whole uh not just US system but the whole world financial system and they can be monitored daily. And what I'm showing here is the sofa spread which is the spread over Fed funds target rate. Now I'm going to show you that in um in a following slide which is shown here. Now you can see on this diagram uh a very ragged chart. In other words uh if this is uh a patient's heartbeat uh or whatever you can see that they're reaching crisis as we move towards the left hand side. Uh they're starting to go those beats are starting to go off the scale. And the reason that that's happening is there are increasing tensions in financial markets. It's becoming more difficult for dealer banks to either provide high quality or get highquality collateral or provide the liquidity uh that is needed to uh undertake those loans. And so what is at risk here is the things like uh the treasury market could become destabilized. things like you've heard about the basis trade which hedge funds are undertaking uh could suddenly contract all these things are really at risk with a very with high volatility in the repo markets I mean this in in another way is really the heart of the system and you can see it doesn't look particularly healthy right now and that's one of the things that we're concerned about so it's giving us an early warning sign that liquidity is beginning to uh contract and that's dangerous gold keeps setting new all-time highs But price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With Monetary Metals, you can earn up to 4% on your gold paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoy potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. Yeah, this is this is why I love having you on the show, Michael, because you always help all of us learn and I know this audience loves learning from you. Um so just to recap the move index which is that volatility in the bond market um we actually the creator of the move index on the show that was Harley Bassman and so for the secured overnight financing rate really important to pay attention there. Um you point out that we're seeing these early warning signs and a couple of things could happen. You could see the Treasury market could become destabilized. Can you elaborate a bit more on that risk and how that might play out? Why that's so worrisome? Yeah, sure. I mean, in fact, what I what I put up here is the move index, a chart of that. You know, Harley is a great guy, really worth paying attention to. And this is his uh his baby, if you like, the move index, which is a measure of volatility across the US term structure. And you can see that that has a normal zone that we've indicated, that gray band at the bottom. And essentially, if it starts to move up appreciably, it's measuring higher volatility in the bond market. And the reason that that's uh a worry is that if you're thinking about taking collateral to back a loan, the more volatile or more unstable your collateral, the bigger the haircut you're going to ask for from the borrower. And that means that they can't borrow so much. So, credit conditions tighten. And what this is basically demonstrating is that the Treasury and the Federal Reserve together in my view have been trying to orchestrate a lower move index. So they've been lots doing lots of things like uh running down the reverse repo program, things like treasury buybacks. All these are attempts to try and re in volatility because it's such a key variable in terms of uh leveraging the or enabling the system to leverage upwards. The problem is is as we indicated uh in the repo markets are starting to get a breakdown that may cause bond volatility to spike and that will that will cascade. Now why is this important? Let me go back a couple of slides to this one. Now this is this is looking at really the overall problem that economies are likely to face or financial markets are likely to face and this is looking at the debt liquidity ratio in the world economy or to be 100% pre precise the advanced economies worldwide. Now what this is showing is a ratio and what you can see from that chart is the ratio stabilizes. it has an average value that it seems to coales around which is roughly speaking two times. So it's saying that the amount of debt in the system uh for normality or for stability has to be about twice the level of liquidity or to put it another way liquidity has to cover half the debt and the reason for that is that debt needs to be refinanced. Uh in other words if you take out a loan it's got to be repaid at some stage. Now we know the spoiler alert is that debt's never repaid. is only rolled over. So effectively this is a refinancing measure and so if you uh have to refinance debt you need balance sheet capacity among your banks or credit providers to refinance the debt. If you don't get that balance sheet capacity in other words if there's not liquidity in the system you get a financial crisis. And all the annotations that we show on the on the chart are previous financial crises. Coincidentally, they all seem to occur when you've got very high debt liquidity ratios. In other words, when you've got tensions uh in repo markets or in financing markets. The other side of that story is what happens when you get a very low ratio. When you get a very low ratio, there's excess liquidity. The vent for that excess liquidity is asset prices. And every one of those spikes downwards seems to have coincided with a major bubble in asset markets somewhere. And the big one we've just come through is what I've called the everything's bubble or what is generically called the everything bubble which has basically launched everything uh to higher highs. Now we're enjoying that for sure. But if you look into the future that is likely to reverse and it's reversing for two reasons. One of them is that the pool of liquidity is being challenged partly by the Federal Reserve and what the Federal Reserve is doing which I come on to and partly by the fact that as this next chart says there's an increase in the annual debt role. Now what do I mean by that? Every year new debt has to be refinanced and you're looking at a figure of somewhere between 35 and 40 trillion dollars worldwide to be refinanced in markets every year. Now, as I've said before, financial markets today are dominated by these refinancing flows. It's all about debt refinancing. Forget the idea, the textbook idea that somehow financial markets provide new financing for capital investment. They don't. It's all about debt refinancing. So, this is what we got to focus on. Is there enough liquidity to refinance debt? And what you can see there is the orange bars which are actual data points and the red bars which are extrapolations in the future. And you'll see there's a big bite out of that chart in 21223. And that period was one where we had ultra low interest rates following the co emergency. uh you know central banks put rates down at near zero some cases negative rates and that caused a lot of borrowers to refinance their debt. They turned out debt uh to use the expression and they turn debt out to the later years of this decade. In other words, it's coming back into the system to re be refinanced again from 26 27 28 29. And this is the annual change in the debt roll, not the actual amount. This is saying how much each year increases over the previous year. Now, all I'm trying to say here is that we've got to remember that there's an echo effect in the system from what happened during COVID times. And that echo effect is the debt refinancing cycle. And that period during CO was an anomaly. Everyone will remember that it was an anomaly. But in history, it was the most astonishing anomaly. when you start to think about interest rates. When I was at Solomon Brothers, US Investment Bank, we grew up on a book uh which was called the history of interest rates by uh by the former head of research at Solomon Brothers. And that book basically said, it was by uh Sydney Homer, by the way. That book basically said that in 4,000 years of history, there has been not one example of zero interest rates until we get to 2122. And the period, in fact, more generally since the financial crisis has been littered with very low interest rates. And what does that do? It causes huge distortions in markets. It encourages this whole mentality of taking on debt. And that's the problem we've got now. that debt is coming up for renewal or refinancing and that's a problem. So that's issue number one. Issue number two, which is to come back to this point about what the Fed is up to is here is the growth of Fed liquidity. And what you can see is both the history and an extrapolation as to what's going to happen over the next 6 months given what the Federal Reserve is telling us uh and what room they got the maneuver. And what you can see is you're likely to get a significant slowdown in liquidity growth. The last time that happened in size was early 2022 and financial markets were pretty bad during that period. It really took that acceleration in liquidity from the back end of 22 which caused this bull market. Now what we're saying is you've got to be alert to that slowdown because it's happening. Why is it happening? I think this is the important thing to to argue. It's happening because there is great pressure on the monetary authority both internally and externally from the treasury to say look all this QE all this excess liquidity has has not helped the real economy at all. It's caused huge distortions in markets. It's basically caused wealth effects or skewed wealth uh towards one group in the population. It's unfair and it's not going to happen. And therefore uh what is being called upon or the Fed is being called upon is to downsize its balance sheet. Now what you might say is that isn't that a bad thing for financial assets? The answer is it probably is. Is it a bad thing for the economy? Well, that's another question. But the economy is what Treasury Secretary Bess best is focused on. And what you've got to start thinking about is that the alternative policy that is being pursued now, which is heavy issuance of Treasury bills into the system, which is something he said he'd never do when he was criticizing Janet Yellen, but Hayes picked this up. That expansion in the Treasury bill issuance is what we label Treasury QE. It's a way of getting liquidity in the system, but more importantly and fundamentally, it's a way of directing that liquidity into the real economy. Stable coin are part of that whole exercise. They're an integral part. And what is likely going on, we think, is that you're getting this emergence of a war economy. I'm not saying here kinetic war, but I'm saying a war economy where strategic industries are being identified and funds are being channeled from the federal government into those industries and it's being funded through the front end of the yield curve through the bill market. And that is the change that we're seeing. We're seeing a trans we're seeing a transition from Fed QE to Treasury QE, but it's all about the real economy. That is fascinating. You're right. He was critical of Janet Yellen doing that at the at the front end of the curve. Wh why do you think he's doing it again? Well, I think that what they're doing generally is they're trying to develop it's the MAGA line of we're going to develop the economy. We want to make the economy strong and robust. And the way that we're doing that is that we're going to direct spending into key industries. I mean, look at the stake in Intel. Look at what's happening with the onoring. If you go to the White House website, you'll see that there's a ticker there which now says every day there's a new deal of onsuring. Uh so far in the Trump administration, uh the US economy has got $9 trillion of new investment. U that's the that's the agenda. But the federal government is engaged in that too and they're basically using Treasury QE as we call it. In other words, using bill finance to direct that and the stable coin industry will be a key element in that because effectively uh stable coins are a way of monetizing government spending quite easily. In other words, funding government credit. And this is basically a change in dynamics where it's not the non-economics if you like that's driving the market. It's more and more government intervention. That's interesting. on the stable coin front. Can you elaborate? So, is that like monet that would be like is that like monetizing the debt or how does that how does it work exactly? Well, I think you it it's it's getting we're going to get caught in the weeds here. It's somewhat wonkish. Let me let me try and explain. If you've got a situation whereby uh a pension fund or an individual buys government debt, that is effectively a transfer out of savings. So there's no net liquidity creation necessarily in that regime. If you get a credit provider that buys a debt, buys government debt, then what happens is the balance sheet of the of the credit provider expands and effectively money supply or it monetizes the deficit. So the key thing here is not necessarily the debt issuance, it's who buys the debt. Now the key point about bill issuance is that bill issuance is really attractive to credit providers because they like that very short duration uh security and they tend to hoover that stuff up with elacrity. And so what you're seeing in US markets right now is that the growth of bank holdings of uh treasuries and agency securities is outpacing money supply very significantly. In other words, is monetization that's what's going on. uh you know, think about why the why the gold price is up, think about why Bitcoin has been a dramatic performer. It's all about monetary inflation that's going on. Good good point. Um at the beginning of the conversation when you were talking about liquidity and the um the bull market that we saw I guess beginning really three years ago as you point out um it looks like it's getting to the place where it's going to start to top out. We have to start talking about the endgame rather than the beginning. And you also point out um it's about the money flows not measuring the temper of the economies and that a lot of economies have been flatlining and though a lot of people the way they've talked about the economy I guess it's led them as you point out down these wrong avenues and that really we've had a pretty plain vanilla market. I guess my question for you is I take it you have not been surprised that we've seen you know all-time highs in you know equity markets for example. Maybe I just want to ask you like what has been your take on what we've seen in markets? I take it you have not been surprised by the moves. No, I think look, I I think Julia, what we've got to do is is separate trend from cycle here. And what we're arguing is that there's a there's a long-term trend in faster uh monetary expansion. In other words, monetary inflation as we call it, which will see global liquidity, which is our key measure, uh trend significantly higher over the medium term, medium and long term. and a cycle embroidered on top of that uh which is you know key for understanding tactical asset allocation. Now the cycle is already what I've been talking about a lot recently and let me just show you this slide which really identifies the key points in the uh uh in that cycle. Now what you have on the right hand side there is a liquidity cycle that is uh essentially drawn up in terms of phases. You've got calm, speculation, turbulence, rebound, four different regimes. Uh if the cycle is expanding, we say that's risk on. If the cycle is going down, that's risk off. And this is all about liquidity, remember, not the business cycle, it's the liquidity cycle. And then on the left hand side, there are different asset classes that move with the cycle. Equities do well in the upswing. Commodity markets tend to do well around the peak of that liquidity cycle. cash or very defensive investments do well in the downswing as liquidity is being withdrawn from markets. Bond markets excel around the trough. Uh and then you get the cycle restarting again. Now if we look at how that has evolved through this particular cycle uh this is a standard template that you see in front of you that we use to assa allocate. Uh it's not always as neat as this but it it's it's working out as I say to the letter. And what you've got is four different regimes, liquidity regimes, rebound, calm, speculation, turbulence according to the phase of the cycle. On the left hand side, we look at asset classes. On the right hand side, we look at industry groups. Now, what you've seen since that low point in September of 2022 is an expansion, initially a rebound that favored equities and credit markets. So, that's the green lights you see on the traffic lights on the left hand side. uh as you move towards calm equities keep going uh credits start to find it more difficult more risky and then by the time you get to the speculative phase credits tend to burn out first equity is not bad but by turbulence you don't want equities and you don't want credits commodity markets tend to pick up around the calm to speculation phase around the top of the cycle they're not good in rebound they're not good in turbulence and then bonds in other words long duration bonds do well in turbulence now what we've seen through this cycle is absolutely plain man vanilla. Equities uh began strongly uh reinforced by credits. Uh you've had industry group performance beginning with things like technology. Look at the right. That's what you tend to find early in the cycle. Uh financials come through about midcycle. We've had some very strong gains from financials uh and now sort of regionals as you get the yield curve steepening. And then you get commodities and energy picking up. You know, gold mining shares have been stellar through this year and then the cycle burns out and you get defensive about performing. Small cap do well at the back end of the cycle. Exactly what we've seen. The dollar tends to be weaker later in the cycle. What we've seen international markets outperform the US later in the cycle what we've seen. So everything seems to be running exactly on course as I would say and economics per se has not helped one jot through that period. Now we think it's a question of understanding where you are in this cycle and another way to look at it is to look at this chart which is a chart that we use to describe that asset allocation process more visually in a different schematic. Now what this is saying is you're shifting uh through the cycle from deflation to inflation and we think about this as monetary deflation, monetary inflation. As you move from left to right, you get more inflation. Fixed income markets are valued in that sort of red ski slope. So their valuations drop as inflation starts to pick up. Real assets like real estate, thinking of home real estate here, but equally commercial, gold, Bitcoin tend to do well as that dotted brown line picks up and inflation accelerates. Okay, so that's the absolute opposite of the fixed income markets. But equities kind of in between uh that like a bell curve and equities see their highest valuations around 2 to 3% inflation. uh high street inflation I'm saying here and you can see because we've drawn on that chart uh different counters to show where US equities are where European equities are where Japanese equities and Chinese equities are. So we're kind of later in the cycle in the US and think of this as a train a road train that's sort of moving uh from left to right with the US leading then European equities then Japanese equities then Chinese equities now the question to ask is which have been the really strong performers this year uh it's been obviously things like uh mining late cycle US stocks uh and it's been things like Chinese equities which are really catching the wind of a big monetization going on in China uh on that sort of far left hand side, but China is emerging out of deflation into a more uh robust inflationary regime. So investors are taking more risk. So what you see here is an absolutely plain vanilla cycle as far as we can see. Uh and it's either going to end because central banks decide they're going to pull the uh you know, pull the rug away, take the punch bottle away because they fear inflation, or you get some problem in markets uh causing a trigger in the repo markets because actually there's not enough liquidity in the system. And although the Federal Reserve is still telling us they're going to cut interest rates, my view is that this is actually quite a hawkish cut because you got to associate that uh prospective cut in rates with the rhetoric that's coming out of Steven Miran, Scott Besson, even Jay Pal himself by saying we want that balance sheet smaller, Fed balance sheet smaller. Mhm. I take it too like just looking at that that chart there, gold, which is at a new 52- week high today, there's still room to run for gold because I want to say even last time you talked, I think you were talking about like 3,600 on gold. We're above that now, but gold has just been on a tear. Yeah. Well, let let me let me address the gold question because I think it's it's a critical one and I think by association Bitcoin as well because we got to think about this now. You know if you come to uh this chart this is basically telling us something really important. Okay. And this is saying that if you look at the chart in front of you this is showing gold bullion uh prices in orange uh measured on that right hand scale and the black line is US real interest rates actually US tips uh yields uh treasury inflation protected securities. Now what you can see is that typically over that period until 2022 uh they were moving more or less in step. In other words uh real interest rates are shown inverted here. So when real interest rates went up the cost of carry of holding gold was high because gold doesn't earn an interest rate and so the gold price goes down and similarly vice versa. But actually you saw a significant break uh in uh 2022 because real interest rates shot up but so did the gold price and that there thereafter ever since they disconnected. So something really serious is going on. Now, I think that's partly the fact that in February, March of 2022, there was the Russian invasion of Ukraine, as we know, and the G10 economies and the US sanctioned uh Russia and basically took or uh restrained Russia's holdings of of dollar assets. And that's, you know, clearly uh something which focuses the mind of many other economies. And they say, well, actually, maybe we don't want dollars here. they're political. We want gold. Uh nobody can sanction that. So that's one reason. But the other reason is investors started to realize that what you were getting was more and more monetization going on. In other words, the federal deficit was growing and there were more and more attempts to monetize that through what we call yellowomics of this sort of funding through the bill market. Now this is the federal deficit and this is you know everyone knows this data but this is the federal deficit cumulative through calendar years. The black line is where we are now. Uh the orange was 24. Uh 2023 was red and the dotted line was 22. So you can see actually not a great deal of difference. We're heading towards a two trillion deficit again. Okay, that's got to be funded. So let's look at the math. And what I did here was look at the Congressional Budget Office projections to 2022. So we go out into the medium term here. And the orange line is the struct what I call the structural federal deficit. Now what is the structural deficit? It's basically taking all um mandatory spending so social security, Medicare, defense and I'm assuming defense goes up towards not two but towards the 5% NATO target and interest payments. They're all mandatory things. There's no discretionary element in this spending and has subtracted US tax revenues and that's the deficit you get that blows out. That is a significant worry. Look at the COVID spike uh you know look at the uh white the not the um global financial crisis spike and you'll see that uh the trend dominates both of those. The dotted line is debt held by the public by the private sector which you can see growing on the right hand side as a share of GDP. Now, as a heads up, let me say this. If the gold market follows that debt GDP step by step, in other words, you're looking at a co a real federal debt level in gold terms that is is measured in gold and the gold price moves accordingly. The gold price by the late 2030s would be $10,000 an ounce and the gold price by 2052 uh under this basis would be $25,000 an ounce. So wow sober people are that's why you need gold in a monetary inflation environment. And if you want to think about Bitcoin, what's the mold between Bitcoin and gold? Well, currently about 25 to 30 times. So that's that's where you're heading. And that's why we need to think about asset allocation clearly in this context. And that is what's going on. To look at it more visually, here is federal debt to gold uh drawn from the mid or the early 1940s. And this is essentially valuing gold sorry valuing federal debt as a ratio to the world gold stock. Uh and looking at how that shifts. Now, what you can argue there is that if there is a trend and those tram lines are intact, if that orange line, which is the real or the gold value of federal debt, goes down to the lower tram line, what you're looking at is $4,500 an ounce. And if it goes down to that average, which is six times, you're looking at $5,000 an ounce. And that's in the short term. Uh notwithstanding the fact that, as I said, the longerterm outlook looks really good. Uh yeah, even that looks good in the short term, but uh wow, I'm going to hold on to my gold. That's what you got to do. Yeah, I've I've had my gold since 2011 and that was not the best time to buy, but like look, I didn't do anything with it. Now it looks great. Um just take a look at that little window, Julia. So it says there since year 2000, US debt stock has increased 10fold. I mean, that's an eyewatering figure by itself, right? Yes, it is almost five times, but actually in other words, US debt has more than doubled relative to the S&P, but gold's gone up 13 times. Wow. Yeah, it's a good point. Let me ask you this because um we have talked about this, but there might since we've spoken we've this channel has grown a lot um over the last several months too. So, you make a really important distinction between as you call it high street inflation. High street is like the the London version of Wall Street. high street inflation versus monetary inflation and it seems like all roads are headed toward inflation specifically a monetary inflation environment. Could you maybe elaborate or explain the two the distinctions and why you need to really think about asset allocation in a monetary inflation environment? Yeah, sure. Monetary in inflation is all about the value of the currency. In other words, are you devaluing paper money or not against real assets? And that's really a key that's one of the key uh factors that drives economies. It's that particular relationship. Uh do you devalue your paper money or your credit money? High street inflation. Oh, by the way, that that's called monetary inflation if you devalue. High street inflation is a cocktail of monetary inflation and cost inflation deflation. Okay? So you can ask the question what we've had over the last um let's say 15 years is something like 10% perom at least monetary inflation per year. In other words, that's the devaluation of the currency and that's why the gold price has gone up so dramatically. Okay. So why hasn't that come through to the high street? That's a puzzling question. Why haven't we had 10% CPI inflation? Well, some people of course may argue that we have in places, but the reality is that what's got in between that is costs. There's been cost deflation. Now, what has caused that cost deflation? Well, technology has been one great example of that. The other is cheap Chinese goods. Uh you know, basically when China entered the the World Trade Organization, when it started to flood the world with cheap goods, that was something that really affected uh the high street uh significantly as we call it. I mean, an awful lot of stuff we now buy, we still buy from China. But the fact that China came into the world economy with a vast labor force that had such low wages meant that Chinese goods were very cheap and that meant that high street inflation wasn't that great. Now, if you start to move away from goods and you start to look at services and you start to look at services surrounding things like real estate or whatever, you'll find the inflation rates were much much higher among those selected areas. So they are much more responsive to things like monetary inflation and asset prices are almost totally monetary inflation. So you can see why you see this uh sort of spectrum of different price rises and you know things like things that are made in China are not going to go up a lot but certainly until recently uh things that are technology influence not going to go up a lot. Uh so the real price of a of a of a computer has clearly dropped. the real price of an iPhone. Well, actually, probably not actually. It's a bad example of, but the real price of other technology has has dropped. Uh, but you can you can see the point and that's that's pretty much where we're heading. So, you're going to get a lot of monetary inflation. Question is, does that feed through to the high street? Uh, not necessarily, depending on that cost inflation backdrop. If you get oil prices collapsing, that's clearly going to be a negative on the high street, and that will cause high street inflation to be less than monetary inflation. If, on the other hand, you get this reverse cocktail of of more expensive Chinese goods, of a deterioration in technology, uh, and you get oil prices spiking, then you're going to get a lot lot more, um, high street inflation. Sorry, I misspoke. High Street is like the America. It's the British equivalent of our Main Street, not Wall Street, guys. High street equals Main Street. I know we um mis mis mis uh mistransated over here. Um yes. Okay. I want to go back to uh your comments around the Federal Reserve. We just had the FOMC last week and as you note it was a hawkish cut, the 25 basis point cut. I want to just dig in a little bit more with you on the Fed and I guess it's does the Fed really matter here if it seems like it's the Treasury that's running the show or as you put like the the Treasury QE if you will. Yeah, I think it's a fair point. I mean there's been a lot of debate about Fed independence. I mean the the Fed and the Treasury are joined at the hip anyway. I mean if push comes to shove they they act together. There's no question about that. Um, so, uh, is the Fed really independent? At the end of the day, I mean, I would scratch my head. I don't think the FOMC matters that much. I think the Fed matters a lot as an institution. Uh, the FOMC, you know, I think what difference does interest rate moves really make. Uh, I mean, no, no one's using that interest rate really to price things off. Uh, it's more an in it's more a sort of signal of sort of general intent by policy makers, I would argue. And I think the only role it really plays is that it may affect foreign investors much more in the US. And if the Federal Reserve is seen to be aggressive in cutting rates, that may well have a a negative effect on the US dollar. But I think that's what they want. So, you know, you could argue that this shift towards frontend fund uh financing of the deficit through bills and the desire to get the dollar down is why uh the president is putting a lot of pressure on JPAL to cut rates. Uh it makes huge sense. I think they want a lower dollar because that's whole part of the make America great agenda. Uh they've got to get manufacturing back in. And I think if you want a parallel, my parallel is the other big anomaly in markets in the last few years is the Japanese yen. Why is the Japanese yen being so weak? I mean, no one really has predicted that. Uh economists are saying it should be way way stronger on PPP basis, but it's not. And I think this is a deliberate attempt by the Japanese uh maybe in cahoots with the US Treasury to basically build to make it Japan great again as a bullwalk against uh a regional bullwalk against China. Uh and after make Japan great again, it's make America great again. So get the get the dollar down. Uh first the yen then the dollar and I think that is the way to counter a threat from China. Interesting. I had not heard it articulated like that. How Europe is anyone's guess. I mean badly is the answer. Uh but then you've got to go back to the 1930s and say well isn't that exactly what happened to France in the mid 1930s is that they refused to devalue the frank against gold. Um and they had a too high exchange rate. It devastated uh the French economy and uh you know consequently uh the French middle classes welcomed the Germans in because they thought they were going to get monetary stability. Um, and you know, draw the parallel here with if the euro is overvalued for so long against a competitive dollar and a competitive yen, what happens to the European economy? And let's extend the analogy unfairly and say, well, okay, is Russia a threat on the east to Europe? I mean, these are geopolitical considerations, but what I'm saying is you got to think geopolitics, not economics anymore. H, that's okay. Okay. So, you need to look at it through a lens of geopolitics then. Okay. Let me ask you this though. Um the weaker dollar or like I guess intentionally wanting to weaken the dollar, what are the implications? Can you just kind of tease it out a bit more for me? Well, the implications are that you want to own gold and you probably want to own Bitcoin. Uh certainly you want to Bitcoin for the longer term. Uh Bitcoin we know is more volatile, but I mean these are monetary inflation hedges and that's what I would argue is is basically going on. Uh but you know it's not it's not only um you know a weaker dollar that is driving the gold price. I think China has a lot to do with that as well which we can get on to. But the implications are that uh you know basically a a weaker dollar is you know not necessarily bad for the world economy let's say it may all be instrumental in causing the world economy to strengthen. It will certainly lift commodity markets. I mean that's one of the other things that you're seeing. And of course, things like gold miners, which have been, as I say, on a on a roll this year, uh, highly leveraged to the gold price. I'm gonna have to do an episode on gold miners because I keep people keep asking about it, too. Um, all right. So, I guess like China's been buying a lot of gold, too. Like, what do you make of like what we've seen from other central banks buying gold? Does that tie into this thesis as well? What what is going on there? Yeah, it it ties exactly into the thesis because basically why are these governments buying gold? Uh because they they don't want to be sanctioned in the event that there's uh uh further geopolitical strains and gold is a neutral asset. Um so you know if you hold the dollar you've got that risk of being sanctioned. Uh if you held the euro uh America would make sure the Europeans sanctioned the countries. So gold is is the way out. Now it may well be there's another agenda there which I don't know about and that other agenda could be for argument's sake that uh China atal is trying to create a rival to the US dollar system and that will be partly backed by gold that's possible but I think that you know my view is that China is just doing a straightforward monetization here to get out of their debt problem and I want to you know I want to show that because I think this is an important point in understanding what's going on and the chart that I just put up is the rival to the earlier chart I showed of the debt liquidity ratio for the advanced economies. This one's for China, right? Look at the difference. It's almost it's almost the mirror image. China has a very high debt liquidity ratio and that very high debt liquidity ratio has put huge strain on the Chinese financial system because debt as we know China is saddled by lots of debt uh has really been chunking the economy and it's been very difficult to refinance. Now, China through that period has been trying to keep the yuan stable against the US dollar on what has been through most of the period a very strong US dollar. So, they've had to tighten liquidity. So, in other words, debt has gone up, liquidity has come down, and the debt liquidity ratio has shot up above its normal level. And that's the problem. What China has to do is to get that debt liquidity ratio down. Now it will do that by expanding liquidity significantly. But as I said, it's been sort of stuttering in that process because it wants to keep the yuan, the paper yuan pretty stable against the US dollar. So maybe the avenue they're using is the gold price and that's what we got to start thinking about now. First of all, what is China doing through liquidity? This is the uh changes in PBOC, the People's Bank of China's liquidity injections over the last 5 years and you can see that recently it's spiked up significantly. So, China is easing. Now, what is the evidence of that in the markets? Number one, you're looking at the Chinese government bond market breaking out in yield terms. Yields are starting to climb significantly. In other words, Chinese investors are switching out of bonds into equities and the Shanghai market has been on fire. It's been one of the best performers this year and it's still very well underpinned by this liquidity backdrop. In fact, so much so the Chinese authorities are thinking of putting uh you know constraints on the market to stop uh you know excessive gains. But you know we have clearly still lot of liquidity support in the market. Now, that liquidity is basically driving the gold price up. And I don't think that it's necessarily the London gold market and Western buyers that are driving the gold price. I think it's Asian and Chinese buyers. And you've got to think of that in terms of what's happening to the yuan gold price. Now, we said last year as a first step to getting out of the debt problems that China has, it has to let the gold price in yuan terms hit around 24,000 uh yuan or remmbb per ounce of gold to just simply begin to get out of those those debt problems. In other words, to devalue uh those debts against paper money. So, in other words, you're devaluing your paper money. Uh, in other words, you're trying to improve the real value of the asset. And what that is is telling us is they've got there now. We've stabilized for a few months and now the yuan gold price is going up again. And I think they're going to have to move it up significantly. You know, maybe by another 20% or so. So, you're looking at a significant increase in yuan gold. Uh, and I think this is the driver of gold prices worldwide. But hey, let's see. But what does it mean generally? It means generally that if China expands liquidity which is what this chart is illustrating in orange this is the injections of Chinese liquidity and you know make no question it's been volatile of late so it's difficult to predict these things but they've had this sort of stopgo policy but it's now clearly uh it's clearly go and the black line uh is commodity prices including energy. The dotted black line is commodity prices excluding energy. So not a lot great deal of difference. The orange line is Chinese liquidity and the orange dotted line is our projections about what's going to happen. So we think you've got a situation whereby commodity markets generally pick up completely consistent with this monetary inflation framework completely consistent with the idea that gold goes up substantially more. Uh but it's China that is also uh helping this process. It's not simply the fact that uh federal debt is expanding. Uh you know, this is happening at the same time. You've got two big drivers here of the gold price. I have to say, Michael, I always love having you on this channel. I know this audience loves having you on. Before I let you go, I want to give you the final few minutes here to leave this audience with some parting thoughts. Anything that you would like to leave with them uh to think about? It could be something we mentioned in this conversation. It could be something that didn't come up that you would like to bring up and of course let them know where they can find and support your work whether it's your book. You have a wonderful substack. Anything that you'd like to leave with them? The floor is all yours. Well great Julia that's it's been a pleasure. Thank you. Um I think the first thing is that if you want to follow what we do uh the subset called capital wars is probably the best the best avenue. Uh we have an institutional service but that is really focused on data data provision for quant funds etc. Uh if you um come back to the narrative of what we've been saying, I think the the the two takeaways are number one, we're late in the liquidity cycle. It's about 35 months old uh since the beginning of uh the pickup and they don't really last cycles don't last a lot longer than that in terms of the upswings. So we got to be careful that we're coming to the end. uh and in terms of understanding the longerterm picture what I would do is to think to geopolitics and what is going on and what we know is that basically federal debt uh as a sort of complement of the whole idea of uh making America great again and challenging China has to expand it will do but as that expansion goes on the gold price must go up and you want as a core holding strategically monetary inflation hedges and that's you know that's the one thought you've got to you've got leave with Michael How CEO of Crossborder Capital. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, your amazing charts. We always love having you on this channel. Really, really appreciate you. And until next time, be well. Thanks so much, Michael. Thank you, Judy. Enjoy it. Thank you.
Michael Howell: Time To Start Thinking About The End Game As Liquidity Cycle Nears Top
Summary
Transcript
And so what you're seeing in US markets right now is that the growth of bank holdings of uh treasuries and agency securities is outpacing money supply very significantly. In other words, is monetization. That's what's going on. Uh you know, think about why the why the gold price is up. Think about why Bitcoin has been a dramatic performer. It's all about monetary inflation that's going on. Michael Hal, CEO of Crossber Capital, an investment advisory firm, author of the book Capital Wars: The Rise of Global Liquidity, and the author of the very popular Substack, Capital Wars. It is so wonderful to welcome you back to the show. Great to see you as always, Michael. Really appreciate you taking the time. Well, really good to be here, Julia. There's there's a lot going on in Marcus right now, so uh lots to talk about, I think. So much to talk about and I feel like gosh it's been way too long since we've last had you on. I want to say it was back in the spring and you're right so much is transpiring in the markets and so I want to start Michael as you know where we always start more of that big picture where we are today the framework in which you're looking at the world and I know the global liquidity cycle is so critical to that framework. So let's start big picture where we are today the framework the outlook that you see ahead what is on your radar these days and as you know Michael on this show you can take all the time you need to set the table when it comes to that big picture view. Okay. Well, I think the the place to start is really with with liquidity and the liquidity cycle. And there's a slide I've actually put up that you can hopefully see which is looking at uh the cycle unfolding really since the mid 1960s. And this is looking at money flows that are moving through world financial markets um over that time span. And it's very cyclical. You can see that. But after all, that's the experience we've had. we we've had very cyclical markets uh over that time frame. Clearly, there's a trend, but it's the cycle that we're really interested in. And really since um what 3 years ago uh late 2022, in fact, almost exactly 3 years ago, uh this bull market started with a big upswing in liquidity. Now, as you can see from the graph, we're still in that upswing. Uh the red dotted line is a sine wave that we put on top of that cycle um around what 2020. So uh it's had a long history to unfold as you see there. Uh in other words, it's pretty much unfolded as you would have expected with a fairly regular 5 to six year cycle. And it looks as if that cycle is pretty close to topping out. We're not there yet. We may have a little bit more to go, but we've got to be thinking much more about the endgame rather than the beginning. And um the downswing you know through 2026 may be uh a challenging period. So we got to think about this pretty carefully. U this is the cycle of liquidity. Let me stress it's money flow through financial markets. It is not measuring the tempo of economies. And I would say actually in reality since the COVID crisis we've seen economies flatlining. And I don't think economies have made a huge amount of difference to financial markets over that period. They've been a kind of red herring in many ways. uh you know leading people down wrong avenues um and in fact in fact we've faced an absolutely plain vanilla uh investment cycle everything has gone pretty much according to normal script that is such a great framework to look at this um okay a couple of things I would love to explore with you further you talk about how we are late in that cycle maybe 2026 might it might start to be a more challenging period but you also note that we need to be thinking about the endgame game rather than the beginning. Can you walk us through like the thinking around the end game? How do you need to think about that? Sure. Well, in fact, if you look at the next slide I've put up, what I've done is to try and put this in context. So, the red line on the chart is looking at the current cycle. The zero point that we plotted right in the middle of the graph is the low point in liquidity. Um, and that has evolved uh counting months from that trough. Uh as you move to the right hand side, the black dotted line is an average cycle averaging the data since 1970 and you can see that broadly speaking we're following a fairly normal liquidity cycle. Uh it hasn't it's not falling. I mean one's got to stress that but it looks as if it's sort of laboring to get new highs and that's certainly the concern that we've got. Now your your question your or the relevant question is what actually causes the top? what causes the crisis and I think there's a there's a number of things that we can cite but I mean foremost is really what central banks are doing because central banks have been so instrumental uh in launching this bull market and what we want to really understand is what's going to end it now uh if I sort of shift on maybe a few slides to um what's happening in terms of um liquidity I'll come back to the other thing this This slide here is uh admittedly a schematic diagram but it basically tells us how the global financial system works and it shows you not only the upswings but it also describes the down swings and the point about the modern financial system is it's integrated or liquidity is integrated really closely with debt. We live in a debt dominated world and I can't stress that enough. It's a really key point. The thing is that the paradox that is behind the whole system is that debt needs liquidity and liquidity needs debt. Debt needs liquidity for refinancing and liquidity is often built on a collateral base where that collateral base is highquality uh government debt which is used as collateral. Now if you get any dislocations between those two wings of the diagram, you can get financial crisis. Now the key thing to understand is and this is a development that has evolved principally since the global financial crisis um you know 15 years ago or so. It's that something like 80% of all lending in the world economy now is collateral backed. In other words, it has as collateral either real estate value, thinking of the home mortgage uh case, or if you're looking at financial transactions, the collateral is mostly uh pristine government debt such as US treasuries or German buns. Now, the integrity uh of those bonds of that collateral is really key to understanding the liquidity process. And what we say on the left hand side there is there are two indicators that everyone can monitor that are pretty good bellweathers of that particular process. One of them is the move index which is a measure of bond volatility. So if you've got a lot of volatility in the bond markets then you're going to have a lot of volatility in financial markets generally and ultimately liquidity will contract and that will be a bad bad environment. The other is which may be a precursor to that is to look at something which is a bit wonkish but is called sofa spreads. Now sofa interest rates are the interest rates that have replaced euro dollar rates. They're the ones that are really the key interest rate in the whole uh not just US system but the whole world financial system and they can be monitored daily. And what I'm showing here is the sofa spread which is the spread over Fed funds target rate. Now I'm going to show you that in um in a following slide which is shown here. Now you can see on this diagram uh a very ragged chart. In other words uh if this is uh a patient's heartbeat uh or whatever you can see that they're reaching crisis as we move towards the left hand side. Uh they're starting to go those beats are starting to go off the scale. And the reason that that's happening is there are increasing tensions in financial markets. It's becoming more difficult for dealer banks to either provide high quality or get highquality collateral or provide the liquidity uh that is needed to uh undertake those loans. And so what is at risk here is the things like uh the treasury market could become destabilized. things like you've heard about the basis trade which hedge funds are undertaking uh could suddenly contract all these things are really at risk with a very with high volatility in the repo markets I mean this in in another way is really the heart of the system and you can see it doesn't look particularly healthy right now and that's one of the things that we're concerned about so it's giving us an early warning sign that liquidity is beginning to uh contract and that's dangerous gold keeps setting new all-time highs But price appreciation isn't the only way to profit from owning gold. Monetary Metals is redefining the future of precious metals investing. Instead of paying to store gold, imagine getting paid to own it. With Monetary Metals, you can earn up to 4% on your gold paid in physical gold. That's right. Your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoy potential price appreciation at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% on your gold paid in gold. Yeah, this is this is why I love having you on the show, Michael, because you always help all of us learn and I know this audience loves learning from you. Um so just to recap the move index which is that volatility in the bond market um we actually the creator of the move index on the show that was Harley Bassman and so for the secured overnight financing rate really important to pay attention there. Um you point out that we're seeing these early warning signs and a couple of things could happen. You could see the Treasury market could become destabilized. Can you elaborate a bit more on that risk and how that might play out? Why that's so worrisome? Yeah, sure. I mean, in fact, what I what I put up here is the move index, a chart of that. You know, Harley is a great guy, really worth paying attention to. And this is his uh his baby, if you like, the move index, which is a measure of volatility across the US term structure. And you can see that that has a normal zone that we've indicated, that gray band at the bottom. And essentially, if it starts to move up appreciably, it's measuring higher volatility in the bond market. And the reason that that's uh a worry is that if you're thinking about taking collateral to back a loan, the more volatile or more unstable your collateral, the bigger the haircut you're going to ask for from the borrower. And that means that they can't borrow so much. So, credit conditions tighten. And what this is basically demonstrating is that the Treasury and the Federal Reserve together in my view have been trying to orchestrate a lower move index. So they've been lots doing lots of things like uh running down the reverse repo program, things like treasury buybacks. All these are attempts to try and re in volatility because it's such a key variable in terms of uh leveraging the or enabling the system to leverage upwards. The problem is is as we indicated uh in the repo markets are starting to get a breakdown that may cause bond volatility to spike and that will that will cascade. Now why is this important? Let me go back a couple of slides to this one. Now this is this is looking at really the overall problem that economies are likely to face or financial markets are likely to face and this is looking at the debt liquidity ratio in the world economy or to be 100% pre precise the advanced economies worldwide. Now what this is showing is a ratio and what you can see from that chart is the ratio stabilizes. it has an average value that it seems to coales around which is roughly speaking two times. So it's saying that the amount of debt in the system uh for normality or for stability has to be about twice the level of liquidity or to put it another way liquidity has to cover half the debt and the reason for that is that debt needs to be refinanced. Uh in other words if you take out a loan it's got to be repaid at some stage. Now we know the spoiler alert is that debt's never repaid. is only rolled over. So effectively this is a refinancing measure and so if you uh have to refinance debt you need balance sheet capacity among your banks or credit providers to refinance the debt. If you don't get that balance sheet capacity in other words if there's not liquidity in the system you get a financial crisis. And all the annotations that we show on the on the chart are previous financial crises. Coincidentally, they all seem to occur when you've got very high debt liquidity ratios. In other words, when you've got tensions uh in repo markets or in financing markets. The other side of that story is what happens when you get a very low ratio. When you get a very low ratio, there's excess liquidity. The vent for that excess liquidity is asset prices. And every one of those spikes downwards seems to have coincided with a major bubble in asset markets somewhere. And the big one we've just come through is what I've called the everything's bubble or what is generically called the everything bubble which has basically launched everything uh to higher highs. Now we're enjoying that for sure. But if you look into the future that is likely to reverse and it's reversing for two reasons. One of them is that the pool of liquidity is being challenged partly by the Federal Reserve and what the Federal Reserve is doing which I come on to and partly by the fact that as this next chart says there's an increase in the annual debt role. Now what do I mean by that? Every year new debt has to be refinanced and you're looking at a figure of somewhere between 35 and 40 trillion dollars worldwide to be refinanced in markets every year. Now, as I've said before, financial markets today are dominated by these refinancing flows. It's all about debt refinancing. Forget the idea, the textbook idea that somehow financial markets provide new financing for capital investment. They don't. It's all about debt refinancing. So, this is what we got to focus on. Is there enough liquidity to refinance debt? And what you can see there is the orange bars which are actual data points and the red bars which are extrapolations in the future. And you'll see there's a big bite out of that chart in 21223. And that period was one where we had ultra low interest rates following the co emergency. uh you know central banks put rates down at near zero some cases negative rates and that caused a lot of borrowers to refinance their debt. They turned out debt uh to use the expression and they turn debt out to the later years of this decade. In other words, it's coming back into the system to re be refinanced again from 26 27 28 29. And this is the annual change in the debt roll, not the actual amount. This is saying how much each year increases over the previous year. Now, all I'm trying to say here is that we've got to remember that there's an echo effect in the system from what happened during COVID times. And that echo effect is the debt refinancing cycle. And that period during CO was an anomaly. Everyone will remember that it was an anomaly. But in history, it was the most astonishing anomaly. when you start to think about interest rates. When I was at Solomon Brothers, US Investment Bank, we grew up on a book uh which was called the history of interest rates by uh by the former head of research at Solomon Brothers. And that book basically said, it was by uh Sydney Homer, by the way. That book basically said that in 4,000 years of history, there has been not one example of zero interest rates until we get to 2122. And the period, in fact, more generally since the financial crisis has been littered with very low interest rates. And what does that do? It causes huge distortions in markets. It encourages this whole mentality of taking on debt. And that's the problem we've got now. that debt is coming up for renewal or refinancing and that's a problem. So that's issue number one. Issue number two, which is to come back to this point about what the Fed is up to is here is the growth of Fed liquidity. And what you can see is both the history and an extrapolation as to what's going to happen over the next 6 months given what the Federal Reserve is telling us uh and what room they got the maneuver. And what you can see is you're likely to get a significant slowdown in liquidity growth. The last time that happened in size was early 2022 and financial markets were pretty bad during that period. It really took that acceleration in liquidity from the back end of 22 which caused this bull market. Now what we're saying is you've got to be alert to that slowdown because it's happening. Why is it happening? I think this is the important thing to to argue. It's happening because there is great pressure on the monetary authority both internally and externally from the treasury to say look all this QE all this excess liquidity has has not helped the real economy at all. It's caused huge distortions in markets. It's basically caused wealth effects or skewed wealth uh towards one group in the population. It's unfair and it's not going to happen. And therefore uh what is being called upon or the Fed is being called upon is to downsize its balance sheet. Now what you might say is that isn't that a bad thing for financial assets? The answer is it probably is. Is it a bad thing for the economy? Well, that's another question. But the economy is what Treasury Secretary Bess best is focused on. And what you've got to start thinking about is that the alternative policy that is being pursued now, which is heavy issuance of Treasury bills into the system, which is something he said he'd never do when he was criticizing Janet Yellen, but Hayes picked this up. That expansion in the Treasury bill issuance is what we label Treasury QE. It's a way of getting liquidity in the system, but more importantly and fundamentally, it's a way of directing that liquidity into the real economy. Stable coin are part of that whole exercise. They're an integral part. And what is likely going on, we think, is that you're getting this emergence of a war economy. I'm not saying here kinetic war, but I'm saying a war economy where strategic industries are being identified and funds are being channeled from the federal government into those industries and it's being funded through the front end of the yield curve through the bill market. And that is the change that we're seeing. We're seeing a trans we're seeing a transition from Fed QE to Treasury QE, but it's all about the real economy. That is fascinating. You're right. He was critical of Janet Yellen doing that at the at the front end of the curve. Wh why do you think he's doing it again? Well, I think that what they're doing generally is they're trying to develop it's the MAGA line of we're going to develop the economy. We want to make the economy strong and robust. And the way that we're doing that is that we're going to direct spending into key industries. I mean, look at the stake in Intel. Look at what's happening with the onoring. If you go to the White House website, you'll see that there's a ticker there which now says every day there's a new deal of onsuring. Uh so far in the Trump administration, uh the US economy has got $9 trillion of new investment. U that's the that's the agenda. But the federal government is engaged in that too and they're basically using Treasury QE as we call it. In other words, using bill finance to direct that and the stable coin industry will be a key element in that because effectively uh stable coins are a way of monetizing government spending quite easily. In other words, funding government credit. And this is basically a change in dynamics where it's not the non-economics if you like that's driving the market. It's more and more government intervention. That's interesting. on the stable coin front. Can you elaborate? So, is that like monet that would be like is that like monetizing the debt or how does that how does it work exactly? Well, I think you it it's it's getting we're going to get caught in the weeds here. It's somewhat wonkish. Let me let me try and explain. If you've got a situation whereby uh a pension fund or an individual buys government debt, that is effectively a transfer out of savings. So there's no net liquidity creation necessarily in that regime. If you get a credit provider that buys a debt, buys government debt, then what happens is the balance sheet of the of the credit provider expands and effectively money supply or it monetizes the deficit. So the key thing here is not necessarily the debt issuance, it's who buys the debt. Now the key point about bill issuance is that bill issuance is really attractive to credit providers because they like that very short duration uh security and they tend to hoover that stuff up with elacrity. And so what you're seeing in US markets right now is that the growth of bank holdings of uh treasuries and agency securities is outpacing money supply very significantly. In other words, is monetization that's what's going on. uh you know, think about why the why the gold price is up, think about why Bitcoin has been a dramatic performer. It's all about monetary inflation that's going on. Good good point. Um at the beginning of the conversation when you were talking about liquidity and the um the bull market that we saw I guess beginning really three years ago as you point out um it looks like it's getting to the place where it's going to start to top out. We have to start talking about the endgame rather than the beginning. And you also point out um it's about the money flows not measuring the temper of the economies and that a lot of economies have been flatlining and though a lot of people the way they've talked about the economy I guess it's led them as you point out down these wrong avenues and that really we've had a pretty plain vanilla market. I guess my question for you is I take it you have not been surprised that we've seen you know all-time highs in you know equity markets for example. Maybe I just want to ask you like what has been your take on what we've seen in markets? I take it you have not been surprised by the moves. No, I think look, I I think Julia, what we've got to do is is separate trend from cycle here. And what we're arguing is that there's a there's a long-term trend in faster uh monetary expansion. In other words, monetary inflation as we call it, which will see global liquidity, which is our key measure, uh trend significantly higher over the medium term, medium and long term. and a cycle embroidered on top of that uh which is you know key for understanding tactical asset allocation. Now the cycle is already what I've been talking about a lot recently and let me just show you this slide which really identifies the key points in the uh uh in that cycle. Now what you have on the right hand side there is a liquidity cycle that is uh essentially drawn up in terms of phases. You've got calm, speculation, turbulence, rebound, four different regimes. Uh if the cycle is expanding, we say that's risk on. If the cycle is going down, that's risk off. And this is all about liquidity, remember, not the business cycle, it's the liquidity cycle. And then on the left hand side, there are different asset classes that move with the cycle. Equities do well in the upswing. Commodity markets tend to do well around the peak of that liquidity cycle. cash or very defensive investments do well in the downswing as liquidity is being withdrawn from markets. Bond markets excel around the trough. Uh and then you get the cycle restarting again. Now if we look at how that has evolved through this particular cycle uh this is a standard template that you see in front of you that we use to assa allocate. Uh it's not always as neat as this but it it's it's working out as I say to the letter. And what you've got is four different regimes, liquidity regimes, rebound, calm, speculation, turbulence according to the phase of the cycle. On the left hand side, we look at asset classes. On the right hand side, we look at industry groups. Now, what you've seen since that low point in September of 2022 is an expansion, initially a rebound that favored equities and credit markets. So, that's the green lights you see on the traffic lights on the left hand side. uh as you move towards calm equities keep going uh credits start to find it more difficult more risky and then by the time you get to the speculative phase credits tend to burn out first equity is not bad but by turbulence you don't want equities and you don't want credits commodity markets tend to pick up around the calm to speculation phase around the top of the cycle they're not good in rebound they're not good in turbulence and then bonds in other words long duration bonds do well in turbulence now what we've seen through this cycle is absolutely plain man vanilla. Equities uh began strongly uh reinforced by credits. Uh you've had industry group performance beginning with things like technology. Look at the right. That's what you tend to find early in the cycle. Uh financials come through about midcycle. We've had some very strong gains from financials uh and now sort of regionals as you get the yield curve steepening. And then you get commodities and energy picking up. You know, gold mining shares have been stellar through this year and then the cycle burns out and you get defensive about performing. Small cap do well at the back end of the cycle. Exactly what we've seen. The dollar tends to be weaker later in the cycle. What we've seen international markets outperform the US later in the cycle what we've seen. So everything seems to be running exactly on course as I would say and economics per se has not helped one jot through that period. Now we think it's a question of understanding where you are in this cycle and another way to look at it is to look at this chart which is a chart that we use to describe that asset allocation process more visually in a different schematic. Now what this is saying is you're shifting uh through the cycle from deflation to inflation and we think about this as monetary deflation, monetary inflation. As you move from left to right, you get more inflation. Fixed income markets are valued in that sort of red ski slope. So their valuations drop as inflation starts to pick up. Real assets like real estate, thinking of home real estate here, but equally commercial, gold, Bitcoin tend to do well as that dotted brown line picks up and inflation accelerates. Okay, so that's the absolute opposite of the fixed income markets. But equities kind of in between uh that like a bell curve and equities see their highest valuations around 2 to 3% inflation. uh high street inflation I'm saying here and you can see because we've drawn on that chart uh different counters to show where US equities are where European equities are where Japanese equities and Chinese equities are. So we're kind of later in the cycle in the US and think of this as a train a road train that's sort of moving uh from left to right with the US leading then European equities then Japanese equities then Chinese equities now the question to ask is which have been the really strong performers this year uh it's been obviously things like uh mining late cycle US stocks uh and it's been things like Chinese equities which are really catching the wind of a big monetization going on in China uh on that sort of far left hand side, but China is emerging out of deflation into a more uh robust inflationary regime. So investors are taking more risk. So what you see here is an absolutely plain vanilla cycle as far as we can see. Uh and it's either going to end because central banks decide they're going to pull the uh you know, pull the rug away, take the punch bottle away because they fear inflation, or you get some problem in markets uh causing a trigger in the repo markets because actually there's not enough liquidity in the system. And although the Federal Reserve is still telling us they're going to cut interest rates, my view is that this is actually quite a hawkish cut because you got to associate that uh prospective cut in rates with the rhetoric that's coming out of Steven Miran, Scott Besson, even Jay Pal himself by saying we want that balance sheet smaller, Fed balance sheet smaller. Mhm. I take it too like just looking at that that chart there, gold, which is at a new 52- week high today, there's still room to run for gold because I want to say even last time you talked, I think you were talking about like 3,600 on gold. We're above that now, but gold has just been on a tear. Yeah. Well, let let me let me address the gold question because I think it's it's a critical one and I think by association Bitcoin as well because we got to think about this now. You know if you come to uh this chart this is basically telling us something really important. Okay. And this is saying that if you look at the chart in front of you this is showing gold bullion uh prices in orange uh measured on that right hand scale and the black line is US real interest rates actually US tips uh yields uh treasury inflation protected securities. Now what you can see is that typically over that period until 2022 uh they were moving more or less in step. In other words uh real interest rates are shown inverted here. So when real interest rates went up the cost of carry of holding gold was high because gold doesn't earn an interest rate and so the gold price goes down and similarly vice versa. But actually you saw a significant break uh in uh 2022 because real interest rates shot up but so did the gold price and that there thereafter ever since they disconnected. So something really serious is going on. Now, I think that's partly the fact that in February, March of 2022, there was the Russian invasion of Ukraine, as we know, and the G10 economies and the US sanctioned uh Russia and basically took or uh restrained Russia's holdings of of dollar assets. And that's, you know, clearly uh something which focuses the mind of many other economies. And they say, well, actually, maybe we don't want dollars here. they're political. We want gold. Uh nobody can sanction that. So that's one reason. But the other reason is investors started to realize that what you were getting was more and more monetization going on. In other words, the federal deficit was growing and there were more and more attempts to monetize that through what we call yellowomics of this sort of funding through the bill market. Now this is the federal deficit and this is you know everyone knows this data but this is the federal deficit cumulative through calendar years. The black line is where we are now. Uh the orange was 24. Uh 2023 was red and the dotted line was 22. So you can see actually not a great deal of difference. We're heading towards a two trillion deficit again. Okay, that's got to be funded. So let's look at the math. And what I did here was look at the Congressional Budget Office projections to 2022. So we go out into the medium term here. And the orange line is the struct what I call the structural federal deficit. Now what is the structural deficit? It's basically taking all um mandatory spending so social security, Medicare, defense and I'm assuming defense goes up towards not two but towards the 5% NATO target and interest payments. They're all mandatory things. There's no discretionary element in this spending and has subtracted US tax revenues and that's the deficit you get that blows out. That is a significant worry. Look at the COVID spike uh you know look at the uh white the not the um global financial crisis spike and you'll see that uh the trend dominates both of those. The dotted line is debt held by the public by the private sector which you can see growing on the right hand side as a share of GDP. Now, as a heads up, let me say this. If the gold market follows that debt GDP step by step, in other words, you're looking at a co a real federal debt level in gold terms that is is measured in gold and the gold price moves accordingly. The gold price by the late 2030s would be $10,000 an ounce and the gold price by 2052 uh under this basis would be $25,000 an ounce. So wow sober people are that's why you need gold in a monetary inflation environment. And if you want to think about Bitcoin, what's the mold between Bitcoin and gold? Well, currently about 25 to 30 times. So that's that's where you're heading. And that's why we need to think about asset allocation clearly in this context. And that is what's going on. To look at it more visually, here is federal debt to gold uh drawn from the mid or the early 1940s. And this is essentially valuing gold sorry valuing federal debt as a ratio to the world gold stock. Uh and looking at how that shifts. Now, what you can argue there is that if there is a trend and those tram lines are intact, if that orange line, which is the real or the gold value of federal debt, goes down to the lower tram line, what you're looking at is $4,500 an ounce. And if it goes down to that average, which is six times, you're looking at $5,000 an ounce. And that's in the short term. Uh notwithstanding the fact that, as I said, the longerterm outlook looks really good. Uh yeah, even that looks good in the short term, but uh wow, I'm going to hold on to my gold. That's what you got to do. Yeah, I've I've had my gold since 2011 and that was not the best time to buy, but like look, I didn't do anything with it. Now it looks great. Um just take a look at that little window, Julia. So it says there since year 2000, US debt stock has increased 10fold. I mean, that's an eyewatering figure by itself, right? Yes, it is almost five times, but actually in other words, US debt has more than doubled relative to the S&P, but gold's gone up 13 times. Wow. Yeah, it's a good point. Let me ask you this because um we have talked about this, but there might since we've spoken we've this channel has grown a lot um over the last several months too. So, you make a really important distinction between as you call it high street inflation. High street is like the the London version of Wall Street. high street inflation versus monetary inflation and it seems like all roads are headed toward inflation specifically a monetary inflation environment. Could you maybe elaborate or explain the two the distinctions and why you need to really think about asset allocation in a monetary inflation environment? Yeah, sure. Monetary in inflation is all about the value of the currency. In other words, are you devaluing paper money or not against real assets? And that's really a key that's one of the key uh factors that drives economies. It's that particular relationship. Uh do you devalue your paper money or your credit money? High street inflation. Oh, by the way, that that's called monetary inflation if you devalue. High street inflation is a cocktail of monetary inflation and cost inflation deflation. Okay? So you can ask the question what we've had over the last um let's say 15 years is something like 10% perom at least monetary inflation per year. In other words, that's the devaluation of the currency and that's why the gold price has gone up so dramatically. Okay. So why hasn't that come through to the high street? That's a puzzling question. Why haven't we had 10% CPI inflation? Well, some people of course may argue that we have in places, but the reality is that what's got in between that is costs. There's been cost deflation. Now, what has caused that cost deflation? Well, technology has been one great example of that. The other is cheap Chinese goods. Uh you know, basically when China entered the the World Trade Organization, when it started to flood the world with cheap goods, that was something that really affected uh the high street uh significantly as we call it. I mean, an awful lot of stuff we now buy, we still buy from China. But the fact that China came into the world economy with a vast labor force that had such low wages meant that Chinese goods were very cheap and that meant that high street inflation wasn't that great. Now, if you start to move away from goods and you start to look at services and you start to look at services surrounding things like real estate or whatever, you'll find the inflation rates were much much higher among those selected areas. So they are much more responsive to things like monetary inflation and asset prices are almost totally monetary inflation. So you can see why you see this uh sort of spectrum of different price rises and you know things like things that are made in China are not going to go up a lot but certainly until recently uh things that are technology influence not going to go up a lot. Uh so the real price of a of a of a computer has clearly dropped. the real price of an iPhone. Well, actually, probably not actually. It's a bad example of, but the real price of other technology has has dropped. Uh, but you can you can see the point and that's that's pretty much where we're heading. So, you're going to get a lot of monetary inflation. Question is, does that feed through to the high street? Uh, not necessarily, depending on that cost inflation backdrop. If you get oil prices collapsing, that's clearly going to be a negative on the high street, and that will cause high street inflation to be less than monetary inflation. If, on the other hand, you get this reverse cocktail of of more expensive Chinese goods, of a deterioration in technology, uh, and you get oil prices spiking, then you're going to get a lot lot more, um, high street inflation. Sorry, I misspoke. High Street is like the America. It's the British equivalent of our Main Street, not Wall Street, guys. High street equals Main Street. I know we um mis mis mis uh mistransated over here. Um yes. Okay. I want to go back to uh your comments around the Federal Reserve. We just had the FOMC last week and as you note it was a hawkish cut, the 25 basis point cut. I want to just dig in a little bit more with you on the Fed and I guess it's does the Fed really matter here if it seems like it's the Treasury that's running the show or as you put like the the Treasury QE if you will. Yeah, I think it's a fair point. I mean there's been a lot of debate about Fed independence. I mean the the Fed and the Treasury are joined at the hip anyway. I mean if push comes to shove they they act together. There's no question about that. Um, so, uh, is the Fed really independent? At the end of the day, I mean, I would scratch my head. I don't think the FOMC matters that much. I think the Fed matters a lot as an institution. Uh, the FOMC, you know, I think what difference does interest rate moves really make. Uh, I mean, no, no one's using that interest rate really to price things off. Uh, it's more an in it's more a sort of signal of sort of general intent by policy makers, I would argue. And I think the only role it really plays is that it may affect foreign investors much more in the US. And if the Federal Reserve is seen to be aggressive in cutting rates, that may well have a a negative effect on the US dollar. But I think that's what they want. So, you know, you could argue that this shift towards frontend fund uh financing of the deficit through bills and the desire to get the dollar down is why uh the president is putting a lot of pressure on JPAL to cut rates. Uh it makes huge sense. I think they want a lower dollar because that's whole part of the make America great agenda. Uh they've got to get manufacturing back in. And I think if you want a parallel, my parallel is the other big anomaly in markets in the last few years is the Japanese yen. Why is the Japanese yen being so weak? I mean, no one really has predicted that. Uh economists are saying it should be way way stronger on PPP basis, but it's not. And I think this is a deliberate attempt by the Japanese uh maybe in cahoots with the US Treasury to basically build to make it Japan great again as a bullwalk against uh a regional bullwalk against China. Uh and after make Japan great again, it's make America great again. So get the get the dollar down. Uh first the yen then the dollar and I think that is the way to counter a threat from China. Interesting. I had not heard it articulated like that. How Europe is anyone's guess. I mean badly is the answer. Uh but then you've got to go back to the 1930s and say well isn't that exactly what happened to France in the mid 1930s is that they refused to devalue the frank against gold. Um and they had a too high exchange rate. It devastated uh the French economy and uh you know consequently uh the French middle classes welcomed the Germans in because they thought they were going to get monetary stability. Um, and you know, draw the parallel here with if the euro is overvalued for so long against a competitive dollar and a competitive yen, what happens to the European economy? And let's extend the analogy unfairly and say, well, okay, is Russia a threat on the east to Europe? I mean, these are geopolitical considerations, but what I'm saying is you got to think geopolitics, not economics anymore. H, that's okay. Okay. So, you need to look at it through a lens of geopolitics then. Okay. Let me ask you this though. Um the weaker dollar or like I guess intentionally wanting to weaken the dollar, what are the implications? Can you just kind of tease it out a bit more for me? Well, the implications are that you want to own gold and you probably want to own Bitcoin. Uh certainly you want to Bitcoin for the longer term. Uh Bitcoin we know is more volatile, but I mean these are monetary inflation hedges and that's what I would argue is is basically going on. Uh but you know it's not it's not only um you know a weaker dollar that is driving the gold price. I think China has a lot to do with that as well which we can get on to. But the implications are that uh you know basically a a weaker dollar is you know not necessarily bad for the world economy let's say it may all be instrumental in causing the world economy to strengthen. It will certainly lift commodity markets. I mean that's one of the other things that you're seeing. And of course, things like gold miners, which have been, as I say, on a on a roll this year, uh, highly leveraged to the gold price. I'm gonna have to do an episode on gold miners because I keep people keep asking about it, too. Um, all right. So, I guess like China's been buying a lot of gold, too. Like, what do you make of like what we've seen from other central banks buying gold? Does that tie into this thesis as well? What what is going on there? Yeah, it it ties exactly into the thesis because basically why are these governments buying gold? Uh because they they don't want to be sanctioned in the event that there's uh uh further geopolitical strains and gold is a neutral asset. Um so you know if you hold the dollar you've got that risk of being sanctioned. Uh if you held the euro uh America would make sure the Europeans sanctioned the countries. So gold is is the way out. Now it may well be there's another agenda there which I don't know about and that other agenda could be for argument's sake that uh China atal is trying to create a rival to the US dollar system and that will be partly backed by gold that's possible but I think that you know my view is that China is just doing a straightforward monetization here to get out of their debt problem and I want to you know I want to show that because I think this is an important point in understanding what's going on and the chart that I just put up is the rival to the earlier chart I showed of the debt liquidity ratio for the advanced economies. This one's for China, right? Look at the difference. It's almost it's almost the mirror image. China has a very high debt liquidity ratio and that very high debt liquidity ratio has put huge strain on the Chinese financial system because debt as we know China is saddled by lots of debt uh has really been chunking the economy and it's been very difficult to refinance. Now, China through that period has been trying to keep the yuan stable against the US dollar on what has been through most of the period a very strong US dollar. So, they've had to tighten liquidity. So, in other words, debt has gone up, liquidity has come down, and the debt liquidity ratio has shot up above its normal level. And that's the problem. What China has to do is to get that debt liquidity ratio down. Now it will do that by expanding liquidity significantly. But as I said, it's been sort of stuttering in that process because it wants to keep the yuan, the paper yuan pretty stable against the US dollar. So maybe the avenue they're using is the gold price and that's what we got to start thinking about now. First of all, what is China doing through liquidity? This is the uh changes in PBOC, the People's Bank of China's liquidity injections over the last 5 years and you can see that recently it's spiked up significantly. So, China is easing. Now, what is the evidence of that in the markets? Number one, you're looking at the Chinese government bond market breaking out in yield terms. Yields are starting to climb significantly. In other words, Chinese investors are switching out of bonds into equities and the Shanghai market has been on fire. It's been one of the best performers this year and it's still very well underpinned by this liquidity backdrop. In fact, so much so the Chinese authorities are thinking of putting uh you know constraints on the market to stop uh you know excessive gains. But you know we have clearly still lot of liquidity support in the market. Now, that liquidity is basically driving the gold price up. And I don't think that it's necessarily the London gold market and Western buyers that are driving the gold price. I think it's Asian and Chinese buyers. And you've got to think of that in terms of what's happening to the yuan gold price. Now, we said last year as a first step to getting out of the debt problems that China has, it has to let the gold price in yuan terms hit around 24,000 uh yuan or remmbb per ounce of gold to just simply begin to get out of those those debt problems. In other words, to devalue uh those debts against paper money. So, in other words, you're devaluing your paper money. Uh, in other words, you're trying to improve the real value of the asset. And what that is is telling us is they've got there now. We've stabilized for a few months and now the yuan gold price is going up again. And I think they're going to have to move it up significantly. You know, maybe by another 20% or so. So, you're looking at a significant increase in yuan gold. Uh, and I think this is the driver of gold prices worldwide. But hey, let's see. But what does it mean generally? It means generally that if China expands liquidity which is what this chart is illustrating in orange this is the injections of Chinese liquidity and you know make no question it's been volatile of late so it's difficult to predict these things but they've had this sort of stopgo policy but it's now clearly uh it's clearly go and the black line uh is commodity prices including energy. The dotted black line is commodity prices excluding energy. So not a lot great deal of difference. The orange line is Chinese liquidity and the orange dotted line is our projections about what's going to happen. So we think you've got a situation whereby commodity markets generally pick up completely consistent with this monetary inflation framework completely consistent with the idea that gold goes up substantially more. Uh but it's China that is also uh helping this process. It's not simply the fact that uh federal debt is expanding. Uh you know, this is happening at the same time. You've got two big drivers here of the gold price. I have to say, Michael, I always love having you on this channel. I know this audience loves having you on. Before I let you go, I want to give you the final few minutes here to leave this audience with some parting thoughts. Anything that you would like to leave with them uh to think about? It could be something we mentioned in this conversation. It could be something that didn't come up that you would like to bring up and of course let them know where they can find and support your work whether it's your book. You have a wonderful substack. Anything that you'd like to leave with them? The floor is all yours. Well great Julia that's it's been a pleasure. Thank you. Um I think the first thing is that if you want to follow what we do uh the subset called capital wars is probably the best the best avenue. Uh we have an institutional service but that is really focused on data data provision for quant funds etc. Uh if you um come back to the narrative of what we've been saying, I think the the the two takeaways are number one, we're late in the liquidity cycle. It's about 35 months old uh since the beginning of uh the pickup and they don't really last cycles don't last a lot longer than that in terms of the upswings. So we got to be careful that we're coming to the end. uh and in terms of understanding the longerterm picture what I would do is to think to geopolitics and what is going on and what we know is that basically federal debt uh as a sort of complement of the whole idea of uh making America great again and challenging China has to expand it will do but as that expansion goes on the gold price must go up and you want as a core holding strategically monetary inflation hedges and that's you know that's the one thought you've got to you've got leave with Michael How CEO of Crossborder Capital. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, your amazing charts. We always love having you on this channel. Really, really appreciate you. And until next time, be well. Thanks so much, Michael. Thank you, Judy. Enjoy it. Thank you.