Transcription
Is the stock market going down? Unfortunately, we're at such an extreme, and that includes gold. If we just get a little drop in the S&P, maybe if it ends down in a year, now, if it depends on how that happens, um, that's could be the start of a trade of a lifetime. But I can see major payoffs if we start kicking into that ladder scenario, which resets first, so to speak. Gold, copper, or crude oil. Which would it be? Mike Mclo, senior commodities strategist at Bloomberg Intelligence, returns once more to give us his outlook on commodities, stocks, bonds, and recap what happened yesterday at the FOMC. Where is inflation headed? How will the Fed respond to the next print or set of inflation prints? When can we expect rate hikes, and what will happen to markets once rates actually move up from the Federal Reserve?
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Mike, welcome back to the show. Good to see you.
>> Good to see you, David. It's good to be back. I love playing little rope-a-dope with you. Your questions are awesome. Let's let's go. Let's do it.
>> Um, I like to start with a question that I didn't ask, but a reporter reporter asked uh Kevin Worsh yesterday, which is why they didn't raise rates. Fair point. Uh, and actually, uh, Worsh responded with an interesting answer that I didn't expect. He said, "Well, actually, if you look at the interest rate, it was higher. It is higher now than 40 days ago because the bond market has been doing their job for them." So, is that an indication of their lack of urgency to actually raise rates, or are you taking that, are you interpreting that as saying, "Well, the bond markets will eventually force us to act"?
>> Uh, kind of some of the above. I think it was a silly question. I think it was appropriate to get his answer, but the answer really is, well, we don't have to raise rates if the market does it for us. That's what I would have said. And by the way, inflation's declining. And the number one force for inflation is the stock market going up. Energy is a little bit of a factor, but at 2.5 times GDP and is an AI max spending and almost every economist says it now, there's your inflation, there's your wealth effect. And with that, when that reverts or if that reverts, then there's your tightening, there's your reverse wealth effect and deflation. We're so overdue for that. It's the time of year where you know, typically volatility picks up. July is when you want to be short volatility and start looking to buy it and see what happens in this year. We got a midterm election year. But I think um, most of the whole Fed thing is it's July. People are looking for stuff to say. Most of it is much ado about nothing. And the bottom line from the Fed is >> for Worsh to hike rates, David, just think of how much of a profile and courage that would be, particularly if he did it anytime soon, effectively hired by Mr. Trump to cut rates. Maybe that's the nuance they they portray. But the bottom line is we're at the stage now is the Fed needs to do something about inflation. It's the number one issue in elections. We've reached the endgame of the president trying to push the Fed to cut rates because it just makes inflation go on up higher and just makes the stock market go higher and makes it less likely an incumbent's going to be elected. That's what's changed. The answers have changed and Trump's and Worsh is doing the right thing by jawboning. But I think time is right. It just, you know, this is a silly environment to hike rates and that's the kind of the risk. The thing the ECB did wrong in 2008, and I think what all the other central banks are doing wrong now because the thing to remember about energy, that's kind of the reason we've had a pump recently, it's very auto-autocorrelated and usually it's its own worst enemy when prices spike and you're seeing that already right now. So I'll end with this: the price of WTI crude on the screen right now, about $84 a barrel, was first traded in 2007. It's hard to get excited about that as a bull market.
>> Mike, you think the bond markets will trigger the deflation thesis that you've been talking about? In other words, if the Fed doesn't do anything by itself, just the long end of the curve going up, is that going to cause deflation, where they disinflation?
>> If I can keep if I keep saying the same thing, David, I might eventually be right. So, that's my biggest surprise. Admitted so far, this long bond at 5.2%. That is a major pressure factor on gold or anything that doesn't produce income. Even the stock market, it's the highest since 2007. But you know what's also the highest since 2007? The stock market cap divided by public debt. Public debt is a major liability. Stock market cap is the best measure of real-time assets. And that value is the highest in 19 years. So are bond yields. So I think what can happen is for my endgame for this bond market to be the men, the kind of like the gold of this year versus gold last year was that grabbed alpha for bond markets that grabbed alpha this year. Got the next few months to test it and yields going up like this is just too much competition, particularly for things like Bitcoin and cryptos and almost all the precious metals. And if it starts hitting the stock market, the way I see the bond market right now is treasury bond right now is basically a put on the stock market with positive return, no decay. And when we get the, you know, say if stocks drop for a normal midterm correction year with volatility running at multi-decade lows versus crude oil and and uh and gold, then then we're going to see the bond market kick in. And that's the test. So, a key thing I want to point out is kind of the key leading indicator for deflation has already flunked the test. That's Bitcoin and cryptos are already collapsing, that the stock market is going up. What happens when the stock market goes down?
>> The relationship between bond yields and different asset classes. Let's explore that today in more detail. So, let's let's start with the equities markets. Yesterday, bond bond uh bond yields in the long end of the curve rose. Uh stocks fell. Today bond yields rose again, stocks rose. I'm going to say no relationship. Your response?
>> I would say ignore the nuances of day traders in July and maybe a little bit in August. Come September when things matter. This is just knocking around. It's end of the month leverage stuff. I mean, up and down. Just completely ignore it. Look on the macro big picture. The key theme about what matters for bond yields right now. If you look at a price of a Treasury bond index, I've got data in the terminal going back to 1973. That price is the lowest versus gold since about 1985. Gold's the highest. Okay? Now, I've said this before. And you also look at this, the yields you get versus some of the, you know, returns and equities. It's that's extreme, is near 20-year highs. That stuff usually doesn't last very long. So, to me, that's my main takeaway from bonds. And then I love the nuances that we all get the fundamentals. For instance, today, this is we're recording on July 30th today. We all heard the World Gold Council outlook and yeah, same old thing. Central banks are buying ETFs, probably backed off, but all the same nuances for gold. The problem is that market has just got too high. So, one thing also it did is I mentioned how expensive it is versus treasuries. It got to the highest ever versus a Bloomberg commodity since '74 when futures started trading in gold. So I look at treasuries now as the whole Fed situation is much ado about nothing. They're going to probably ease. I think the next ease will be 50 basis point increments when the stock market does go down. And but they're probably not going to tighten unless they have to. And just think of this though. Um, Trump's Mr. Worsh's term is going to go two years past Mr. Trump's. Mr. Trump's got basically two years left. For Worsh to hike rates in an environment now with Trump still in in power will be such a major example of a profile currency that check and balance in the system and solidify the value of the US system where the check and balances will always win. That's unlikely. It might happen, but come on, it's a low probability. So right now, it's about July. We'll see how August plays out. And the bottom line for me for everything is stock market absolutely has to go up for gold to go up, for copper to go up, for yields to go up, even for crude oil to continue. Stay alert. If it goes down, everything's going down.
>> You told me before that uh it's difficult for the uh long end of the curve to stay above 5%. Well, the 30-year's above 5%. Well, is that so, are you are you changing that, or is this your stop now, right?
>> No, no, that's this is the kind of thing you. Well, treasuries, the thing about treasuries, if you're leveraged, which my whole career was, yeah, okay, you can use a stop, but you're getting a 5% return. It's the highest in 19 years. So you can lose 5% on your principal and still be break even. But what are you getting in Bitcoin? Oh, you lost a lot of money this year. What are you getting virtually all the precious metals? Oh, you lost a lot of money this year. Only thing, the only gain left in town is maybe a little bit of industrial metals, copper. And the stock market, it's the only gain left in town. And that's what I think is happening. The bond market's figuring it out. Bond market says, "Yeah, there's an inflation problem if stocks keep going up." But I I still love that reallocation, selling things that got expensive like Bitcoin and precious metals and shifting it over to something that's giving you 5% return. And I think I think what's going to happen by the end of the year, we could see an acceleration of that from equities. But the bottom line is equity market has to has to start cracking a little bit for bond yields to go down. And right now, I think they're just too high. But I've been wrong on that for a while. I was I was wrong on gold being too low for quite a while, but that was >> until 2024.
>> Let's talk about that. Okay. Uh, your outlook on stocks impacts your outlook on metals because according to you, stock markets and uh, metals are related, right? Stock market sock puppets, that's what metals are, according to your latest uh outlook. Tell us, tell us about this relationship here.
>> That's a fact. First, 60-day correlation between the Bloomberg All Metals Cond um index and the S&P 500 total return index is um, like the highest in the index history. And that was an index I asked our index team to create 10 years ago when I started Bloomer because the metal is the best place to invest. But as you can see in that chart, if you take that Bloomberg All Metals index, you divide it by the S&P 500 total return, it's a complete dud. I mean, we bounced and now we're going back to dud status. There's only one way, I think, metals to outperform total return, the S&P 500 and outperform beta is stock market going down. Unfortunately, we're at such an extreme, and that includes gold. Gold's volatility, annual volatility is still two times S&P 500. That's the highest in like 20 years. Gold's 60-day correlation between the S&P 500 has reached this reached the highest almost ever with the stock market going up. This stuff, the signals we're getting in July are so profound that if we just get a little drop in the S&P, maybe if it ends down in the year, now, if it depends how that happens, um, that's could be the start of a trade of a lifetime. If it continues to tick up, I have no clue what to to do. Maybe bond yields, I'll be wrong on that trade, but that's just the signals we're getting are so profound. And metals are a great way to start. So, here I I'll end with this. The key point about metals is we've had pump then dump patterns in gold, silver, platinum, platinum, bit, and Bitcoin. And are that going to get any better? They all were up and now they're all down. Even iron ore was up and now it's down. Is that going to get better into the year end? What would make that go back up? And but they came from levels that were so extreme in gold and silver that I'm worried that you just get a little bit of volatility in the stock market and we're going to look back and say, "Yeah, it was like 1980 and 2011. Those were the highs." Yeah.
>> For that not to happen, we have to see. But that's where metals are key and I I like to group them together. So, one key thing I'll end with, the Bloomberg All Metals Index at its high this year was up around 25%. Now, it's unchanged. It's wiped out. The whole index is wiped out. The only thing that's really left is copper. And that's why I'm so fixated. And copper's got to go up or else.
>> This is this is the perfect segue. I read your mind. Apparently, copper's on my screen.
>> Copper and the NASDAQ are on my screen right now. Uh, the NASDAQ's in the uh, blue line, and copper's represented by the bar chart. You'll see a very, very close correlation. I was wondering to myself why copper has been steady upwards and holding its ground while the NASDAQ has been plummeting in the last couple of weeks. And I think I was reading some news. I think the answer lies in the fact that the production in Chile, the world's largest producer of copper, has stalled recently due to some uh, environmental concerns. But anyway, I uh, want to get your take on whether or not copper, because of a supply side issue, not a demand side issue, is technically overbought, given that it's tracked in the NASDAQ, but because of supply chain issues in Chile, now the copper price is still high. What do you think?
>> Short-term nuances, those supply constraints usually um, perform um, set maybe shorter-term higher-term peaks. But the key thing about copper is it is basically a complete sock puppet to the S&P 500 or the stock market. If you over-divide by S&P 500, it's been going down forever. It made a new high this year by S&P 500. The problem is we all get the fundamentals, electrification, decarbonization, yeah, get it. I'll got it. All that. But so if it's such a great asset, why does it trade about two times the volatility S&P 500 and has been a dog for years, particularly since 2023? Now lately, it's doing okay. It's up on the year maybe 14%. Recently, S&P 500's up 10%. Yeah, that's good. But the way I see copper is sure, we all get the fundamentals. But if you're bullish or if you're long copper about 30%, the CME open interest is long. The average is 5%. So hedge funds have been long for a while. Just to hit a few stops in there is worrisome. You basically, if you're bullish or long, you absolutely have to be bullish the S&P 500, the stock market, as you're showing the NASDAQ there. If the NASDAQ breaks down, copper's say I use S&P 500. It's S&P 500 drops 10%. Copper is going to drop 10 or 20% typically, if not more. So I look at, we're just waiting. It's it's that's the key market that has to go up because you pointed out the correlation in the stock market. And that to me is as a, you know, ex-trader, I said, okay, I'll be looking for maybe risks that just looking for signs that we're going to hit a few stops and then, like I said, hedge funds are still way long that that future, that CME future. Why is the CME matter? Oh, is that the one you brought up? What do we have here? This is >> Oh, this is this is copper gold, but uh, we can bring something else up if you like. Yeah. >> No, that's fine. That's perfect. We can situate to that. I I really appreciate what was kind of correlated is breaking down. The key thing to remember about gold for broad metals, it's beta. Um, but it's also store value, and that's where I think that's what I see in that chart. I'm I'm quite still. I think gold's got a major headwind with treasury yields and everything and high volatility and high correlation S&P 500. That's where I see if copper breaks down, you know what that means? The whole conflict is going down. So, um, that that to me is why it's it's what matters.
>> Has your uh, has your department taken a um, haircut on your forecast for for gold? The Bank of America dropped their gold forecast down to $4,300. I don't know. I don't know if you're doing the same.
>> Yeah. Well, I don't put specific forecasts out, but I do say where I think things are going. And most people know I was a permable in gold forever and I like being told that and I just stopped this year. I'm like, thank you very much. When you can get a gift like we had to be able to say gold reached its highest ever versus S&P 500. Gold reached its highest in 20 years versus a 60-month moving average. Gold reached highest in almost four to five decades versus Treasuries, supposed to say thank you very much and give something back to the market gods because you don't want to ever piss off the market gods. They come back to you and that's what I think is happening. Cryptos already know it. Crypto market gods I think are still upset. But that's what I'm worried about. And the key thing that people always point out is everybody nearing peaks will point out the the narrative that we all use the same narrative of bullishness. But the key thing most people forget, you have supply, demand, and price on the same scale. When price moves exponentially either way, particularly, it almost can really go can go up a lot. It shifts those supply demand balances and put and can put in peaks for decades. And I think that's where we are in precious metals.
>> Let's go back to those divergences. Why have gold and copper diverged in uh early May? Now copper is a sock puppet to the uh stock market. You just talked about that. Gold used to be a sock puppet to what? What was that?
>> Oh, that's what I love about gold. It's really very independent. Zero correlation to the stock market historically, except now the highest correlation in history on a 60-day basis is stock market. Um, but the key thing is what happened with gold is we had a great rally. But what happened with that rally last year? It was the biggest rally since 1979, but the biggest rally in history in a disinflationary environment. It was telling us something was going up. It just went up too much and now it's coming back on. The key thing I'm worried about copper is copper is basically stuck between rapidly rising asset inflation in the US and declining bond yields in China, signifying deflation in China. What's going to win? And I think where gold's kind of warning us, Bitcoin's warning us that the next trade for copper, best next big risk is it mean reverts, pops down to five and maybe even four. But can it sustain above 650? That would be wonderful if it does because it means the whole system is elevated. And the bottom line also we have to remember is what does Mr. Trump need for midterm elections? He needs crude oil lower. He needs inflation lower. He needs food prices lower. And copper typically does, you know, it's typically has the highest correlation in the stock market, but it also typically is one of the top industrial metals with industrial commodities with crude oil.
>> The other possible explanation is the supply chain disruption experienced in uh the Middle East. That's a question that was asked to Mr. WH yesterday. Let me uh play you this clip.
>> Sure. How are you factoring the fact that a large portion of the inflation overshoot is being caused by supply shocks, as it's mentioned again in in the statement? Does that blunt the effectiveness of rate hikes in your view?
>> Um, first on the premise of your question, it was almost as if you were listening to our discussion the last day and a half. A lot of our focus was on trying to understand and identify underlying inflation dynamics amid shocks. We take these shocks seriously. There have been a series of them that have been hitting this economy. We're not looking through them and saying, "Oh, they don't matter." But we're trying to understand is to what extent are these shocks broadening in their effect, broadening in their impact on prices that are quite far removed from it. Our goal is to have growth that is broadening and inflation that is becoming more limited, more circumscribed. Uh, I'll be the first to admit the shocks make this job and this policy conjuncture a little tougher, but that's among the chief questions we've asked ourselves and around the room people have different views on it. I tend to think in the coming months we're going to refine that view and have a better judgment and we're going to have market prices trying to help inform it too.
>> Persistent inflation versus a temporary shock. Which is it?
>> Yeah, definitely temporary shock. The price of crude oil right now is the same as it was in 2007. The high is 120. The high in 2022 was 130. The high in 2008 was 147. The lows have been 40 or lower. It's a it's a has a the trend is lower highs and lower lows. Partly because what's happened the last 20 years is that transmogrification, the paradigm shift of US becoming a net significant energy exporter with Canada and reducing and just flooding the world with more supply. It's just adopting that technology. So, he nailed it. The key thing that the the ECB did wrong in 2008 and 2011, too, was hiking rates when they shouldn't have been. Um, but I think he's right about that and that's why I think there's no reason. There's so much ado about nothing. There's nothing for the Fed to do right now. The next thing I think for them will be to cut rates when the stock market tells them to, but or if inflation gets out of hand, which would be from the stock market to hike rates. But you don't hike rates because crude oil is going up because of a supply shock like this. But also the bottom line is how the world's changed. There is no example in history of the world's largest energy producer, net exporter, that used to be a net importer just 10 years ago in a situation like this where crude oil right now is as I look on the screen is that front price is what 30% above the agricultural production in the US. What does that mean? Massive more supply. It's just the way things work unless you ignore the rules of supply, demand, and and Adam Smith's invisible hand.
>> If you had to wager, place a wager on which moves first, which resets first, so to speak, gold, copper, or crude oil, which would it be?
>> Well, by reset, I would say >> revalue. Let's say revalue. >> Revalue. I that would probably be the most volatile, significant, well, crude oil um, by revalue meaning going back to its long-term mean around $70 a barrel and getting towards low around 40. What's most significant to really as an indicator would be if copper drops a little bit because copper is not in the forefront of Mr. Trump's nuances. If that drops, that means the stock market's probably going down. Means a whole global system is overdue for that global recession. And you look at gold, gold is just stuck. If it gets back to a normal long-term moving average, it's going to $3,000 an ounce. That's just the way it is. To get to 5,000, take something very profound would be very worrisome. So that's why look, it's hovering at 4,000. That's wonderful. But gold is just great. It's wonderful. We all get, you know, store value. But there's been times in history when you the store of value jumps up too much and then gets stuck in a range for 10 years. And I think this is one of those times.
>> Well, right now, uh, if you're a commodities analyst strategist, which you are, and you're obviously following the crude price because that's that's a benchmark for inflation expectations among other things. What would be the um, I guess economic data or news or any other uh macro um, indicators that you would watch for as a proxy to the oil price? Because it seems to be like a swing day by day based on simply what Trump is announcing, which may or may not stick.
>> Well, I do enjoy that, David. There's sometimes markets are technical. And there now the 10 on a 1 to 10 scale bar none for crude oil is the nuances of Mr. Trump and what he does in the in the Iran war. First of all, he did not get that unconditional surrender which I fully think he expected in two weeks. But now, what's he going to do with the workaround? We have to also look at Iran is very much isolated. Even Saudi Arabia is starting to knock, you know, by they created by knocking around some of its um proxies and things. So, I don't know how he's going to do it, but I know he has to get those prices lower, particularly gasoline and diesel, which is gasoline's running $4.11. It's near its all-time high. Got to get that lower by midterms. How he does it, that's what matters. The key theme though I want to point out, David, is um, crude oil can be its own worst enemy. If it spikes anymore and goes back above 100, that could make the whole thing fall down. Maybe not right away, but make everything tilt lower. But here's a key thing I I look for second half this year. Here's a major deflationary S. I think it's an area that can really kick in, and that is crude oil going back to its normal mean, 70 or lower. Trump figures it out and we have a normal bit, normal volatility pickup and a normal correction in the stock market that always happens, not always, but almost is very common in midterm election years. That's a post-inflation deflation trade. That's huge. It would kick in bonds. And you know what the key theme to that is? That also copper is a big part of that. If copper goes down, that's a big trade. I I sense. Now, here's the opposite of that. Stock market keeps inching higher. There's nothing really to do in that environment. I don't see why the big is, but I can see major payoffs if we start kicking into that ladder scenario. Brutal doing normal reversion. Stock market volatility picking up. Remember, this is volatility season. It's just bottoming. This is when it picks up. You can look forward to the next three to four months of higher volatility. Um, that's that's the trade I'm I'm I'm anticipating for second half of this year.
>> Maybe we're looking at this wrong, and I'm I'm no geopolitical expert, but right now the fact remains that the traffic in the street form has declined way below its uh, June level, which is when roughly when uh, the first ceasefire was announced. There was a glut of tankers waiting to go through. They did go through the few days that there was a ceasefire, and then they stopped. Now I wonder if people just start paying a toll. In other words, we bake into this assumption to the crude oil price that every tanker pays, I think what $1 to $2 million dollars per tanker, which is really an insignificant amount of money when you think about the fact that every tanker carries what, 800 barrels of oil, and so maybe that gets factored into the price of oil, which really isn't that significant. So we're talking about a slight decline in either margins or a slight bump in uh, refined oil prices. Either way, it doesn't feed that much into the end consumer. What do you think?
>> Well, you can see me smiling. The reason I'm smiling is I did I really appreciate people like you and my energy strategies, mostly based in London, digging into the nuances of what's happening in the Gulf. The macro big picture factor is this OPEC is becoming increasingly redundant. This is a 20-year trend. It accelerated with Russia's invading Ukraine. It's accelerating with the price maker status and and global energy bases shifting over to what used to be the largest importer of the US and Canada, now major net exporters. That is price maker status. And what we just did now is just accelerated that process of technology and demographics pressuring prices of most commodities, particularly crude oil. Like I said, my EV is 12 years old. The fact that we have 100% tariffs on those cheap EVs out of China is telling you where things are going. BMW is laying off, V and Volkswagen's laying off people. There's a major paradigm shift going on. And just the fact we pumped up prices are going to accelerate that. So to me, OPEC in the in the Gulf is becoming less significant. But also, let's not underestimate human ingenuity when there's um necessity and invention. And that's just what happened. That's what happened in 2022. I loved writing about crude oil going back down to I called for 40 in the low, it was like 55. I think I still calling that and I think that's where we're going to see the nuances by the end of this year showing that normal cycle. And so one thing to end with, the world's largest, here's a fact. The world's largest producer, net exporter, the average cost of production in this country is around $55 a barrel. The rules of commodities are you always go to average cost of production. Question of time.
>> Right? I was just pulling up the prediction market cow. This is the biggest one in the US. What traders are thinking? I think most traders actually agree with you. Uh, no one is actually super bullish, right? The the probability of oil ending by the end of the year, WTI by the end of the year above 75, above 80, above 85 is actually below 50 for uh 85 and above. And right now it's uh, yeah, so I I think um, what would need to happen though if we have a sustained move above 85? What what what do we need to see there? Because the foremost is already closed. What could it, what how much worse could it get?
>> Exactly. Um, by some measures, it's closed, but that means the US kind of failed. And what's Trump's legacy going to lead? Oh, we made in Iran and messed up the strait. I don't think he's going to want that to happen. It's not going to be it's very unlikely. The bottom line is think of the nuances here. We just saw what happened. 2022 was a tremendous example. When you pump up the um, you accelerate a pre-existing trend. We just did that again, but now we're finding out the new is the key thing I loved writing about in this whole thing is managed money net positions, i.e. hedge funds. I used to be one of them. Never really got way bullish. All the bullishness you saw on the screen from sell-side analysts and people who are so inherent in commodities and prices want to go up, but they never really stay up. Learn that lesson. The key theme is insiders, hedgers get it. I'm hedging forward. That's why we had that steep, steep backwardization, bring in more supply. But the bottom line is just think of something very unusual would take for crude to stay above 100. But what would that do for pre-existing trends? It'll just shift it back to a cycle and make it go down harder. That's been the trend for 20 years. It'll crush the global economy. Um, and it just makes unless you know, makes all those producers, it brings on more supply, recruits demand. And that was the trend before this invasion. Increasing supply, decreasing demand. And the thing is, it's a paradigm shift of technology replacing fossil fuels. Like I said, in in China, your typical now in total EV sales and and automobile sales are running about 60%. They're cheap, efficient, and they're much more, um, range, the range is greater than most internal combustion engines. And guess what? They last a lot longer with few little less less maintenance. This is, you know, these are these are buggies being replaced by Model T's. I remember even before the Iran war happened last year, when there was starting to be escalations between Iran, Israel, and and the US, people were saying that if the strait was just closed one day, and by the way, it did, we would see $200 oil. What assumptions have those analysts not gotten right?
>> China, number one. So we we now we know that with the benefit of hindsight, sometimes the kid I learned in the trading pits, I used to know a guy named Charlie D. He was in Market Wizards. All that matters is a statement. Does sometimes matter if your if your view is right or wrong, as long as you're right on your statement, your position works. So I got that one right, partly just pointing out the nuances of rapid increasing supply coming from the western hemisphere and decreasing significance of OPEC. But one thing was unique about China is their demand for imports of crude oil, hovering between 11 and 12 million barrels for like 5 years. And last year, just didn't make so much sense to me. I saw the 10-year yield collapsing, proliferation of EVs, and now we know definitely what they did. They topped off their SPR, the strategic petroleum reserve. Well, they needed a strategic petroleum reserve because they have they're a net importer, but they're replacing the need for fossil fuel with technology, and they have a massive surplus of that. I mean, just the fact that we have 100% tariffs on their technology is showing you that they're just okay, well, we're just proliferating our own country and the rest of the world. So what I think is going to happen out, I think people like Louis Vincent's of Gavcow pointed out that their SPR might have got as high as 1.8 billion barrels. In the US, it's running around 300 million. We don't really need it anymore. We're net exporters. They need that. But now they probably don't need as much. It's been a governor for the global economy. And for them to come back in and start importing 10 or 11 million barrels a day, I think is very unlikely. Think just like the US like 20 years ago, and just like Japan 30 years ago, their imports have probably declined and maybe just heading towards flat. And this is a great catalyst for that.
>> Okay, I want to finish off on Bitcoin now at $64,000. Bit of a bounce today. Uh, 2% 65. This seems to be the bottom, just based on the fact that it hasn't broken below 60 for any considerable period of time. How are you reading the situation?
>> That fact and that statement from numerous past people who made a lot of money in Bitcoin is part of the reason it's emboldening my bearishness. It's a complete bare market. Yeah. And I I it's an oversupplied bare market. Bitcoin is just beta in the space of cryptos where there's an unlimited supply of pigeons. At least gold is a beta in the supply of metals, which there's only a bunch of couple doves. Um, but just the let's do this. Bitcoin's already flunked the test of 2006, and that is how's this market going to react when the stock market goes down? The stock market's gone up and Bitcoin's gone down. So what's the next iteration for Bitcoin? Can it organically recover with the whole crypto space? Maybe. It still has to finish the purge. Things like Dogecoin still have a $10 billion of assets unmatched. We got to get rid of all that silly stuff. Everybody gets it. And then maybe we'll find a bottom. So I'll still make the call that I don't think Bitcoin's going to bottom till around $10,000. It's still has already flunked the test. And when the stock market goes down, particularly, we'll see that test in probably the second half of the year. Let's say S&P drops 10 to 20%, what's Bitcoin going to do? I fully expect it's continue to go lower. Maybe gets lucky and stays above its 200-day moving average, which I think is around 74,000 at the moment. Maybe gold gets lucky and stays above its 200-day moving average, which is around $44,500 an ounce. You see the nuance there? They're all together. They're all tilting lower. They're non-income-producing assets. Massive speculation in Huber in Bitcoin and cryptos. And by the way, you look over the long bond, you can get 5.2%. Why would you mess with stuff that gives you nothing and just only goes up in speculation? That to me is a problem. Something's got to shake that out. And let's just see the test. We haven't had the test yet. Stock market goes, we'll see how this recovers. And I fully I'll mention this. It's anybody who has any value at risk model with any value. And when they're long Bitcoin, you have to be bullish at stock market because stock markets drop 10%. You fully expect Bitcoin to drop. The volatility weighted basis, which is 20 to 30%.
>> I want to just close off with this question. Your current bearishness on Bitcoin is that based on technicals, or is there something fundamental that shifted? Now I want to bring this up because I don't think uh, you know, I brought this up a few times, but you and I have been talking about Bitcoin for many years, and I want to show the audience something here. Um, this is uh, this is us from a few years ago when I was still back in my old job at KitKo. $100,000 Bitcoin by 2025. This was October 2020, when the Bitcoin price at the time, October, what was it doing in October 2020?
>> 10, 10,000.
>> It was right. Yeah. 10,000. Yeah. You said it would basically add a zero in 5 years' time at the time, if it just does absolutely nothing and let arithmetic take over. You were absolutely right. You're maybe off by a few months because Bitcoin actually reached 100K by October 2024. But not not off. I essentially you were perfectly spot on. And I remember you being very bullish on Bitcoin back in those days. What flipped in your mind? When did that flip happen?
>> I I appreciate you bringing it out and in and full disclosure. First of all, you can see how old it was. I used to wear ties on screen. I don't even know if I remember how to tie a tie, but um, I jumped off the horse too early in Bitcoin, admittedly. So, and people will remind me in 2024 after the proliferation of ETFs. That was my focus. We had this asset that was digital gold. I loved reading reading Nathaniel Pauper's book about that, who's now at Bloomberg. I agreed with it and I fully expected the key things I was looking forward to is that was back when the current Biden administration was 2020, right? Did complete that the US administration Trump won and Biden did not get it at all. I so enjoyed writing about it. What do you understand about not understand about the technology adopted the dollar as its base layer, stable coins, crypto dollars? I'm like, "Duh, you're a yank." And you push back on that, you're either an idiot, you don't get it. Well, I knew they were going to figure it out eventually. Trump did it. It helped him get elected. It helped put the peak in Bitcoin. And also, another thing we had to look forward to back then was we had the biggest money pump in history. And you want the fastest horse in the race when it happens. Be that was the fastest horse in the race. And the key thing you look forward to is ETFs are going to eventually be launched. It was just a matter of time. My colleagues James Seafford and Eric Beltrunis dug into the weeds and I just said, "It's just a matter of time. You tell me when and when it happens, then you should be looking to sell." Now, we're way below all those prices back from when the ETFs were launched, $64,000 an ounce. We're way below any since ETFs launched. The average price is about $83,000. So, all those people got hammered. It's typically the way it works. Insiders got it. People like me jumped on a little later. I really got it bullish around 5,000, 2019. We don't have to get details on that, but and then when you go to the mainstream, trades over. Welcome to the real world of markets. That's the way it always works. But the thing that's really changed is Bitcoin back then was still peer-to-peer cash. That's gone. Why would you bother with a highly volatile pair cash, and there's a dozen other choices you can use that are volatile when you have good old dollar stable coins. That's changed. And and I like people like Michael Sailor, which is classic buy signals in 2020. It was at 10,000 when he jumped on board. I'm like, "Thank you." That's probably when I said it's just going to add at zero to 10. And it was a classic seller when it got above 100,000. Gave him a 10x. And David, the lesson I learned in markets when I used to have hair is when a market gives you a 10x, that much, that much, you don't double dog the mark, dare the market. And he did. He pushed back and it's oh, it's gone up another 10x. I'm going to add to my position. What you're supposed to do is give some back to the market gods, and they get upset. They're still upset. I mean, it's a silly way to scrap it, but this is how it works. Now, the thing is, Bitcoin was one in 2009, and now there's thousands that matter that are similar speculative. We got to purge those, and maybe we'll find a bottom. We're nowhere close. So in two, I'll end with this. In 2018, when it was around 10,000, I said it would drop, but it loses zero, and it was still a bull market then. It got down to 3,000. Okay. So I was, some people remind me I was 30% wrong. Okay, fine. So last year, when it got above um, 100,000, it's going to drop to zero back to 10. I stick with that call.
>> Yeah. Okay. Can I just end on one final uh note here? Just looking at the technicals here. Uh, this is the chart of Bitcoin. It seems to me that in the last two bull cycles, this one included, Bitcoin has troughed where the last bull cycle has peaked. So in other words, in 2022, for example, the trough was 17,000. The peak around 2017, December, uh, was 17,000. And now I I can theorize that if history rhymes or even repeats itself, we're closing in around 69, 60 to 60 to $70,000 was the peak of the last bull cycle. Therefore, if it repeats itself, this is the bottom. Does that make any sense to you? Like, what am I getting?
>> Of course, it makes sense. Of course, it makes sense. I hope it's that simple. But what's changed is honestly, just I it's just funny. So, I used to So, I I'm still exposed to some of these podcasts and things. I I'm reading Bitcoin. They all say the same thing. Everybody keeps praying with that opium. What's changed through all those p patterns? ETFs were launched. Trump jumped on board. Cryptos got trumped. Now there's millions of competitors for Bitcoin. It's like the trade is over. We should see a normal maybe 98% correction in most of these. 99%. Well, it's just the way markets work. Um, maybe we'll get lucky, but the bottom line for that chart you see right there is there is virtually no chance Bitcoin's going to rally if the stock market goes down. Now, maybe we'll get lucky and Mclo will get bullish if that happens. But I think there's, you know, stock markets dropped 10, 20%. So I look at it as it's a proxy. It was a great leading indicator. Went up and it's telling you stocks are going down. That's why I think the second half of this year is so profound, and Bitcoin's guiding you where things are going.
>> Mike, thanks so much. Where can we follow you >> on your show?
>> As I like to say, David, because I really appreciate the banter.
>> Thank you.
>> And by the way, for our audience, we're very extemporaneous. You just call me up, we talk, and we I just figure out what we're going to talk about. So I enjoy that. I'm on the Bloomberg terminal on X at Mike McGloin 11. Um um Mike Mclo, senior commodity strategist on LinkedIn. Thanks for having me.
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