Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today we talk with Mike McGlone, senior macro strategist at Bloomberg Intelligence.

Dan Ferris: And we'll also talk about what Warren Buffett has been doing lately.

Corey McLaughlin: And if you want to let us know what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour.

We don't talk much about Warren Buffett. I think we're usually too busy talking about the Fed.

Corey McLaughlin: Right. I'd rather talk about Buffett, I think.

Dan Ferris: Yeah, an actual investor making actual buys and sells in his portfolio. In the Stansberry Investor Hour, who knew we would talk about such a thing? But yeah, my wife actually pointed this out to me. I wouldn't have seen it otherwise in time to talk about it, I don't think, but a couple of things lately. The latest one is that he sold 86% of his position in Taiwan Semiconductor, which you know, Buffett doesn't really like to sell. He'd rather hold forever, and I thought Taiwan Semi was kind of a "hold forever" type of a thing, but he cited geopolitical tensions were a consideration is what I'm reading in the press. I don't know. This just seems like – I thought he was sort of up on – I thought he thought China was OK and thought that – this just strikes me as odd, put it that way.

Corey McLaughlin: Yeah, I don't think it strikes me as odd really, though. I mean, we've been hearing more about the tensions with Taiwan and China kind of ramping up, you know, these hotspots of conflict. I don't know, and if you're Buffett, you figure why – you've got plenty of other places you could put your money. Why take the risk? Maybe he sees a bigger risk there than the reward I'm assuming, and why keep the money there? So I don't know, makes sense to me on a simple level like that, but I'm sure he's got other reasons for it too.

Dan Ferris: Right. So part of the thinking about this in the past – recent past, up to the minute I would have thought that Taiwan Semi, it's like the national treasure of Taiwan, and it's one of the most important, top companies in the world. And it's so important to everybody, including to China, you know, they claim Taiwan as their own, then Taiwan Semi is super important to them. Like why else would you want Taiwan, I guess? Maybe for ego gratification and to show the world that you're serious or something, but it was thought that Taiwan Semi is this – is what they call the silicon shield against a potential invasion from mainland China. So I guess maybe Buffett doesn't believe that, and certainly China is running these simulated – what I've seen is called joint precision strikes in the press during various military exercises, so I guess – I just find it hard to imagine that China would somehow decimate the Taiwan economy and that they would do anything to damage Taiwan as a productive resource. Like politically taking it over, sure. And the Communist Party does what it wants to do and, you know, you might not agree with everything, and not everything they do might be great for business, I guess, but I can't imagine anyone being dumb enough to bomb Taiwan Semi or something. It just doesn't make any sense.

Corey McLaughlin: Right. I would hope that that would be true as well. I'm not going to liken it to hopefully when people were saying Russia's not going to invade Ukraine and then that happened. I don't think this is quite there because I think, yeah, you're right, you're talking about China trying to become this global power, although maybe we here in the West don't know what we're talking about and don't have a good perspective on these things. And you know, they've been running these drills for, what, a year. And then every time the U.S. sends over some political figure, all of a sudden you hear a report about a missile flying over Japan or somewhere, so it's – I don't know. There's not nothing happening. So again, I think if you're Buffett, yeah, he's a buy-and-hold investor, but he's got other places he can do that too without staring down the threat of a giant war. So if something were to happen that you're talking about, that would be pretty significant. That wouldn't be a small conflict, I don't think. It would be a big deal, and aside from disrupting the supply chains and the chip market globally, I mean, just the threat of the war there would be – maybe that's enough for him.

Dan Ferris: Yeah, he just doesn't want to get involved. I guess I can understand that. But you mentioned Japan, and recently that was the other thing I was talking about that he's been doing is, OK, so he's selling Taiwan Semi but he's bought more of these big Japanese trading houses: Marubeni, Itochu, Mitsubishi, Mitsui, Sumitomo. I think I recognize one or two of those names. And so he now owns about 7.4% of them. And he was in Japan – he might still be there for all I know – to meet with the heads of those five companies, and he was saying he might – it sounded like he might want to do business with them. He said, "I don't think it's impossible that we will partner with them at some point in the future of a specific deal. We would love if any of the five would come to us ever and say we're thinking of doing something very big or we're about to buy something and we would like a partner or whatever." So he's thinking about this two ways. He wants to own – he's got about – I think he's got $14 billion in these now, which is a pretty substantial investment. And then he also wants to do business with them. This makes sense.

I like the idea of Japan because, I don't know, I have a fondness for Japan just because during the sideways market that has ensued after the huge crash from 1989, early '90s, value worked better than anything, like quantitative, price to book, price to earnings, price to cash flow worked great. Those strategies worked great. you could rebalance every couple years and make a lot of money and compound at high rates, pay a few taxes, I guess, but hey, having a big tax bill is like a high-class problem. So when I hear Buffett's interested in Japan, there's a couple of good things happening there for me. I like it. I like the idea.

Corey McLaughlin: Yeah, and you see – it's hard not to connect these two stories, selling Taiwan Semiconductor and buying Japan. I think that kind of shows you where his head's at right now as far as – you know, and this is from a guy who always says never bet against America. So I don't think he's betting against America right now. I think he's going with America here and with – you know, because the way these geopolitical things play out, if the worst-case scenario happens with China and Taiwan and the whole region. You know, our biggest ally there is Japan, and so that's a likely spot where I guess the U.S. would throw a lot of support behind in the event of something major like that.

Dan Ferris: Yeah, you remind me about our former guest, Peter Zion, who said the world becomes more sort of – I don't know, he didn't use the word balkanized, but it's multi-polar or something. It's not like unipolar, U.S. running everything. And in that world, he posited sort of a U.S. "friends and family" program, and certainly Japan would be in the family, right.

Corey McLaughlin: Right, Buffett knows that.

Dan Ferris: I agree with you. I think in some ways it's just his classic theme that he's been running most of his career since he took over Berkshire Hathaway.

Corey McLaughlin: Yeah, and if he sees that Japanese stocks are cheap now, why not? And so he's going to – I'm not going to begin to start to get into the head of Warren Buffett, but those are – from the geopolitical angle that you mentioned as the reason for selling Taiwan, you would think that might apply to the buying decisions in the same region.

Dan Ferris: It's interesting to me that these are large financial companies because, I don't know – of course, he's bought huge banks and stuff before, so I guess it's not that much of a surprise, but of all the things to buy, Japanese companies are notoriously stuffed with cash and don't have enough – you know, their returns on equity are kind of notoriously low for that reason because they just are stuffed with cash. And I guess you can get some leverage in a financial maybe that you can't get in most industrial companies or something. I don't know. I should call him up. I should call him up and ask him. I'm sure he'll take that call.

Corey McLaughlin: No, it is interesting because this also reminds me of in, I believe it was 2020, where either Buffett or definitely Berkshire Hathaway, it might have been one of his – not minions, his lead assistant, they were buying gold stocks, which they had typically never done, and you wondered why, and your mind went to, oh, inflation. And so here you're thinking, oh, selling Taiwan, buying Japan, what does he know or what does he think he knows, and is that going to happen? You kind of – the guy has a pretty good track record. So yeah, certainly not something to ignore. I'm glad you brought it up.

Dan Ferris: Yeah, it's interesting to me. Mostly what Warren Buffett does, it's nothing I'm going to imitate, but a value guy's always looking at Japan, and I'm always thinking about how to do it. Mostly I haven't made any Japanese picks in Extreme Value, but I've been thinking – like I have this new newsletter, The Ferris Report, and I could do potentially a Japanese ETF or something to try to capture some of that. Finally after like 20 years of thinking about how to do Japan.

Corey McLaughlin: There you go. You sound a lot like Buffett actually because I'm looking at an article right here now. He said he doesn't have a stake in other major Japanese companies, but he's "there are always a few I'm thinking about." So there you go.

Dan Ferris: Right. Yeah, I saw that one too. That's good. I can't wait to find out what they are.

Corey McLaughlin: Well, we will eventually maybe if they come out in disclosures.

Dan Ferris: All right, so what else you got? You got anything?

Corey McLaughlin: Something along these same lines with geopolitics and the global picture, I heard yesterday this kind of not stunning speech, but it was – it got my attention when I heard the translation of Brazil's President Lula calling on the BRICS nations, which we can explain a little bit, to come up with an alternative to replace the dollar in foreign trade. Big deal, I think, a little bit. You've got the president of Brazil calling for that. This is nothing too new with the BRICS countries – Brazil, China, India, South Africa, Russia – basically getting fed up with being on the dollar system and all the different consequences that are happening because of that sentiment. You know, the war in Ukraine is one of them, I think, and who knows what else is happening here. This all ties into the dollar system. The dollar is the global reserve currency. It's used in still by far the majority of transactions, and so these countries are talking about trying to dethrone the dollar at this point, but there's a long way to get there, I think, still. And so – but it got my attention when I heard the Brazilian president saying that though.

Dan Ferris: Right. And as you said, the BRICS are – at this point they are – well, BRIC, Brazil, Russia, India, China, and South Africa has apparently been included in that group now. But it's great to talk about replacing the dollar, and one of Lula's comments was why can't an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries? Who decided that the dollar was the currency after the end of gold parity? And you know, the whole world is the answer to that second question. But I think there's a lot of glibness nowadays about the destruction of the U.S. dollar. I think that there is a lot of talk about it, and when people hear these conversations being had, they think, "Oh, you see... You see there?

But I don't think it's easy. I think there's tens of trillions – I heard – we had Brent Johnson on the program, the dollar milkshake guy, of course, would agree with me on some of this. But there's like $30 trillion maybe, I think he said, of U.S. dollar-denominated debt in the world, and there's also – there are other big reserve currencies. There's the Euro. I think the euro's something like 20% of global foreign exchange, and the yen and the pound. And so there are sort of euro and yen and pound kind of milkshake effects, meaning there's euro-denominated debt outside the euro zone. There's yen-denominated debt, et cetera. In fact, Buffett was over there, one of the things he was over there – that they did was some – maybe it was just the holding company of Berkshire Hathaway – they issued yen-denominated debt when they were over there I think. So – or he talked about it.

Corey McLaughlin: Yeah, they did. Yeah.

Dan Ferris: So I don't know. I think replacing the dollar in trade between these countries, there's a reason why they're talking about it but, you know, it's way above my pay grade to figure it out. I'm skeptical. I'm just skeptical that all this talk about the destruction of the U.S. dollar, you know, being imminent is serious.

Corey McLaughlin: I'm not buying it. I get you for sure, and you wonder though what – OK, if the dollar were going to crumble or – OK, even if not, say the BRICS countries come up with some sort of currency, what would it be? Would it be just brand new, or would it be gold, or would it be some kind of crypto, or would it be – I guess those are the options, right. would it be something else? I don't know, but that's the part that's interesting to me. What would it be if – I think this conversation, people generally gravitate toward gold and cryptos, and I don't know. It's difficult to see what it would be. I think one of those countries would have to maybe just have the more dominant currency and they would agree to – you know, like what happened with the dollar post-gold. The world got together and said, hey, let's do it in dollars, and those countries in a bipolar world, which one is it? You would think China would be the one.

Dan Ferris: Yeah, meanwhile go to any of these countries and get into a tuk tuk in India or a cab in South Africa or whatever they have there, and say, hey, do you take dollars, and they'll say of course. It's just like, yeah, good luck. Good luck, BRICS. Good luck, Lula. We'll see how you do with that. Anyway, it's interesting, but we should probably talk with somebody who has some thoughts. I know about bitcoin because we talked about it last time that he was here, and he is Mike McGlone from Bloomberg. Mike has a lot of interesting ideas on a lot of things, and he's an outspoken guy, and let's talk with him. Let's do it right now.

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OK, it's time for our interview. Today's guest is Mike McGlone. Mike is the senior commodities strategist for Bloomberg Intelligence. He has more than 25 years' experience in futures and commodities trading beginning at the Chicago Board of Trade. Mike, welcome back to the show.

Mike McGlone: Hello, Dan. Thanks for having me back.

Dan Ferris: So, Mike, I have to start with something. The last time you were here was January 2022, and we were talking about bitcoin, and we were talking about the possibility of bitcoin decoupling from its correlation with equities, with the Nasdaq, I believe. And I'm wondering what are your thoughts on this? That's the thing I'm really most curious about today.

Mike McGlone: In the macro, I think that's inevitable. As bitcoin becomes global digital collateral in the world going that way. In the shorter term and as of today, April 17, I'm afraid what's happening with bitcoin is people are looking like at it like the bank crisis has helped it go that way and trade more like gold and long bonds, but I think it's more about everything's up this year, and bitcoin's the fastest horse in the race. It was the fastest on the way down, the fastest up this year, and the time we're taping, bitcoin's up almost 80% on the year, and it might just start to roll over. One thing it clearly is trades 24/7, it's clearly a leading indicator.

So I view bitcoin as if markets do decline, which I expect, for instance the S&P 500 I expect it to drop for a normal recession, probably another 25%. Bitcoin should probably be the first one to lead it because it's still a risk asset, but I'm thinking long term it's going to come out ahead and trade more like gold and long bonds as a risk-off asset. But it's still very risky asset. And we have to be careful with correlations because I also like to say there's no more powerful force as we know in the world than when that S&P 500 drops hard, and it did last year, not so hard. It's up this year, and everything's up. So come mid-April, by the time we get toward the end of the year, we'll see how it works out, and I fully expect that risk assets like the stock market are going to drop a lot more and bitcoin's probably going to initially pull back, and that might actually lead it lower. I think it's just too early days for it to trade like a long bond or gold completely.

Dan Ferris: OK. Good update. Thank you for that. I'm just glad we sort of covered that. So the next thing that I want to – actually, Mike, before we move on, you said something very interesting just now. You said the most powerful force in the world, the S&P 500 falling, and I thought, oh wow, that's interesting. Then I thought, well, what about the bond market because that just really got obliterated and Treasurys got obliterated in 2022. Not a more powerful force than the S&P 500 getting hit?

Mike McGlone: So that's a good point. I'm glad you brought that up. And to me, what happened last year, one of the biggest corrections in both stocks and bonds in most people's lifetimes, is part of what I think is going to lead to the economic reset of a lifetime for most people starting this year. So the bond market went down, obviously, because it was – yields were way too low and the Fed raised rates, I think, way too late, way too much, and now we're tilting toward a significant deflationary recession. Bonds, I think, are going to be some of the best performers with gold this year, and I fully expect the stock market and the S&P 500, which is around 4,100, to go toward 3,000. And then I think that inflection point's going to tilt toward, OK, the Fed's got it. We've already started price for the Fed to pivot.

Fed fund futures are already looking for the Fed to raise another 25 or so this year and then cut another 50 toward the end of the year, which is showing the recessionary tilt, which is good for bonds – I'm meaning Treasury bonds and high-quality corporate debt. And to me, that's part of that transition. Last year everything went down because the Fed – don't fight the Fed rule worked, and now I think the rule should still be don't fight the Fed, but the difference is we're tilting toward a significant recession, the Fed's still tightening, which is part of the reason I think bonds are going to be some of the best assets because what we should get out of that is – and during deflation. And you're seeing that in commodities. We're seeing pretty significant declines in most commodities, and I guess one I'll mention is natural gas. It's down 80% from last year's peak.

Dan Ferris: Yeah, I read an article about natural gas and the problem with associated gas. In other words, there's just so much of it that there – they flare it and send it off into the atmosphere.

Mike McGlone: We have an excess of supply, particularly in this country, and a lot of that excess supply is due to – some of it's the flaring, solving that gasoline problem. A lot of that is logistics, it's just hard to transport that to where it's needed demand source, but it's just what we've done with fracking, horizontal drilling and things, where there's an ocean of natural gas under the state of New York and they're still not tapping it, but that's been the case in natural gas for about a decade. Every time it spikes, comes back down hard because we're bringing that supply on, you get all that shale in Pennsylvania, and yet the key thing I'd like to point out and I'll be publishing, I'm writing right now, get to that as soon as we're done speaking, is there's been a significant decline in industrial natural gas demand in this country. It's not because of the weather at all.

I'm using like a 52-week average, an annualized measure. It's dropped to the lowest demand of natural gas in this country despite the fact it's the most widely used and the benchmark for heat, electricity, and fertilizer has dropped to the lowest level in about seven years, and it's staying down there. It's very recessional. Things that you've seen rolling over – unleaded gas demand is clearly rolling over – and that was a key thing that showed us the peak crude oil last year, just like in 2008. And another thing is diesel. Diesel demand is rolling over, yet the Fed's still tightening. To me, that's the main major issue here where I think all risk assets, most notably the stock market and even bitcoin, are just hovering on cliff's edge, and I fully – fearful they're going to fall like natural gas did.

Dan Ferris: OK, you made a statement in one of the things that you wrote recently where actually it's a little subhead in one of the pieces you wrote recently. Says gold long bonds may rule 2023, so we talked about bonds, but gold too?

Mike McGlone: So let's look at gold so far on this year basis. It's up about 10%, one of the best performing major assets. Stock market's up 5% – or 8%. And you look at things like crude oil up 2%. But if you look at it on a one-year basis, gold is like the only major commodity that's up. It's up about 1%. The Bloomberg Commodity Index on a one-year basis is down 21, almost 22%. That's severe deflation. Now look at crude oil. Crude oil's down almost 24%. So what I like to point out is fossil fuel deflation is fueling gold inflation. So we saw significant peak in crude oil last year. It was actually below the peak from 2008. Oh, what's that? A lower high and we've had plenty of lower lows. That's a bear market turning back to a bear market. And there's good fundamental reasons for that we can dig into later with time. And we've had gold decent dip in a bull market. So we're going right back to the bull market.

So let's look at the end of Q1. At the end of Q1, gold closed at its highest level ever. It's right around $2,000 an ounce, a little bit below today. And crude oil closed at the same price as it did in 2007. So that's a pretty long time, 16 years or so it's still the same price. So to me, that's what I see from an enduring standpoint in commodities. Gold's going to continue to do what it typically has done in history. It's going to do well, and I think what it's doing is transitioning to trading very well versus the U.S. stock market, partly because the last decade or so, the U.S. stock market outperforming the world was one of the main reasons to not buy gold. Why would you want a "boomer rock," as crypto people like to call it, when you can get the stock market and get 9, 10% annualized return in an S&P 500 index.

So that to me is transition, and the key reason it's transition is the Fed's making it transition, but the key thing that happened is the stock market got the most expensive ever versus GDP versus global stocks versus sales versus housing, and it's just starting to roll back over, and it's got a key reason to do that. Not only in demographics, the boomers can buy two, you know, but the Fed's tightening. Still tightening into a recession. To me, that's going to be the pivot that's going to help gold just take off and eventually get toward 3,000. It's that Fed pivot. The key thing is what's going to take it to pivot. Right now, they're so adamant against fighting these lagging inflationary measures and ignoring the significant deflationary forces that it's going to be a significant recession, deflationary, it's going to really boost gold, but we have to get to that pivot, and we're still not there yet.

Dan Ferris: That's interesting. Lot of anticipation around the idea of a pivot, and it's been going on for months and months.

Mike McGlone: Yeah. Well, it's tilting that way. So fed-fund futures are priced for the pivot in – let's see, I'll just type it in my WRP-function terminal. So they're still priced at 85%. They're going to go another 25 basis points in the May meeting, and then by the end of the year, we're going to be toward about 50 basis points lower, so drop another 50 basis points. Now, that's what the market's saying, but if you look at what Mr. Chairman Powell and the Fed governors are saying – we had a meeting this morning and our strategist, Ira Jersey, pointed out he Fed governors fair much more hawkish than the chairman. And so that means they're not going to be in any hurry to ease until markets makes them, which means stock market going down. Otherwise, we've already had this bank crisis, and why are we getting contraction in bank lending? Because Fed rates raised so much, as our economist, Anna Wong, pointed out, and to me, that's still a problem because they're still raising rates. So to me, this is part of that epic scenario I see as the backward-working measures are still showing inflation, and the forward-looking measures are showing significant deflation, the Fed's still hiking.

Now, one thing I want to end with, Dan, and point out is I like to watch PPI. Look at the annual measure of PPI finished goods. It peaked around 20% last year. It's running around 3%. it's dropped 16, 17% in nine months. That's the fastest pace in history if you go back to the history of PPI, the year-over-year measure. So what stops that? I might say nothing. What stops it is typically a long and variable lag from a significant Fed easing period, and they're still tightening. That's the scenario I like to point out that's an inevitable, but at first, pretty severe recession, and at some point we'll get that pivot, but I have a feeling it's going to be the whites of the eyes of the markets really going down hard, and that's why, to me, I hate to say it but I'm still worried that the stock market's going to follow things like natural gas and just drop like it usually does in a recession.

Dan Ferris: You know, Mike, I recently heard someone characterize gold as not necessarily so much inflation insurance as insurance against central bank mistakes.

Mike McGlone: Well, it's true. What did gold do last year? It made new highs in terms of the euro and the yen, right so because it did what it's supposed to do. It's that stable store of value to help currency debasements. It's not always inflation as Milton Friedman says. Currency debasement is almost always a monetary phenomenon. So it did that, and almost always when it does in other currencies – major currencies – it almost always does it in the dollar, and so it's just inching up there. But to me, this is one of the biggest mistakes in history. Now, to the Fed's defense, they did provide liquidity when it was needed, and it was almost two years ago we still did not have vaccines. OK, so we do now, but the key – the bottom line foundation from all my views right now is almost every major boom in history is on the back of liquidity, and almost every major bust is on the back of liquidity that's dumping.

We've had the biggest bump in liquidity ever that's dumping at the highest pace ever. Money supply's running negative, bank deposits are running negative in most of our databases since the '50s. I just point out PPIs plunged the most at the greatest pace ever in history, and I fully expect by the time we get to – maybe we should do another call – by the time we get to July 13 is when the Producer Price Index, year-over-year, will – I fully expect that to be a negative year-over-year number just based on what happens with commodities and what's happened in the past. So to me, that's the base case. And then you open all the other assets, how are they going to perform, and one thing I like to mention if we want to go there at all, if you look at the price of copper, the dollar price of coper, it's about $4 a pound. It's been almost tick-for-tick with the S&P 500 divided by 1,000, which is about four, since 2015. And so I can't be bullish copper if I expect the S&P 500 to go to three. I expect copper to go to three.

Dan Ferris: Do you have a longer-term view on that? A lot of folks – actually, with both fossil fuels and copper and other metals, a lot of people like to talk about the energy transition from – to more renewables or whatever, and of course there are different ways to play this. Like a barbell, some people say, well, you know, I want to buy renewable and energy technologies. Whatever, God bless you if you want to do that. But other folks have noticed, well, part of that equation is a political assault on the supply of these other items, on fossil fuels, which kind of keep the – would suggest that it would keep the supply cramped and the prices stronger over some period of time. Do you care about that? Is that an issue for you? Are you looking shorter – oh, it is.

Mike McGlone: A longer-term, short-term, all of the above. To me, the bigger picture for copper is to continue its tendency to outperform crude oil, and that depends how you measure it. You can measure it on just enrolling those – holding those futures in an index and rolling them. Copper's always going to beat it because it's easier to store. And then, of course, the big picture is it's where's the world going? We're using less, we can create more of it and use less and less crude oil, and we need more and more copper and industrial metals to do that. So overall historically I'm very bullish industrial metals and copper, but in the short term, couple years, we've got to get through this recession.

So one key I think was very telling in 2022 is copper made an all-time new high and crude oil didn't. To me, that's telling of what to expect in the future. I fully expect copper to continue and make an all-time new high and an all-time high for crude oil might have been in 2008. It still hasn't been taken out. So to me, that's the big picture. Electrification, decarbonization, digitalization, it's all bullish for copper, and of course, copper supply's just not as easy to bring on as it used to be and the sources are somewhat dicey, and it takes almost 10 years sometimes. Crude oil you can – I mean, we can turn around some petroleum from liquid fuel in this country in a year using biofuels. It's just the way it is now in ethanol, and we use less and less of it. So the biggest retooling of auto manufacturer industries in the global scale ever is going to be bullish for copper.

But in the meantime, there is a recession. Most people think, oh, it's going to be a soft landing. Even our economist said this morning it's going to be mild. I don't even see how it can be close to mild if you just look at the typical reciprocal rules of physics from the liquidity pump we've had versus the dump we're getting now. And then I look at things like lumber. Lumber's collapsed from the highs. You think of housing. Housing rally at the highest pace ever on a one-year basis, and we have our data back from the FHLA – I think that's from 42 or 48. Now it's starting to roll over. And that's usually how things work is this is what people really missed in the 2008 – I'm sorry, '06 when housing started to roll over. They just missed how far it went. Just reverting. So to me, that's what we're doing, reverting right now. In the big picture, though, I think copper is going to head toward $3 a pound and probably not get much lower and be a good level to maybe start a foundation and for it to be wrong on that, I've got to be wrong on the equity market and the recession.

Dan Ferris: Right. So you mentioned housing as well, and housing and copper there together, and of course, we haven't found a lot of new large copper, like any new large copper deposits recently, and the existing ones are getting long in the tooth. And then when you mentioned housing, I thought, well, one of the things that makes housing a little more difficult for me right now is that, again, the supply is rather crimped. It's not like we're overloaded with housing supply.

Mike McGlone: So we will be, and we're getting there very fast. So you look at new homes under construction in this country, rolling over from the highest level ever. Now, I have data going back 50 or 60 years on the Bloomberg terminal. I can say ever. You've got to be very concerned. And if you look at the new homes under construction rolling over, just starting, and new sales, that ratio, the lowest – the highest ever, and starting to roll over and the Fed tightening. It's to me the housing market – bear market might be worse than the bear market of 2006 to 2011. All indications are there. The big difference is there's –

Dan Ferris: Wow.

Mike McGlone: Oh yeah, I'm just pointing out facts. I've published on it. I can send you those... here's the facts. We've never rallied the housing prices like we did to the peak to 2022 ever at that velocity. Just starting to roll over. Now things like owners' equivalent rent, the No. 1 measure in CPI, major lag, I said things. But what's a good leading indicators? PPI and good leading for that is copper, lumber, things like that. So to me, it's inevitable we're going to get this classic pendulum swing backward, downward, and the big difference is the Fed will never ease with ease it has in the past. So at this stage, let's just start with rolling over commodities.

The Bloomberg Commodity Index on a year-over-year basis is down 21.5%. In the history since 1960, it's never dropped at that velocity with the Fed tightening ever. It's always started with easing, and it's still tightening. That's the difference with the past. The Fed was way too late, the pendulum's swinging lower, they're still tightening, and things are just starting to head lower, but things are heading lower from the highest levels ever. Why did we have a pump in all asset prices? What did money supply do to the peak in 2021? It was the highest ever, went up by 40%, and now money supply is the lowest ever. Year-over-year basis is running negative.

It's at least – I just recently went back and read some of Ben Bernanke's essays on the Great Depression. He says that was the No. 1 thing was the global declines in money supply. It's exactly what's happening now, just we've never had this kind of liquidity pump that's dumped in the history of mankind ever. There's been a few examples. 1929 is a pretty good example. I overlaid 1929 pump in the stock market with the U.S. stock market relative to the rest of the world, like U.S. – minus the U.S. – the MSCI ex-U.S. It's a very similar chart, just starting to roll over. But what the problem is, you always expect these things as a strategy. OK, I'll be looking for that to bottom, I'll be looking to get long in the stock market and long risk assets.

We're well past a period of significant Fed ease and/or lower plateau. That's the point. We're just starting to roll over from a very – highest plateau ever in things like housing, new homes under construction, which takes a couple years to do those permitting things and get the labor and land and everything... just starting to roll over, and the point is the Fed is still tightening. That's the inevitable worst case. It's not so much worst case. I don't see how we're going to get out of this greatest economic reset of our lifetimes.

Dan Ferris: Greatest economic reset of our lifetime, and you and I have had –

Mike McGlone: Yeah, we've had a few. I would say a lifetime. You know, lifetime can be up to 80 years typically. It's just studying the history of markets, history of liquidity, I recently read the book Boom and Bust by Quinn was one of the authors. There's a dual author there, and I could have written some of it, but just kind of the basic stuff you learn and know. And it's happening, but it's happening in real time. And also the key thing we're in right now, Dan, is we're in that ideal stage of human nature, Fed's way far behind the game, they're thinking, oh no, we have to crush this inflation, yet it's collapsing, and human nature yeah, it's going to be a soft landing. It's not going to be as bad. We'll just get another 10 years of every time the market kind of goes down, the Fed's going to be easing. They're not. It's over. That big pump we had for the last decade is over. So to me, the market's very similar to it was in 2000, and then they had that little bump to the peak in 2007, then it took 13, 14 years for S&P 500 to make new highs. To me, that's what we're heading for. I don't know how long it's going to take, but it's just that point right now where the opportunity is, OK, we had to pump in all assets and we had this major complacency right now, yet the Fed's still tightening.

So I'll leave you with this. The analogy I'm liking to use from history is 1929. Stock market dropped 50%, the Dow Jones Industrials. And then to the peak in 1930, it rallied 50% from that low, and then the rest is history. It's almost exactly what we've done. We dropped about a third last year. We're up from the low this year maybe 20%, and we need everybody to say it's a new bull market. And the thing is, just like back then, liquidity is collapsing and the Fed's still taking away the punch bowl. So it's just point out those facts of cycles and markets.

Dan Ferris: So essentially, you're calling this a pretty substantial bear market rally.

Mike McGlone: Oh yeah. Absolutely. And what's a good leading indicator for that, Dan, is bitcoin. Bitcoin is – I have to go there a little bit because I'm big picture, I'm long – not long, I can't trade – very bullish bitcoin because of major reasons. It's definable diminishing supply, very low in early days of adoption. Have to be long that over time, but it's also trades 24/7 and it's very significant leading indicator, and it looks like it just might have rolled over from 30,000. I just can't see how we're going to get what I view as a significant contraction and risk asset prices without bitcoin still a risk asset going down. And so far, it looks like it started turning down this weekend. It's got to a very good level around 30,000. So did Ethereum, around 2,000. And the sense I get is also from all my research is most people think the worst is over, which is usually what happens in early days of market bounces. And it's also I look at as a trader, ex-trader, and being on the phones with clients, like OK, what do we want to do here? Where's our option? OK, if everybody's right, great. You get market's already priced for it. But if the consensus is wrong, which it usually is, then the opportunity is some form of defensive strategies.

Dan Ferris: Right. So let's talk about that defensive strategy. You mentioned bonds going into a recession. You mentioned gold, which you also expect to do well. Is there anything else?

Mike McGlone: Well, let's look at that U.S. government two-year note. It peaked around 5%, and right about when it did, we had the banking crisis kick in right afterward because the funds are getting zero and the major banks flew right over to the U.S. Treasurys. That trend's still happening. There's a significant contraction in bank credit because all that money's leaving It's just inevitable. You can't avoid that. And I fully expect that in a normal recession, we're going to go back to – I see significant deflationary trends the U.S. Treasury long bonds. Two-year note's going to probably drop to 1% eventually, but that's been the trend for 40 years, and it's the consensus that that trend was over last year. I don't think it's over. I think it had a blip and the downward yield trend is going back down, just like gold had a blip in the uptrend, it's going back up. So that's to me, I think, some of the major places to look for appreciation this year is long bonds and gold because of heading toward a deflationary recession.

I ask myself, OK, what makes that not happen? OK, the Fed could keep tightening, which means we're going to more of a recession. They've already figured we're going to recession. Yield curve says we're going to recession, and inflation saying it's going to be deflationary – I'm sorry, commodities point out that it's going to be deflationary like I point out the price of natural gas in this country has dropped to the same price when it first started trading in 1990. Back then, it wasn't as significant. Now it's the No. 1 measure of heat, electricity, and fertilizer. So that's deflation, Fed's still tightening, and I think Treasury bonds will do what they normally do in a deflationary recession: do very well. Gold should do very well, and the stock market should do what it normally does in recession. Last two recessions I'll point out what the stock market did, it peaked to trial. It dropped about 50%, so why shouldn't we be the same? What was the big difference? The Fed eased aggressively to help solve things, to help provide liquidity, to help ease the pain. Fed is still tightening.

Dan Ferris: Yeah, I mean, they kept fed funds at zero effectively for – but most of the last 12 years, I think it was, before they – 12 years before they started hiking, that's pretty substantial. It's unprecedented, of course.

Mike McGlone: I think that's part of the foundation, not only just U.S. and the rest of the world, Japan obviously, Switzerland, and Europe got used to negative rates, and a lot of them have these adjustable-rate mortgages, and the market is so overdue for a hangover. And it's happening now. You've seen adjustable-rate mortgages going up in Europe and U.S., if you're fixed rate, you're good. But it's just getting started. That significant period is just getting started, and I ask myself what stops it. Again, aggressive Federal Reserve easing to help solve it. We're in the early days of the rollover. That's why I think this is one of those opportunities. OK, thank you. If it's not a bear market in the stock market, sure... We've already had a bounce. What are you going to do the rest of this year? OK, well we're going through recession, may be OK. But if it is a bear market, that's your opportunity. S&P 500 goes from four to three, bond yields go from right now, on a 10-year, 3.59 to 2. Get some good duration there.

Dan Ferris: So yeah, most folks would kind of correlate a stronger dollar with higher bond yields, and I would also – I might also expect a stronger dollar if the stock market weakens. Do you disagree?

Mike McGlone: Yeah, I think you've got that right. That's the smile of the dollar. If we have the U.S. having problems, like when S&P downgraded U.S. debt in 2011 I think or so. I can't remember exactly. I was at S&P then. And the dollar rose. In fact, Treasury yields – but OK, we know that's a key thing about the dollar. Where are you going to go? There's no deeper treasury market on the planet and no safer markets and everything. So I think the scenario though is that we pumped so much last year it's on the back end heading lower, and it's going to be – the key thing is it's going to be about the Fed pivoting.

But here's the key thing that's been notable, I think, and that my colleague, Gina Martin Adams, who's our equity strategist at Bloomberg, told me, and that is the U.S. stock market outperforming the world, U.S. versus the MSCI has been a high correlation and driver with the dollar outperforming most other currencies. It's how you measure the dollar, a basket of fiat currencies, right. and typically, if you look at the trade-weighted broad dollar as far as it goes back in history, which I think is early '50s, it almost always outperforms most fiat currencies. Why? Because it typically only goes down if it goes up a lot. We've had a period where it's gone up a lot, but there's no better basket of currencies. Maybe one or two that do OK, but there's nothing better than the dollar, and just look at the Treasury market. You want to try to invest in some of those Russian or Chinese treasuries? Good luck. What's Mr. Xi and Mr. Putin have that's going to help you? There's just no capital markets for it.

Dan Ferris: So it sounds like you don't take the threat of the BRICS currency as seriously as some folks do. I don't either, actually.

Mike McGlone: Not at all. I think it's actually a good thing in a way because what is that threat? I mean, what is Brazil doing some transaction? How's that Brazilian currency been doing the last 20 years? OK, last year it did great. I mean, what's going to happen with the next whim? That's the key thing I love about Miami. People here in Miami get the fact of deflating currencies because they're all from – most of them are from South America. Currencies will always deflate over time, but particularly when you don't have the rule and law of the checks and balances we have here. That's a key thing that really came out with Mr. Powell when he pushed back on Trump's pressure to devalue and to really cut rates and he said no. That was, to me, substantial. That really sparked that dollar rally – what was that, 1920, when it started? It really showed the check and balances in this country. Still have it, but that's – no, I'm not worried. I think it's good, but also that's where I like to rope in things like cryptos.

When people talk about the demise of the dollar, I've heard that since I've been in the business. I started in the trading business in '88, and I say good luck with that one. But if you look at the most revolutionary technology really on a global basis is cryptos. The base layer for cryptos is the dollar. The No. 1 traded cryptos is not Ethereum, it's not bitcoin, it's dollar tokens. Why? Because it's base layer and people want the dollar. If you look at bitcoin quoted year – and almost every country in the world, it's still quoted in many places in dollar terms because it's just the predominant currency and only gaining dominance, particularly with this war. I think people realize, OK, do you want to be under the rule of Mr. Putin or Mr. Xi or do you want to have a little bit of free market capitalism. U.S. isn't perfect, but we're not going to – I think it's a little bit better.

Dan Ferris: And with tens of trillions of dollars of dollar-denominated debt around the world, I'd say there's going to be a substantial demand for dollars for some time.

Mike McGlone: Yeah, and it's the debt market that adds the underlying foundation because it's the benefit of anybody who holds that debt to make sure the dollar doesn't have a demise. So there's the Catch-22 there.

Dan Ferris: Yeah, it better not. That's right. It better not lose too much value. The other thing that's kind of in the back of my mind lately, I've been reading – just personally, I've been reading about nitrogen fertilizers and agriculture and things, and one assumes that a really low natural gas price is kind of good for agriculture and the price of those things. Do you have a view on grains, soybean, corn, any of those?

Mike McGlone: Significant deflationary forces accelerating, and the key thing I like to say about that is if you're bullish grains and you're bearish human nature, and it's just a classic example of people are smart, commodities aren't. So let's look at the price of corn right now. On the screen, it's $6.30 a bushel. That first started trading in 2008. So that's a long time to be the same price. The forward curve, corn is around $5.50. Why? Because that supply is coming on fast, and this is a best incentive, '21, '22, '23 – '22, really that farmers and producers have had to produce corn ever. So it's the key fact that we can produce more of these. Anything that you can grow, we can produce more at a lower cost every day. When people think that trend is just over, I'm like you're missing the facts of history, and that's – so it's the facts of history I know that most of the world was agriculture until you figured out the technology for plowshares and everything. Here's the future.

John Deere has a new technology called Exact Shot, and Exact Shot will shoot – when you plant your corn, it'll shoot the exact amount of fertilizer you need right there, and it basically – right to where it's needed, and they'll use 60% less. Just a simple tree in the forest of rapidly-advancing technology, creating more using less of corn. Why do I say corn? It's the No. 1 agriculture grain and agriculture commodity-based and dollar value of production. Who's the biggest producer? The U.S. Who's going to be the biggest exporter this year? Brazil. Why? Because prices went up. It's just the elasticity of that. When you give producers the ability to produce on a global scale, yes, there's issues with weather. They will and they do, and they have. So I fully expect a massive bumper crop this year out of the U.S.

I expect grain – corn prices, which are fixed right now, to drop toward 4, and 4 is a little bit below the cost of production, but that's not profound. That's what natural gas did. Natural gas is the best way to measure anhydrous ammonia, which is the No. 1 fertilizer for corn. It's all cycling downward. You have to expect, No. 1, either a real bad growing weather in the U.S. I've already pointed out Brazil is exporting a lot because they had a decent year. Or some kind of the war premium. Otherwise, grains will do what they almost always do when they get expensive. They go down hard because producers – you give producers incentive to produce and they do. It's just the way it works.

So that's the key thing I'll end with. In this country, we have something called the conservation reserve program, and many other programs, but that takes about 10% of our arable land and pays farmers not to produce. I used to own a farm, I used to have some land in the CRP, and that's just sitting there waiting if there's ever a problem. Now, it's not the best land. You're not going to put your best land in CRP, but it is arable land, and I fully expect with corn prices this year they're going fencepost to fencepost because corn is where you make your money. Soybeans not so much. You rotate with corn. And it's just based on facts and future and the futures curve is already priced in. So I did – we had this pretty significant war last year.

It was very – it's still happening, but it's very similar to the great grain robbery in 1973 or so. Russia imported a lot of grain from the U.S. because they had a major drought, spiked corn to the price of 4, and that lasted I think it was 20 or 30 years. So I fully expect that's going to happen. We're going to just do something like that, and then plus we had that combination was similar to the Saddam Hussein's invasion of Kuwait, spiked crude oil to 40, went down to 20, and took about 14 years to get above that level. We had all that happen last year. Similar instances with the war, and those kind of events always put significant spikes in commodity prices. And what it also does, in this case, it's incentivizing something that was already existing, replacing things like fossil fuels with technology.

Dan Ferris: Right, so I'm glad you made the point about bullish grains, bearish human nature. How did you put it again?

Mike McGlone: Well, OK, I put it that way. I know it's not appropriate because my editors wouldn't let me put it in the headline, but if you're bullish grains or commodities, basically you're bearish human nature because it's, say, humans are smart, commodities aren't. We just create more of this every day. The big difference is in metals. So here's an example I can say. If you look at things like the XLE. The XLE is the ETF that tracks energy producers. It almost always outperforms the Bloomberg Energy Index over time. Part of that reason is because producers. XLE is measured by – XLE can create more of it every day, and incrementally humans are using less of these fossil fuels just by using technology. But if you look at things like GDX, which is kind of the gold miners and things versus the price of gold, GDX almost always underperforms the underlying price of gold because you just can't create more gold every day, and people – I think they're going to be hoarding more of it because of the "boomer rock," and boomers have the money.

Dan Ferris: All right, well said. I think it's time for my final question, which is the same for every guest regardless of topic, and that is simply if you could leave our listeners with a single thought today, we're mid-April 2023, what thought would that be?

Mike McGlone: Bear markets will take money from anyone, and I think we're in a significant bear market, and risk assets will most notably stock market. And a bull market in gold.

Dan Ferris: Succinctly put. Thank you for that. And thanks for coming back and talking with us, Mike. Maybe – you mentioned possibly having you back in July. Maybe we'll do that. we have to remember to do that.

Mike McGlone: Let's see if you can say to me, Dan, hey, McGlone, you're an idiot. Honestly, I like to play the strategist... one-handed economist. This is my view, and this is what it is, and here's the reasons for it, and I have this power of this Bloomberg terminal in front of me and studying all my history and everything, but if you want, because that's when I fully expect it's going to hit home that we are heading toward significant deflation. Like our economists this morning pointed out they're worried that inflation's going to pick up in the future if the Fed doesn't hike as much. When people lose a lot of jobs and unemployment bottoms to a very low level, there's always a recession from very low levels, and it's inevitable right now. Until the Fed starts an aggressive liquidity pumping system, we're still taking liquidity from the system. Not just them, though. Now the banks are taking away liquidity.

Dan Ferris: Yeah, the Fed's dual mandate is the most rearward-looking data of all.

Mike McGlone: I just remember being in the trading pits and thinking we need to have someone who trades or from a hedge fund who knows markets on the Federal Reserve board to stop looking at these – because I fully expect when this period's over, if I'm right, there's going to be major narratives for people to ban the Fed because they created too much liquidity and this recession's going to be pretty bad. I just fully expect it, and it's happened with Volcker. There were death threats.

Dan Ferris: Yeah, that was brutal. All right, Mike, we'll have to do that. we won't call you an idiot, even if you're wrong, but maybe we'll talk to you again.

Mike McGlone: Dan, it's great talking to you.

Dan Ferris: Thanks, Mike.

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All right. It's always great to talk with Mike McGlone because, as you heard, he just has his head in every major market, and he's looked at data. You've heard the data series that he referred to, stuff going back to the '40s, '50s, early part of the 20^th century. And a guy like that who's been in the commodity pits, he's kind of been there and done that and seen many cycles play out, just has a wealth of knowledge, and it's so good to just be able to pick his brain on all these different assets: bonds and gold and stocks and corn and anhydrous ammonia and natural gas and everything that we talked about – copper, crude oil, everything. And I sincerely hope you enjoyed that as much as I did. I love talking with Mike.

All right, well that's another interview, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at InvestorHour.com.

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