Transcription
Are you watching the football?
I don't know. You don't seem like a football guy.
No, American football. That doesn't— There's no such thing as American football.
Exactly. You guys stole stole soccer and made it your own.
Exactly. All right, man. So, um, let's dig into Trump, by the way, seems to be a football fan. He he got involved. He uh he won you the last game.
Right? Um, all right, so let's let's dig into let's let's go the most important story which is Hormuz. So Hormuz is um still openish. Um, number of ships going through dropped significantly. I think that's the numbers 20, 30 ships. That's the ones with the AIS transponders on. Sorry. Yeah, transponders on. I'm not sure if there's more with the transponders off, but I doubt it because Iran started striking ships. Oil prices have been pretty calm still. And I had a guest on from yesterday. He was explaining how it's all transitory. Um, and that was his explanation that the war doesn't really matter. And the reason that oil prices are so low is because the market has gone beyond it. They know the war is going to end. And he started talking about what he concerns him is more um Michael Oliver was on yesterday and he's talking about the kind of the fundamental reasons on why he's very bullish oil and why he think the price of oil will go up. Um, and what he called it, let me actually get you the exact term he used, the degradation of the monetary uh uh of the mon not monetary system, the degradation, the ongoing degradation of money units uh which obviously the the dollar and other currencies falling in value and that's why commodities as a whole including oil will be going up in value.
So he's going to be very disappointed.
Tell me, tell me more. Exact. I'd love to hear more. So tell me first your thoughts on the on the price of oil.
Yeah. Yeah, the idea of devaluation of currency is just no, it's one of those things that that people just say because people say it. I mean, yes, it it sounds like it should happen because the United States is absolutely broke and getting broker by the day. And it sounds like the inevitable consequence of that would be the destruction of the dollar, but it doesn't follow because that's not how the money money actually works, especially the Eurodollar system that we use. The Eurodollar is not being devalued. If anything, there's not enough monetary units. There's a dollar shortage and that's what all the markets are have been telling us. So I think you know looking looking in the short run and the long run.
He's not talking about the dollar, he's talking about all currencies as a whole in relative terms. The dollar in his view will still do better than other currencies because there's no alternative, but he thinks all of currencies as a whole because of the printing that's going on. Um, all of the currencies will be falling in value.
Yeah. I mean, they fall against the dollar because the dollar is stronger and the dollar is stronger because there's fewer and fewer dollars available and it's not fewer. They're not dollar growth is growing at a slower rate than the system actually needs. And so that deflationary impulse overrides everything else because it's a global currency and a global monetary system and it has local impacts on top of everything. So even if you have central banks that are printing money or are um undertaking accommodative policies like in places like you know, uh, almost anywhere these days, it doesn't necessarily lead to an inflationary spiral like you know, Weimar Germany or money printing excesses because the global deflationary impulse comes first and foremost and as the global economy absorbs that shock, it becomes a deflationary shock that transmits everywhere else. So markets are very clear on this. There is no inflation risk. The risk for inflation is minimal and we have tons of markets. I mean, you can look at TIPS, you can look at swaps and not just in the US dollar denomination. You look at swaps in Europe. You can look at swaps in China. There's no inflationary impulse anywhere. Uh, whether you oil doesn't matter. We went through this last year too. Everybody said, you know, devaluation currencies were going to inflation was out of control. Tariffs were going to lead to inflation. The market said, nope, not happening. And it didn't happen. So the market position has been very clear on this. Um, we have more of a deflationary problem than an inflationary problem and the energy shock actually adds more to it than adds to an inflationary case. Central bankers have no clue about what's happening in the monetary system and they have even less clue about what's happening in the real economy. So they're off chasing inflationary growth, which is why we have the uh upside down Pringles over here. Um, when the markets again have been very clear about the direction of the global economy and even more clear with the energy shock on top of it. Um, and that's again, that brings us to oil prices. Why are why is the oil market acting so complacent to what really should be front page news or you know, headline stuff. Um, you said it yourself, the Strait of Hormuz is being restricted all over again and the market basically shrugs. Now, yes, it's possible when we when the market opens in Asia tomorrow night that oil prices jump, but so far, I mean, there's been some pretty substantial news out of the Middle East. So, and I mean, yesterday the oil market was down. You look at the curve almost back to contango again. So, we started last week with all the major benchmarks in contango. You had a little bit of a pop in oil prices with the uh, you know, Iran and the US exchanging missiles, but it was one day at most. and then oil prices fell into the into the end of the week as the futures curve flattened out all over again. So there's two ways to read that. One way to read that is what you said that the oil market is looking past the Iran conflict and saying this is all just posturing. It's about negotiations and eventually they're going to come to an agreement and you know, the one side will get what they want, the other side gets what they want. They can both declare victory and move past everything. That's that's the more optimistic take of oil prices where they are and how they're not really reacting to the latest news. I think the more realistic take is that oil is looking past the Iran war not because they, you know, it's optimistic or there's a there's a clear path forward, but more so because the Iran war has led to that deflationary outbreak, which is the classic recession or classic energy shock recession case and instead of worrying about supply, uh, whatever's happening in Hormuz now, the attention has shifted almost entirely to demand and it starts with China. Lack of Chinese demand is a huge and not just, you know, the Chinese who didn't buy oil during the worst of the energy energy shock. A lot of energy producers were waiting for the Chinese to come back after the energy shock was over. As oil prices were coming down, there was a lot of expectation that China was going to be a big buyer to to buy up some of these marginal barrels and China just hasn't showed up anywhere. A lot of it has to do with demand destruction in China because the Chinese economy is a mess, getting worse. I mean, just look at auto sales in China over the last month, last couple months, absolutely crashed. So, it's I think what's what my opinion is the market is shifting from supply. I mean, supply is still a factor. It can still be a big deal, but it's more so about demand. The demand seems to be falling off substantially and certainly substantially enough that the market can say they're going to threaten to kill Trump and it doesn't seem to matter much at all.
Yeah, this this China thing is just so bizarre. I understand I understand there is demand destruction in China and the rest of the world and and your friend Gam George Gam was talking about the same thing. But it's not to that level. You're talking about supply being a third of what it was pre-war and the strategic reserves still being drawn down and they still need to be refilled in the US and around the world. So there there's there should be significant demand just to refill the to fill up the strategic reserves again. And the supply is far from those pre-war levels. That is just not adding up.
Well, I think it is. And the market isn't necessarily looking at where demand is today, but also demand where it's going to be in a couple diff couple months from now.
So you think, well, demand today doesn't look all that bad, but maybe demand for two months from now or three months from now does.
Um, that that's that's a big drop in demand though.
Again, I look at the WTI futures curve. The WTI futures curve was in contango. And you can understand if this was supply normalization, you say, okay, contango would be sometime. And contango means prices, future prices are higher than the spot prices because of oversupply.
Right? So, you know, it wasn't that much. It was just a couple of pennies. But the curve overall was flat. It was basically a flat line, which is always, you know, an odd sign to begin with. But the point of it being flat was it wasn't just, you know, contango um in March of 2027, which would make sense under supply normalization. You could say it's going to take the system six months to ramp back up and we'll get oversupply. We'll go back to where we were in December by early next year. That would be the market saying, "Okay, yeah, we're going to backwardation for the next couple months as we still try to try to deal with a shortfall, but then we'll get to oversupply next year. The curve kind of flattens out there and then it gets back to normal." That's not what we have. We've got a curve that is entirely flat front to back and all the major contracts that have any liquidity and any trading to them. Starting right with a prompt spread, I'm looking at the prompt spread over here from yesterday. The prompt spread is 8 cents. That's the market saying there is there is there's more incentive to move move oil off the market today. Not quite more incent getting to the point where it's almost completely contango there where it's there's it makes sense to move oil off the market today and put it into storage and not just for the next month or the next couple months or not like you know sometime in the early next year, but the entire curve is is a straight line which to me suggests the market is saying look yes we still have uncertainty about the geopolitics. We have uncertainty about tanker traffic. We still don't know about, you know, production capacity. I mean, UAE has certainly ramped up production. So, that certainly has helped, but we don't really know. There's a tremendous amount of uncertainty on the supply side. However, it seems to be more and more we're getting the sense that demand we're calling up buyers in Asia and they're saying we don't we don't really need to buy anything right here. So I think the market is looking ahead in a couple months and saying as much as supply is still restricted, we don't expect an over we don't expect a situation we're going to we're going to go back to where we were in March and April where it's a a tremendous uh supply deficit. And the only way to make make that make sense is if demand the market is saying demand is going to be falling off pretty substantially. And it looks to me that's the case. I mean, you look at some of the latest macroeconomic data not just not in just China, but in other places around the world, it's not looking all that great. Uh, you know, sentiment has been pretty much, you know, really bad from the very beginning as you would expect, but it hasn't really rebounded as the ceasefire came into effect and then, you know, the memorandum of understanding and Trump declaring victory and it seems like everything's the economic the economic case, I think, is being understated and underplayed in the mainstream where it's it's being taken very seriously in the marketplace and again that.
Go ahead, Mario.
Oh, which countries look most concerning to you?
It starts with Asia. Uh, and it get I mean, Europe is the next one outside of Asia because Asian countries really took a lot of a lot of direct heavy damage. Um, China being a big one, but it's not just China, not just Asia. Europe is the next one in line because Europe is so susceptible to higher oil prices to begin with in a weaker situation. But it this is this is one of those things, you know, um, energy shocks lead to global recessions because you have a fragile economy. Not just in one place or another. It's usually the entire world. The world is more globally synchronized than people realize and it has been for a very, very long time. So if we get into a situation where the energy shock produces the classic recession case, then couple months from now, this becomes more and more evident that that has happened, then this all makes sense. But that's the job of the oil market is to look ahead a couple months and say, where do we think demand is going to be a couple months from now? Are we going to be able to buy oil that we think is going to be delivered from the Middle East or even if it's not been delivered from the, are we going to get oil from Brazil or Venezuela? Are we going to be able to sell it two months or three months from now? And the market is saying it's kind of iffy. We're not really sure that we can. So, you look at where things stand today and you look at, you know, the mainstream view of where the economy is and maybe you think, well, this doesn't make sense. But again, we're looking ahead. We have the the classic energy shock case is is, you know, the background to begin with and everything is starting to line up with that case. It shouldn't be all that surprising that the WTI curve and the Brent curve and all the major global indexes were in contango at the early part of last week and it looks like they finished this week trying to get back to contango as fast as they could despite the uh the tremendous amount of news out of the Middle East which should be, you know, um, which which would have been a couple months ago would have been huge news popping oil prices a lot higher.
Um, if we go back to a full-blown war, will you see oil prices react the same way they did beforehand? Will it be a lot worse? Or do you think because of the demand destruction that it won't be as bad as it was if we go back to the same uh kinetic action we saw in March?
I think oil prices would rise under that situation because then the supply issue becomes much bigger again and more immediate. Uh, however, I think what you would see instead of on just sticking with WTI futures in the curve shape, we would see backwardation in the front and then contango in the back because the market would say, "Yeah, okay, we got short-run supply to deal with, but that's certainly not going to help demand. If oil prices spike again, it's just going to lead to even more demand destruction." And gasoline prices are already hanging high to begin with. So the longer gasoline prices stick around just where they are, let alone go higher, the more the the greater the chances of that demand scenario playing out even further. So I think the market is right now the market is saying the risks are pretty well balanced. As much as there are questions on the supply side and those are big questions which should be propping the price up, there are equally they're equally serious questions on the demand side which are pulling prices down, which has led to this strange basically flat curve futures curve.
Um, I want to ask you a completely separate question. It just came to my mind that there's a story that came through my portal. Now, Egypt is seeking to deepen economic cooperation with Israel. Um, and I've seen I've seen a lot of reports about how well the Israeli economy is doing, at least based on certain metrics. The the stock market is doing really well, unemployment is low, etc., which was a bit surprising to me. Do you know much at all about the Israeli economy?
No, I don't really focus much on it's just it's too small to to focus on as as part of the overall.
It's very small on the global level. I'm just so fascinated by how well it's doing considering everything it's been through in the last few years.
Well, some of that is just, you know, just wartime economies always look good, but they're actually not good underneath. I mean, Russia is a perfect example. Russia looks decent from some of its topline numbers, but Russia is a is a growing.
Do you know much about Do you know much about Russia's economy?
A little, enough to be dangerous. I mean, it's not again, it's not a major economy anymore, so it's not really necessarily a big part of the overall global global hole, and it doesn't really have much of an impact outside of the Russian borders. But you see this time and again where economies look like they're doing well because they're spending so much money and so much government money on fighting and doing uh, you know, military service. Unemployment always looks low when you have high levels of conscription. Um, so I think the Israeli economy in many ways is, you know, it's it's a hollow sort of uh call it a boom if you want, but I I don't think necessarily the real Israeli economy, the private, which is what we should really be focusing on, the private Israeli economy is doing all that great.
Um, in terms of the Russian economy, um, I get conflicting messages depending who I speak to and what their position is on Russia versus Ukraine. Pro Ukraine, pro-Russia.
Yeah. Um, but from the limited information that you have because you said this is not a focus of yours, but from the information that you have on the global scale, um, how much did Russia drop economically its position in the global scale since the war started and do you think they could recover to the position the pre-war position?
No, I think Russia was on a one-way ticket outside the top 10. It's going to stay there. I mean, there's really no growth in Russia. There's really no domestic capacity to do stuff other than just, you know, who is it that said Russia is a gas station with nukes? Was that Donald Rumsfeld? I think he.
Just I think John McCain, I think.
Was it? Okay. That I mean, that's basically what Russia is. It's a gas station with nukes. So they're going to their their economy is entirely tied to the energy cycles and there's really nothing else there besides that. And then you add to that the demographic shifts and the demographic nightmare in Russia. It's there's not a there's not really a good future there for the Russian economy. However, the other side of that is, you know, people who are pro-Ukraine, Ukraine have been saying since the beginning of the war that Russia's ready to collapse tomorrow, and here we are four four years later, four and a half, four and a quarter years later. Um, and it's still kind of humming along. I think there's a lot of pressure there that's that's being hidden. And we don't have nearly enough information about what the real situation is other than, you know, dribs and drabs that come out in anecdotes. But I think the Russia sit the Russian economy is somewhere in the middle. It's not collapsing, but it's also not thriving either. And a lot of it is it's some of the weakness is being masked by the wartime footing.
Um, what about Europe? I know everyone keeps laughing at Europe. Is it really that bad? And what would it take for them to go back to their heyday 20 years ago?
Uh, I just rewriting Europe from the bottom up.
It's that bad.
It is. It's I mean, European growth got the worst of the 2008 crisis compared to the US. Certainly uh US and US, you know, the US never really recovered after 2008 either, but at least there was somewhat of a growth trajectory whereas Europe kind of just went Europe had a double-dip recession in the 2010s. So it fell off in 2008 really hard, never came back, fell off again in 2011 and 2012, and then never really came back from that, and then 2020s happened and it's gotten even worse where, you know, look at look at GDP, just, you know, topline macroeconomic statistic, GDP in real terms, it's been flat to lower since 2022. So Europe just keep get keeps getting further and further and further behind for a couple of different reasons. Some of it is just governmental policies which keep getting in the way. Germany is a perfect example. The saddest statistic in all macroeconomic, the entire world is German industrial production. If you look at German industrial production, it topped out in 2018 and it just nose-dived year after year after year. German output in 2026 is about where it was in 2010.
At the bottom of the great recession. So I mean, yeah, that's the kind of thing we're talking about in your.
Policy. Yeah.
Policy has a lot to do with because now it's it's really hard and inefficient to make anything in Germany, specifically. I mean, they they closed down all their nuclear plants, which made electricity expensive. Labor is expensive.
We also have to remember that e European demand never really recovered either. So supply is difficult. Um, it's it's it's unprofitable to make anything there, which makes it difficult for demand to ever recover and you get into you get locked into this downward spiral. So, what happens when you have an energy shock in an economy that's in a in a crappy place to begin with? In fact, that's one of the things I always laugh about is that, you know, Christine Lagarde of the ECB, in fact, every single ECB official last fall kept saying Europe is in a good place. Europe is in a good place. Almost like they were trying to fool themselves. If I keep saying Europe's in a good place, maybe it'll come true. Um, and that's the reason why because Europe has been in a mess for a very, very long time. And then you throw an energy shock on top of it, it's not going to be inflationary. It's going to be, you know, totally recessionary. Okay. What else? What other economies I want to ask you about other than China and the US? What what are economies to be on the lookout for? And and Pakistan still way too far to get on the global stage, I assume. But India is India catching up, you know, was the the sexiest economy 10 what 10, 15 years ago as the new China 2.0, more potential than China, etc. Is that still the case? Because they do have a lot of inefficiencies, a lot of corruption. the system isn't great, but I'm not sure if there is uh if it's improving. There's a lot of talent there.
India has potential, but it also has, like everybody else, it's got, you know, it's you just hit the nail on the head there, it's got a lot of lingering leftover structural inefficiencies and drags and frictions that certainly will hinder its growth and it's got a long way to go. I mean, India could be the next China, but that's, you know, decades away. I mean, India is still relatively small, but it's growing fast and it's one of the most dependable economies. So if you're looking for a marginal signal about where the direction of the economy is, I always look at India um and always look at the Indian rupee because the Indian rupee is also always tied to Eurodollar mechanics. So dollar conditions, liquidity, that kind of thing. So the rupee is somewhat somewhat of a decent bellwether for uh global dollar conditions because of how important India has become, at least at the margins, becoming a truly emerging market that has a pathway forward. So India is definitely one to pay attention to and right now India has held up relatively well, uh, despite the fact that it has borne basically the brunt of the Middle East crisis and the shutdown in oil. India has held up, but it's it's one of those.
Uh, say that again.
Because of Russian oil.
Not Russian, Middle Eastern oil. India gets tons of oil from the Middle East. Um, so they were, you know, they were talking about uh, you know, rationing diesel fuel, which was I mean, some of that was price inefficiencies and government-run businesses, but still there was there was a India got close to an energy shortage for a while there, but energy prices overall, an economy that's still growing and it's still difficult and still has a high, high proportion of poor people in its population, India would be susceptible to an energy shock. So you've got the growth potential and then the short-run negatives that come from oil prices going up. So India is definitely one. Another one to. As far as the developed world, I mean, Canada's one to watch at the margins, as well as the UK. Um, the UK is another one that has been absolutely struggling, maybe even worse than Europe has. Um, just because the UK is a complete and utter mess. And of course, now it's a political mess on top of everything else. So, those are two to definitely watch at the margins.
Watch in a bad way. The UK, Canada as well. I had um um what's a gentleman that has a channel, the gentleman from Canada. Um, he's got a channel in economic channel. His regular on the show. Anyway, he's telling me about how he's um he's Canadians based in Canada and how bad the Canadian economy is doing. But so when you say these economies to watch, you mean in a bad way or in a good way?
Either one. I mean, you could look, look, we're we're always looking for any type of scenario. It could be a situation where something goes right and the energy shock proves to be minimal. We we escape the classic historical energy shock case and somehow survive it all. You want to you want to look for clues about whether or not there's going to be a reflationary or even a recovery situation developing. So you want to watch marginal economies to see if maybe they're defying expectations and moving into the plus column. So Canada, UK, if they start start really putting up big numbers, big positive numbers, that would suggest, okay, maybe there is a positive plausible scenario here. It would be unlikely because again, what markets are positioned for and what markets are pricing doesn't seem to give that much of a chance or much legitimate chance, but it's certainly possible. Anything is possible. This is a complex system. So, there's definitely positives to watch for, but also on the same ticket, more negatives because yeah, Canada is definitely in a bad situation. Um, and it doesn't seem likely that it's going to change for the positives. So, confirmation of the downside would come if you get more negative numbers.
Um, I'm trying to find the name of the gentleman because I think you should go on his show. He's got a great um finance show. He's been on my show a couple of times. Um, which economy suffered the most? Um, there it is. Um, David L. I knew it was David Lynn, but I couldn't find it on my calendar. David Lynn. Um, he's got a channel. You should you should jump onto it. Um, which economy suffered the most from this war?
We don't know yet.
It's way too early to tell. Way too early to tell.
Which one do you think would will suffer the most?
I think China is going to have a rough time, but I think Europe is going to be the big one. More than Asia.
Yeah. Because Europe was struggling to begin with and you know.
It seemed like they've been flirting with the edge for years and so it doesn't take much to push a weak a weak economy over the edge.
And which economies which big economies in Europe? Which one's the the sickest? Germany, France, Italy, UK, which one's the sickest out of those?
The funny thing is it's like the exact opposite of the two after 2008, 2009, it was like, you know, the northern European countries, the bigger countries seem to be doing really well and the southern Europeans, you know, Italy and those the uh what they used to call them, the PIIGS, the PIIGS. Uh, yeah, now it seems like the script has completely flipped. Now you've got the northern European economies like Germany has done just absolute poor uh in France. So basically the economies who are doing poorly are Germany, France, the Netherlands.
The PIIGS, the the PIIGS are flying. Pigs now. They're doing well.
Yeah, exactly. The pigs sprouted wings and they're flying. Spain is another one. Suddenly, Spain is a booming place, which again, you could why Spain is actually doing it. Uh, there's a number of question marks about it, but really it's the biggest two, Germany and France, that are dragging the Euro Euro area down. And it looks like that's not going to change anytime soon either.
Um, in terms of Spain, just a quick question on that front. Um, one of my guests told me briefly and it was not part of the topic we were discussing is that Spain did well as doing better because of immigration and I'm one of the people very critical of immigration the way it's being handled, especially in Europe. Is that true? Have you ever looked into the Spanish economy?
I think I looked into it once to interview the um the the head of Vox party, which is the opposition party in Spain. So, I looked into the Spanish economy and uh, is it true that there's indicators that immigration in Spain and they've got very lax regulation when it comes to immigration is helping their economic growth? Because that's what they're saying. That's what politicians are saying.
Yeah. And there is some evidence that's the case. I mean, that's not the reason why Spain is doing well, but there is evidence that at least in the short run, immigration is helping to amplify the positives that are there. A lot of it isn't necessarily immigration itself. It's, you know, again, it's almost like a an economy that's on a sugar high, you know, war a wartime footing like we were talking about before. You have a lot of government spending that goes along with resettling migrants. So, you have, you know, government aid and government spending that goes into the economy that makes the numbers look good in the short run because there's a lot of activity that's taking place that isn't necessarily sustainable or or it certainly isn't organic. So yeah, so you can make the argument that Spain is spa immigration into Spain is making some of the economic growth there better than it otherwise would be, but that doesn't have, you know, that doesn't really factor into what the uh what the long-run cost would be outside the economy as well as inside the economy.
Um, let's bring it back to Iran. Have you had a chance to do a dive into the Iranian economy or still not?
I don't think there's really enough information there. I mean, it's it's sort of there's not much there, but give it a shot. Give it a shot one day. I want to get your thoughts on it. It would be an interesting thing. It's one of those things where it's um when you don't really have a whole lot of information, you kind of you don't want to fall into a trap where you fool yourself because you get limited information and therefore you're you're really subjecting yourself to a sample bias. So, it's one of those things where you might think that you're getting or you're looking for some decent information to to develop a substantial analysis and opinion, at least what you think is a reasonable opinion. But when there's too much uh too many questions and uncertainty, too many blank spots, I don't it's it's questionable how valuable that is.
Yeah, I'll give you a pass. Um, okay, there's another thing. There's another thing I want to ask you about is um the manufacturing base in the US. I know I brought it up last time because one of my guests was talking about intentional efforts to bring down the value of the US dollar to bring with the manufacturing base to the US. You quickly shot on this idea and you don't believe that's the case and you also said how they cannot achieve it even if they wanted to, they cannot bring the value of the dollar down because of the Eurodollar, the dollar is available outside the country is kind of gotten out of control in a way um and your friend George Gam talks about the network effect as well that cannot be reversed if you ask people to stop buying gold, they're going to buy more gold, you know what I mean? So if you tell people to stop using the dollar.
Um,
Now the reason oh, what do you make of the narrative that the um the collapse of the manufacturing base in the US is existential for the American empire and I want you to plug this into the whole discussion, the Ray Dalio discussion about the end of the American empire being overstretched. Do you think that is going on?
Well, from a political.
Yeah. So from the political sense, um, you know, you think about, okay, I know that people make the comparison, if we ever get into a shooting war with China, has you know, industrial base that's sort of like what the US was before World War II and therefore we're screwed, right? Because China has the ability to manufacture all sorts of stuff and we don't have the ability to manufacture and so from a political perspective, it's certainly from a military perspective, it seems like suicide because we don't have the industrial base anymore to support a actual wartime economy. Yeah, we can we can fight these limited wars here and there, what are what are called limited wars here and there. Um, but in actual true war of survival against China, it would be absolute suicide because they have the industrial base. But that's not the only consideration. From a macroeconomic perspective, um, losing the industrial base was difficult, but it wasn't it wasn't an existential problem. Again, I say this from somebody who grew up in the Rust Belt, especially during the 1970s, 1980s, and 1990s. So I saw the area that I I grew up in be hollowed out by in u globalization and it wasn't fun. I mean, people who had decent middle-class jobs, friends, you know, friends' parents, friends' families, um, they had middle-class jobs and suddenly their, you know, their parents were thrown out of work and they had to move away um and do God knows what on someplace else in across the country. So as hard as that was being de-industrialized from a macroeconomic perspective, it actually wasn't existential. It wasn't fatal. I don't think it was necessarily good because it left the economy in a poor shape. However, there are different ways to get around that. If we had gone through a longer upswing from the Eurodollar cycle through the if we didn't have a 2008 crisis, in 2008, I think the US would have been able to adjust better to the uh the really, the de-industrialization of 2000 was the big one. Whatever you think about Ross Perot, his giant sucking sound, he was right. You just got the timing wrong and the target wrong. He thought it was going to be Mexico, but it ended up being China. He thought it was gonna be Mexico.
What did he say? What did he say?
He said after NAFTA was signed in 90, what is it, early 1990s? It was the 90, 96 election. He called it a giant sucking sound. He said after NAFTA was signed, you're going to hear this giant sucking sound as American jobs were sucked down to Mexico. So he got the sucking sound correct. He got the timing and the target wrong. And that actually happened in the 2000s after the dot-com recession.
Interesting. So he he said a lot of the manufacturing base from the US will be sucked into Mexico. But he and he mentioned an earlier time scale than that actually happened. It happened a bit later than what he said and it went to China obviously not Mexico.
It went if you look at it, manufacturing jobs in the US and you can do you pull it up on the BLS website or go to St. Louis Fred's uh St. Louis Fed Fred site, just type in manufacturing jobs. What happens is, you know, manufacturing jobs plateaued in the 70s and they were flat through the 1980s and early 1990s and when Ross Perot said giant sucking sound, they continued to be flat throughout the 1990s. It wasn't until after the.com recession in 2001, during that what was otherwise a mild recession, manufacturing jobs plummeted and they never came back. In fact, they fell for year after year after year, which led to the jobless recovery.
So manufacturing jobs.
Why did we give it up? What what what happened?
Some of it was China. China, you know, China joining the WTO, WTO, which really opened up the Chinese to become the manufacturer to the world. You had the ample liquidity through the Eurodollar system was only itching to do something with all that money. So, we're going to build factories in China, grease the wheels of trade to move stuff here, um, create supply chains that are, you know, scattered throughout the rest of the world. The 2000s was sort of like the perfect storm of de-industrialization of the US. So, again, Ross Perot was right, had the wrong target and the wrong mix, but and the wrong timing, but that was effectively what happened in the middle 2000s. You saw manufacturing really take really take a hit and then it felt it it took another hit in 2008 for obvious reasons and it just never came back. So it's been ever since the early part of uh the 21st century, manufacturing really got hollowed out in the US and and there really is no way to go back to it.
Okay, that was my next question. There's no way to go back to it even with the technological advancements with AI and robotics.
That's I mean, that's sort of the possibility and the hope, but even there, if you can if you can train an American worker to use AI, why can't you train a Mexican worker to use AI much cheaper?
But then the value, but then but then the value of the worker becomes less and less important. So it's not about how many workers you have, it's about the capabilities of your AI and it goes back to energy and this is a battle for energy. Who has more energy will have the manufacturing base because a lot of it will be dependent on energy and AI which uses.
Well, it's it's not energy so much as it is productivity and productivity takes into account total factor productivity takes into account all of those inputs. So if say, if Mexico has cheaper workers but far more expensive and unreliable energy and power, then that that that certainly gives the advantage back to other workers who are not in Mexico. But I don't think that's necessarily the case. And then there's still the huge disadvantage of of wages where people in Mexico and really outside of Mexico now you're seeing, you know, Vietnam. Vietnam is the next China, not necessarily India. It's Vietnam become India is more of a um high value multifaceted economic growth story, whereas Vietnam is like literally the new China where all the factories that used to be in China that at the at the end of the supply chain are now are being removed into Vietnam. So Vietnam has a tremendous um labor advantage over basically anyone around the world outside of Southeast Asia. Plus, the Vietnam is developed enough where it can become a reliable robust manufacturing center and manufacturing hub. And also they're pretty friendly with everybody else, unlike the Chinese. So Vietnam has tremendous built-in advantages where even if we have better power uh supply and reliability here in the US, they still have a tremendous labor wage advantage, which means productivity. Um, it probably uh favors Vietnam over the US. So, it would be really difficult to get labor uh to get manufacturing low-skilled labor labor back into the US.
Interesting.
And I don't say that as a good thing. I'm just saying that's that's sort of like, hey, this is the way it is and we need to be we need to be honest about it.
All right, man. Well, as we wrap up, uh, one of the countries between Norway and England clo scored a goal. I won't say what it is. is I don't want to ruin it for the audience members that want to go watch it after this interview. I always enjoy, you know, my privilege of being able to just get time to pick your brain like this and ask you about anything. Really enjoyed our conversations and uh.
That [ __ ]
Maybe next time I'll have a report card on Iran or something.
I would love that. I would love that. And the golf, if we could do one on the run and the golf, let's do that next discussion. I'd love to get your thoughts about it because I get asked about it a lot in the comments by the audience. So I would love a breakdown and I would love it from someone that doesn't really give a [ __ ] politically like Iran, Iran loves the UAE, Saudi usually because this bias whether audience members like it or not, audience guests like it or not, it will impact the results of whatever you're looking into. But I know you just don't give a [ __ ] at all that you're what you give me at the end of the day is just very fact-based.
Well, it's not, you know, it's that's the you got to leave your politics at the door when you're doing investing or doing macroeconomic analysis or something else. you know, you maybe you have your own personal biases, but you got to we care about the truth and the facts here. That's what that's what guides our policy. So, or guides our analysis, and that's really what I I've always focused on. I want to know what's happening regardless of whether or not it fits somebody's narrative or spin.
Exactly. All right, man. Till next time. Thank you so much, Geoff. Appreciate it.
Yep. See you, Mario.
See you, buddy. All right, guys. Let me know what you think of this conversation. Geoff has become a regular because um he's got a lot there. I love just picking it and having those conversations. H go watch the World Cup. One of the countries is already at one zero. I'll let you go check it out. And that will be it for today. I'll see you tomorrow unless there's some bombing and some breaking news. Otherwise, we'll see you tomorrow. Wow. Incredible. I'm just looking at the schedule. Okay. No, that's the Monday schedule. We've got Randy Manner, General Randy Manor. We've got Glenn Dies. We've got Steve Hank. We have Brendan W. Kurt, Larry. No, we just today. David Miller, Aaron David Miller, Karen Fatovski. We've got um Larry Johnson and then Monday we have an incredible lineup again. Pepe Escobar, Robert Pap, Professor Pap, Sammy Hamdi, Jeffrey Curry, some of your favorites. All right, I'll see you tomorrow guys. Thank you so much. Bye-bye.