Transcription
Hello everyone. Welcome to VRIC Media, your most trusted voice in metals and mining. I'm your host, Daryl Thomas, and today we had the pleasure of interviewing a guest that isn't new to this particular sector, but he is new to the channel, Mike Mclo, who is the senior commodity strategist at Bloomberg Intelligence. How you doing today, Mike?
I'm good, Darl. I appreciate you having me on. It's good to get to know you.
Yes, indeed. Yes, indeed. I totally agree with that. So, it's always good to get to know new people, especially people that want to help investors understand what is happening in these markets because obviously I I we were talking offline. I'm a retail investor. I'm trying to make money. I'm trying to set my family up for the future. You know, I want to navigate inflation and beat inflation and uh and live as prosperously as I can. And so, that's what our audience is about. And so, u definitely going to uh get into the markets today. So let's just start with your overall look on commodities. Uh obviously you've been in a commodity business for a while. You experienced the the last commodity bull run. Do you think we're in like a commodity super cycle? Some people say it's super cycles. Some people say it's uh it it goes in these booms and bust and such. And so just curious in your overall perspective there.
My overall macro perspective is um to warn people. I see a hurricane coming not of inflation but deflation similar to what's happening in China right now. The tenure yield in China as we speak on December 8th is 1.84%. In the US it's 4.17%. So the severity of forces there I was trading Japanese government bonds 30 years ago when they started tilting over to that typical deflationary event. And that's why I wanted to start out right where you started is typically the goal is to protect against inflation and that's what happens at extremes. It's we have to be very careful about recency bias and one of my best indicators for that ever is gold this year is up about 60%. Now people might call that inflationary. That's the best year since 1979. CPI was running 10% in 1979. But one thing that's really different is crude oil is down about almost 20%. That disparity of 80% is the most ever on an annual basis. The only thing close was 2008 when the disparity was 60%. So we have the world's most ancient store of value grabbing alpha. And by grabbing alpha means it's taking all the performance from everything. And the world's most significant industrial metal basically collapsing in the same year. On a global basis, that's a bad sign. It's probably what you'd expect from the whole world being that this this shift of the world being able to export to the US. That flip has that switch has flipped. They can't do that too much anymore. It's no longer a free trade for them, which a lot of us proved wasn't fair, those of us from the heartland. And to me, the key thing I want to point out from commodities is I think the thing to worry about is deflation. And I say that because I've been saying it for too long and some of our viewers and listeners have heard me say it, but that's clearly what's happening in things like crude oil collapsing and gold going up. But what's this environment is within the US stock market reaching its highest ever. Okay. Since 1928 versus GDP, that's a Warren Buffett model. Um stock market capitalization. But more significantly, so you can push the back on that a little bit. That's a financial thing. but more sign significantly the highest ever versus the rest of the world's stock markets. So those are all relative value and they're all cheap compared to the US. So what I'm afraid of I think it's going to happen next year Darl is we're going to see the next the third down year for the US stock market since um 2008. We've only had two down years total return that's the S&P 500 and I think it starts with cryptocurrencies leading the way. So I can people have called me a bit MC Cloom started calling me Mloom last year and I'm just point out I'm Mick Fax Daryl. This is what you're supposed to be worried about as you're investor and there's sometimes to be underweight risk assets particularly when everybody else is overweight which they are the most in history stock market and there's certain times that flip to underweight. Now I did that last year by pointing out I expected gold to be the best performing asset. I never expected it perform this well. And now I come to you and I'm glad really encouraged to be on your show as a completely frightened strategist by the things I see that are worse than I saw in 2007 and worse than I saw in 1999. And that's one I'll end with this. That's one misgiving of someone like me who caught those moves and traded very well. I don't trade anymore. I can't. My compliance doesn't allow me, which is good. Keeps my view undistorted.
But I caught those well. I made a lot of money those years. Um the thing is then I risk getting that major wealth creation when we come out of those trials. But right now I think we're heading towards one of those periods where you're supposed to be risk off.
Gotcha. Okay. Risk off period. So let's dive into a few threads. Let's put on a few threads there. I'm sure this this is a this may not be new to some of the audience, but it may be new to some of the audience. And so uh let's talk about the gold to oil ratio. So uh there's uh two different uh perspectives from what I'm hearing and what I hear from others in the industry others in the industry well you have the dynamic of whether there's a oil glut or whether um you know uh the drilling in the peran basin and and all of that is going to create a supply shortage of oil and such. So you have those two different views but then within that you have the uh gold to oil ratio where some people are saying that okay this this is the lowest it's ever been. They're expecting oil to catch up to gold at some point, but it sounds like you're saying that oil is at a 20% decline and that gold has out out um outperformed even your your projections for 2025 and you're expecting gold to come down, that ratio to come down by gold coming down. Is that correct?
Well, the the bottom line is let's take them separately. First of all, we'll start with um we'll start with crude oil. It's the most significant industrial commodity. It's trading $58 a barrel right now. that was first traded in 2005. That's 20 years ago. And that's what happens with commodities that don't have income. Now, if you bought a an energy stock or the XLE like energy ETF and held that over the time and crude oil is flat, but you made money in the equities. That's the key thing I always remember about commodities. Commodities are autocorrelated. That's a sophisticated word to say they go down because they went up. It's the way we used to I like to use the uh vernacular we used to use in the trading pits. And then I get to Wall Street Trading Desk and I heard that word auto um autocorrelation. Basically the thing to remember is we can create more with less in terms of crude oil every day. Most notably the US. We're now a net exporter. My entire life we're an importer and the world's using less. I mean the EVs proliferation of EVs in China is off the charts. And also we had a major catalyst for it to go wrong. It went up too much. Russians invasion in Ukraine pumped up prices to 130. They peaked at 130 in in 2022. And we're still in that trajectory downward. Now that's what happens with most commodities like crude oil. It's the world's changed. It's no longer that world where US is a massive net importer. Now we just have all this wonderful technology have a new president wants to create more with less. It's going to continue to go lower. So next year the average price of gasoline in this country I think will be around two bucks a gallon. Right now it's three. That's average. And in your area in my area it's different. But that's a call I'll make right now. That's a normal trajectory. On the other side, also I'll say what's within that same group with crude oil are the grains, corn, soybeans, and wheat. They're all doing the same thing. They're going down because they went too much, up too much. And bottom line is we can create more with less every day. Thank God for human ingenuity and nature, which is always means that equities will typically outperform the underlying commodities. But gold's I wouldn't say it's different. Gold is not a commodity. It's in the bloomer commodity index, but only 10 maybe 8% of its use is industrial man. say ancient store of value and the bottom line for gold is we started hearing a few years ago when Russia invaded Ukraine that central banks were accumulating gold now they should they have been but I I don't want to dig into the fundamentals so much because I've been bullish gold forever Darl I have to remind my audience the key thing about g being right about a call like this sometimes you have to get hit hard throw down the mat and then you're right and I was in gold I was bullish for gold to stay above 2000 starting in 2020 1 2 and three. Finally in 2024 it broke out but I just it's going to go up. I've been wrong. Give it time. And now we just popped up to 4,200. The key thing is remember what's happened with the gold is it's the thing you can always remember measure over time is velocity and the the relative rate of that change. So gold right now has gone up so far so fast versus most moving averages. I use 60 months because it's five years and I can go from 200 days from 20 30 40 50 months all the way out and it's been so stretched versus most moving averages. You can compare it over time and say okay the last time we did this was more extreme than when we had that big rally into 2011 2013. You mentioned that earlier and also very similar. It's only similar to what we did in um 1979 and 80. But now I've completely flipped over from my fundamental technical hat to a risk manager. When you get the world's risk off asset stable store value to get this stretched, you're supposed to just be prudent and if you've been overweight long it, you're supposed to say lighten up and take profits. I mean, basically I kiss the the the bottom line from cold gold is when it gets this stretched versus most moving averages, I don't care about the reason. That's the key thing is you have to differentiate to a risk manager. Um, you have to be careful. Longs, new longs, overweight longs from these levels typically do not do well. In fact, one good example is when we got this similar stretch in 1979, it went from like 300 got to almost 800 and that level 300 was the same until 2005 like 30 years.
This is this is stuff that can happen and will happen. I'm really worried. But it's the signal that it's sending that I am much more concerned about. This is where markets are going. So when gold takes L for everything, it means something. And so I look at this this year is telling me, yeah, um there's a problem with risk assets. gold is telling us that and if I'm wrong on my interpretation what the gold market's telling us then I'll know within a few months but if I'm right on this Darl things like cryptocurrency should collapse and they started doing that okay they should lead the way lower and next should be the stock market leading the way lower now that's what I think's happening and that's why as we speak in December 8th you know right before the Fed meeting there's an complete inordinate burden in US stock market absolutely has to go up number one's consensus everybody's long the most longest in history and see If it goes up 5% that there's no optionality in that. I form an option trade. That's just expected. It's priced in. It's what everybody expects. But just imagine if we drop 5% from these levels. Those are cascading dominoes. Crude oil has already started falling. Gold's taken off. Cryptos have collapsed. Bloomberg Galaxy Crypto index as we speak is down 20% in the year. It's almost it was up almost 30%. Bitcoin has rolled over. That would just be a normal downward trajectory kicking in and I think it would signal the next recession. And the bottom line is it'll be from the the the reverse wealth of it because may we live in interesting times but in terms of no most notably number one being American owning any type of home or property and owning any type of stocks you're in the middle of the greatest wealth creation machine in the history of mankind it compared to 1929 in the US compared to 1989 in Japan are the only two comparisons and it's potentially starting to roll over and that's why I see from commodities see from crypto see from Bitcoin and that's why I'm just extraordinarily worried about the stock
Gotcha. Okay. So, what indicators are you uh using on the, you know, when you're doing your technical analysis? Uh what indicators are you looking at in regards to to gold? Uh and then also what's your uh target on the low end as far as if you have a target on the low end.
So, that's a key thing. Well, for I I just published recently very good reversion level. S&P 500 right now is about 6,800. Um, very normal reversion level and for potentially for gold to meet it is around 5,000. So, one thing I like to watch is a gold to S&P 500 ratio. It's it's just starting to tick higher. So, let's look at S&P 500 divided by gold the other way. That's started to tick downward and historically it's 1:1. Um, right now it's about 1.63. It's rolled over a lot this year and I think it's going to continue downward to get back to one one. So maybe we get the S&P 500 towards 5,000, get gold towards 5,000, Bitcoin towards 50. That's a normal reversion, but that's the key thing is it seems so odd, but it's on a long-term chart. It's really nothing. And that's where I think we've tilted potentially heading that way. And I have to find out ways to prove me wrong on that. But that's one key thing level I like to watch. The ratio of uh S&P 500 divided by gold right now 1.63. The high was 2.6 recently. and started rolling over. Historically, it's been 1 one. Another key ratio I like for the shorter term. That's the big picture macro. Shorter term is just looking the ounces of gold equivalent to one bitcoin. Remember, bitcoin is this new digital version of gold that's highly speculative and different. The problem is it basically tracks nothing. It's not pretty and it's only used for like money. But the uh the key thing is that Bitcoin to gold ratio, it's dropped below 22. 25 was my key support. report the high was 40 and looks like it's heading down to around 10 to 13 which would mean you'll see if we get Bitcoin around 50,000 S&P 500 around 5,000 that's just a normal reversion we were just at that 10 level a few months ago actually a couple years ago and we have a model in S&P and Bloomer economics that points to fair value and that um ratio is much lower than where it is now I've been tracking that model for a while it's all based on the what the smart people and economics team has set up so those are some key ratios I watch with gold. Uh and and then I also like to point out key things that have not happened ever. I pointed out the that rally in gold versus crude oil. We've never had that wide disparity. And here's one thing I like to end with Darl that completely frightens me. The velocity of this rally in gold being 85% or so above its 60month moving average, the most in almost 40 years, has never happened with stock market volatility this low. So I'm getting a little technical on you. the 120day volatility S&P 500 is about 11%. And we're what two 3 weeks away from the end of the year. If we end the year here with that measure of stock market complacency, that high for complacency or that low for actual volatility, it'll be the lowest since 2017. And as we all recall, 2018 was a pretty significant down year for the stock market. Not sticking, it was just down total return. So that's my signal is it's the number one thing to remember markets volatilities always mean reverting and particularly when stock market volatility gets this low. Yeah it could stay low for a long time but it's the time when you're supposed to be careful and lighten up and that's what I think is the problem is what's telling us gold going up this velocity and stock market volatility to this low is telling me that stock market volage is going to pick up and follow that velocity of gold. The copper market of course is the biggest metal market on the planet. you know 2 to30 billion globally of metal traded following majors around and picking up projects that they jettison can lead to great success in this business. Visa Copper. We're the team that brought you successes including ISO Energy and Visa Silver. If you want to learn more, you can find us at visla copper.com. S&P coming down to 5,000. Gold going to 5,000 would revert to that 1:1 uh ratio, historic ratio. And then Bitcoin coming down to 50,000 would also bring uh it down to 10:1 uh the Bitcoin to gold ratio. Uh so it sounds like you're saying that you're expecting gold to go higher. uh instead of instead of lower.
No, what I'm really afraid about now, Darl, what's happened historically is a lesson I learned from a former hedge fund manager I used to work for, Samar Nusouli was um bare markets can take money from everybody. And that's what happened in 2008. The setup for gold is very similar to 2008. In the beginning of the year, it popped up to a thousand for the first time and then it dropped 30% as things started to tilt downward and with the stock market and the economy. So, it was it was called force selling. We used to call it in trading pits god selling. You don't sell what you want. you say what you gota and so it dropped 30% then of course I had a good year as we did this massive stimulus so I'm afraid everything can go down it just is gold's going to go down a lot less in the stock market and that's part of I point out when you get this stretched versus history and versus most moving averages it's just and you see a feel of pylon there's an old saying in markets you're supposed to be selling when they're yelling and I'm I've been bullish gold forever and I'm just not as bullish anymore just it's a wonderful thing sometimes to say yeah if you've been bullish and you've been right and a lot of times I'm bullish and I'm wrong but in a market like that to just kind a hint at taking profits. I have to be careful about giving investment advice. But I'll just point out facts. Gold getting this stretch typically has a poor riskreward for new longs. But that's what I'm worried about and that's I'm worried about as we print this end of the year the cascade. We basically, like I said, we need the stock market to go up. But if it just stops dropping to maybe 5% into the end of the year, then it's going to firstly guarantee my view that next year is going to be a down year for the stock market. And that means everything goes lower except one key thing. um inflation go that goes lower and bond prices they go higher or bond yields go lower. That to me is one of the next big trades I'm worried about if I'm right about this macro thesis and if I'm right about what's happening in things like Bitcoin and and crude oil going down and gold going up.
Okay, got it. That that makes uh total sense. Uh so um what I'm getting from you is that gold moving this this fast this far um is is extreme especially with a a low uh stock market volatility and that um I mean it's going to have to cool off and and and and come down and so uh are you seeing a are you are you expecting for gold to the S&P 500 uh to hit 5,000 cuz I don't know what percentage that is for the S&P to drop to hit 5,000 or or Bitcoin from 90 to to 50.
Yeah. So, I've been calling for I we'll start with um we'll start with Bitcoin. Um I started when it got above 100,000, which was my initial target, and I've been not perfect about Bitcoin, admitted, but got way bullish in 2019 was um I made a call in 2018 when it around was around 10,000. It would drop a zero, which meant 1,000. And I got 70% right. It only went down to 3,000. I made the same call now. I think it's going to go back to 10,000 initially 50,000. It's normal reversion in an asset that tracks nothing and has millions of competitors and um so initially I think it's going to get to 50,000 but trying to nail where exactly markets will go to reach the ratios that I'm expecting is more difficult. Like maybe the S&P 500 and gold can meet at 6,000. I don't know. Maybe they meet at 4,000. I don't know. I just look at relatively overall as an investor. it's time to be underweight. Some of these mo ass assets have moved so fast. Unfortunately, gold's part of that now. Last year it wasn't. It was an asset to overweight. Now it's fearful it's going to underweight. So that's why and then look for triggers. So I see signals from it's it's also part of my job, Darl, is to try to interpret what I think the market's telling us. And right now we we see pretty extremes in equities. No one everybody gets that. We all know that it's just just a matter of time when at some point it reverts. And then my interpretation what the gold market is telling us is yes you should be careful when I gold as the market um am store value and I'm the rock that no one cares about that you take out of the ground put back into the ground um when I beat everything you should be concerned and I am so that's the way I see it and cryptos I think are concerned and stock market not yet.
Okay. Do you think that the uh the basement trade narrative or the central banks buying can put a floor under under gold?
I'm glad you went there. I want to point out it's a recency bias we have to be very careful with.
The last big trade was the debasency trade clearly accelerating 2020. Now that period I looked at very well was way overweight and bullish. Two things, Bitcoin and gold. Not the stock market. I have to admit I haven't been so bullish in the stock market forever cuz I found better performers and Bitcoin and bull have crushed it for years now. Now the markets focus on debasement that's the risk is they're focused on the last big trade when they should be shift shifting to the next big trade and we will probably get similar debasement as we've had in starting in China and I'm sorry in Japan in the '90s in China now um but there's one iteration that's always precedes significant debasement I like when the US came off the gold you know devalued versus the gold in in 1933 and then of course when we devalued And in 1971, almost all those periods are in the back of pretty significant um plunges in risk assets. Certainly happened in Japan. Nikk dropped from like 40,000 to I think it was 10 or so. It's obviously back now, but it was 30 years ago. All assets in China are collapsing or have and now we're the mask of f fiscal and monetary stimulus. Just to put that in context is right now the 10ear note yield in China is 1.84. Like I think I that's where I think the US is going to go. Yet that's having um stock mark debt to GDP around 300%. In the US it's about 1.3%. So 300% or so. That's a Goldman Sachs estimate estimate. And money supply money supply is just the total money in the system. Money supply is running between 45 and $50 trillion. That's double the US. So see what they're doing to try to pop up their economy. Yet their interest rates are low. PPI is still negative. They're trying to support a bubble that burst. And that's my point is the bubble bursts first and then you pump it with money as much as possible. And that's the key things I'm trying to point out is we've reached the endgame to that. We've got stock market so expensive almost 2.4 times GDP. There's only two times in history. We only got close to that. And that was 1929 US, 1989 Japan. We got stock market valuation versus the rest of the world. It's almost 2/3 for a while. That was way too expensive for the US versus the rest of the world. We're coming back down now. Um but we've already done that. And what it always does, it pumps up asset prices. And that's the lessons of number of books will tell you. There's one book I I've read recently. Well, a little years ago I I enjoy is called the price of time by Edler Chancellor and just point out how all lessons of history are when you have massive debasement or pumps like that pump up liquidity and pump up risk assets, they always revert. Now
to me, it's just now that's I think it started in cryptos. Um, Micro Stratey was a leader of that. It's dropped 50% from its peak. Um and the and so definitely housing housing's peaked. So what's the final pillar? Stock market. That's usually the last.
Yep. Got it. Okay. So, thinking about the bubble already bursting. So obviously people are expecting like the the helicopter money to to come into the rescue especially if there's like a huge uh downturn and such and we see kind of the uh Federal Reserve being positioned in that way. Um, but we'll see how things play out. Um, but I'm curious your perspective on the other 493 companies in the S&P that have not been uh necessarily performing as well. I mean, obviously the MAG 7 has been keeping that elevated. So, you have a lot of highquality small caps, midcaps that are that have been struggling uh to um navigate this risk-on environment and their share prices haven't been doing as well. And so I'm curious uh if if you see big draw downs uh there as well.
Well, I think there's going to be a transition away from the key thing that about um the mag 7 versus the other 493 is mag 7 obviously lifting the whole market. There's major concentration risk. All that stuff is known known. Everybody gets it and there certainly will be a valuation shift away from mag 7 away to the four other 493. And I think just like gold going I think it's going to be all on the way down. I mean some things got to outperform. a whole factor group of people will try to outperform this market or that market and that's the thing is when you get to the point in markets there why I have to be very careful when people don't even consider just getting out they just consider another sector or you know low volatility or um you know income producing equities I think there's a time to say well um by the way in 10 I'm getting 4.16 and getting a little bit less than 4% in that 2-year note may just say all right, just get out. But that's what happens in extremes. And also Darl, one thing that's happened lately is you get there's so many of these really silly signals like almost I've been through I don't know how many conversations now they keep saying, "Oh, it's not a bubble. It's not a bubble." That's the only kind of conversations you had near towards the end of of bubbles. You don't have those in bottoms of markets. It's it's what it's human nature people get put these resource reports together make themselves feel better when they should just say be realistic. And that's what I am. I've been realistic is I I thought Bitcoin was a great alternative for five, six years running. I don't know. I gave up on that last year. It's just got too expensive. Gold has always been the great alternative. I'm giving up on that this year. Um so that's what I say. Um yeah, you dig in deeper into the weeds. I look over in the macro and say just
yeah,
why try to why complicate something I think. So here's the bottom line is so I'm you know been in the markets for almost four decades. I make it a call of a lifetime and it's not going to be something that's going to happen overnight. But I I have all the indications like start out with one. Never had a year where gold's had a better year versus crude oil down than this year.
Mhm. Gotcha. So do you think it's a bubble sign that the big banks uh Goldman Sachs, JP Morgan, Bank of America have these higher price targets on gold for 2026 and 2027. Just curious if that's a sign of bubble territory or what.
Um some of it. Let's put it this way. who doesn't have a higher expectation for the stock market. That's complete consensus. Um for equity, for for gold, I don't really know what to make of it yet. Partly because I think um I just sometimes put on my DI list deliberately ignore. And also if they're all bullish and I always get concerned, but if they're all bullish, I haven't really checked. I figure this is just one of the things I just assume everybody is because the market's going up and you just you just can sense it. They all most of them missed out because they had other things to be able to sell equities. You don't really make money selling gold. You can and you know being a sellside strategist selling other equities. But I just look over at um bonus beyond I I can I I'm much easier quantifying and qualifying exactly what I see with when I can see stretched levels from when I measure versus see people say like a first, second or third standard deviation from a mean. How do you define the mean? So, I've gone from 200 days out to 60 months. And I define what's happened this year is when people, some smart people say like a third standard deviation move, which is happens like 01% of the time. I just go back in history and say, how many times what how often do we get here? What does it mean? And it usually means you're supposed to just lighten up. So, I I simplify it. You have a good bull market, it gets way extended, don't add. And when you feel everybody else is adding, doesn't hurt to take some profits.
Yeah. Yep. Got it. Okay. So uh earlier you mentioned the um well actually before we we go to this part I do want to cover like do you have a longer time frame uh perspective on on gold and so uh obviously you know these things break down time frames. Uh we could go and look at like the bare markets when uh markets went risk off and and sometimes the equities could be down for for years. But like right now we have a lot of distortion with the Federal Reserve coming in and uh easing and typically inflating air back into these these assets and such because it's almost like uh uh uh it's benefits uh whoever's in political power for you know folks retirement accounts to still be solvent or whatnot. And so just curious if you have a do you have a longer term kind of outlook on gold outside of the next year 2026 and right now it being very risky to be in.
Yeah, that's that's the tough one because I I have in the past when it was bumping up against 4,000 forever I said right away the next targets 3,000 and then 4,000 and so it was bumping up against 2,000. Now I I Darl I really don't know. So what I recently put out and point out is it's hard for me to tell. I point out there's good reasons for it to go to 5,000. And it could easily easily on a normal normal correction in the market that's just stretched get down to near 35 3,000 almost 3,000. So here's a simple way to look at it. Gold's annual volatility um right now is about 20%. Now that's a little high, but on the first standard deviation move, that's 2/3 of the time. That means it's going to be either up 20% or down 20% next year. So we're 4,200 at the moment. So 20% of that gets us closer to 3,000 on the downside. And on the upside 45 4,800 or so on the upside. Now that's standard kind of just normal valuation but I did that with co with silver recently and I point out it can be at 75 at 40 next next year and based on a normal standard deviation move that's just within the bell curve. That's just where it goes. That's how stretched we are and that's how I look at it. If you've been overweight long these assets, this is not the place you're supposed you're supposed to be lighting up and careful. So I don't really know exactly what kind of target. My my main concern is is the are the iterations what happens or when stock market volatility recovers and it will I mean right now like I said 11% if we end here it'll be the lowest at year end since 2017 and then the iterations from my other signals that's why I'm kind of being careful circumspect. So, I'll keep I'll point out one key thing I think's going to happen and might be starting now is we are overdue for way overdue for the third down year in the S&P 500 total return since um 2008. Now, we've had two. They weren't so bad 2018 2022, but I think we're due for a 50% draw down. We've had three of those since 200 I'm sorry, two since 2000. Um and it's just trying to pick out the iterations of that happen. My key signal for that is our crypto. So it's there's so many things really linked in here that are going to matter and that's why I think the end of this year is going to make a big big difference. So I'll point out one key fact is if we do start trickling down a little bit towards the end of the year and the stock market say it drops 5% or even 3% from from here that will kick into my base case that the next recession will be starting from the reverse wealth effect um which has happened in 29 in US and happened 89 in Japan. And you got to have some point of worth reverse wealth effect led by cryptos because they're the leading edge of that. So I put 29 type um recession in the same sentence with cryptos leading the way. So far that's happening and then I'll go from there. So right now I'm so I don't really know. Alls I know is there's times you're supposed to be potentially more risk off and nothing wrong with ever. So, I don't make recommendations, but I don't think I ever have a problem saying overweight treasuries.
Yeah. Yeah. Got it. Okay. And I was asking that just thinking about like I've been doing some research on the purchasing power of gold uh over the years and I think in 1985 uh gold was trading at about 300 and some dollars and some change and it would take you about 260 ounces of gold to buy a home average price home. And uh today it takes about 100 ounces of gold to buy an average price home of like4 $400,000. And so just thinking about like the uh preservation of purchasing power over time. And so um that's why I was curious in that longerterm outlook.
Oh, I I love that one because I've used it over time like um I used to own a farm in Indiana. I use if people sometimes talk about if you own a home or land that's a good proxy for gold. difference is there's high maintenance, not so much in land, but a home is a is a rapidly decaying asset that costs money and you obviously you can live in it, but you have to keep it up. It's expensive to to hold. Um, but there's a a measure over time like income producing land in Iowa versus basically 4 ounces of gold over time. Now, sometimes it gets eight, sometimes gets gets two, but right now it's a four. And I always look like S&P 500 versus gold. Over time, it's basically 1 ounce of gold. For a while, it popped out to 2.6 or higher ounces a gold. was the peak in 2022 and now it's at 1.6 or so. I think it's heading towards one. And that's a good way to measure all assets in value. Like a man suit and typically historically been 1 oz of gold. Now that's pretty damn good suit for $4,200. That's not my that's not my level, but I used to work for a manager used to have those kind of suits.
Yeah. Yeah, for sure. So, so essentially you're saying that the how far and how stretched this price the the price of gold measured in dollars has moved. Like if you got in at lower prices then um right now you could take some profits off the table uh because at some point uh it it may revert you know to um you know uh I mean depending on what you're purchasing there going to be times where it exceeds a tailored a tailored suit you know where uh gold price moves so fast where it takes you less gold to buy a fine tailored suit but then that price typically were mean to that that fine men's tailor suit at some point. And so if you if you got in early enough to where you're participating in you could buy, you know, uh maybe two fine men's tailor suits with gold, then you may want to take some of those profits off the table.
Buy those suits.
Yeah. Yeah. Got it.
Yeah. Yeah. I I like the way you put there's certain times you're supposed to take that ancient store of value and convert it to stuff. Now, I know there's people who go who who own gold who never sell it. I I there's a gentleman named Tony. I can't remember his last name. I meet him at all the conferences every year and he says his father gave him some gold that he hasn't touched and he never will. And his father said only use it if you really have to. Thank god he says he hasn't has to. He just stores it in a safe deposit box. No physical gold. I've never been so involved in physical gold. I like the financials. I can just buy you know some of the ETFs. But now it's just so stretched. There's certain times it just prudent, let's put it this way. Prudent risk management is not overweight gold at these levels. Prudent risk management was overweight gold the last few years. And here's a key fact. If you take the S&P 500 total return divide by gold, it almost always goes up over time. Now that's the total return because what does the total return? It has earnings. Now, and income that income versus the versus like 10, you know, it's like the lowest in what how many three decades or so. So, you're not getting much income anymore. Um, but that has changed since 1997. It's flatlined. The total return of the S&P 500 divided by gold is flat. It's been safe. It's hard to believe we've had 28 years where the stupid rock is keeping up with stocks. You don't see that in CNBC. Um, and that's total return. I mean, it's incomes, dividends, everything. So, that's why I think this is just the time to um, you know, um, when in doubt and when, you know, gold takes alpha, you're supposed to take some of that and say thank you. But that's the key thing I'm worried about when everybody gets bullish and asks that they should have been bullish a few years ago.
Be careful.
Yeah. Yeah. Gotcha. Okay. So uh earlier you talked about uh the rotation in terms of like when um the market is due for a downturn or or correction or whatnot, crash, whatever, however you want to frame it. Um people are typically looking for like, okay, what is the asset to rotate into? And and we kind of started that that going down that trail a little bit when I mentioned like the small to midcaps. And so, uh curious your perspective. So like after you know the uh.com bubble emerging markets commodities started to to go up significantly real estate right so that was a rotation out of stocks into those particular assets um then we obviously had a uh blowoff top commodities and uh real estate right and u and emerging markets and then the rotation was into you know uh Fed was backstopping the markets and rotate into like in the the NASDAQ, the S&P, and and all of that. And so now what I'm hearing you say is that that bonds are are something that you're looking at. And so just want you to elaborate a little more on why do you think that that may be the the rotation or the safe haven in this particular
So Darl, it's kind of like the gold trade. I've been saying the same thing for two years. I've been wrong. But I don't think I've been wrong. Obviously, timing is wrong. If I was a leverage trader, I've been stopped out. But often times it just means I was early and I was in gold. I was in things like sometime sometimes Bitcoin and in crude oil and certain moves. And to me now it's getting worse than ever. And what I think is it's it's um there's times to be overweight treasuries. And I think this is it partly because when everybody's focused on inflation, you should focus on deflation. And it's a normal cycle. So just a normal cycle of deflation. So picture this. Let's say we've get a 10% correction in the S&P 500. You know what that does? It gets us back to the 200 day moving average which is heading up. It's nothing. It's absolutely nothing. It means nothing in the big picture. Bitcoin's already done it over and drop below its 200 day moving average. The Bloomberg Galaxy crypto crypto index has already done it. Drop below its 200 day moving average. Typically the S&P 500 does that. Now that's 10% that would be about and it'll be almost 25% of GDP. That's most in history. Okay, just bar none. It's great. It's wonderful. We got to these levels. But there's certain levels you're supposed to say thank you. And that to me is what is the cycle is we have to worry about that's the deflation. It's normal wealth destruction from too much wealth creation. And I I published about this two years ago and one year ago how the US housing market was the most expensive ever. We all know it's versus income. It's the most expensive ever. But how the stock market was the most expensive versus housing ever. So you see everything's up there. But why are we up there? because we had this massive debasement pumping liquidity to the peak in 2022 and we're still getting that inflation? So that's the endgame. We're still getting that inflation. The Feds try to start cutting and they know they kind of really shouldn't because risk assets are on a tear, but now they're starting to fail. So we've known for over a year that we're going to have Fed funds at 3% next year. We've known that. Now it's starting to happen despite that crypto market starting to roll over. Um, housing markets already stalled and stopped. Inflation's still 3% or above 3%. I just look at this Federal Reserve inflation expectation expectation index came out today for one year. It's still New York Federal Reserve still at 3%. That's way above targets. That's an endgame. To me, that's an endgame that you can only pump up the system with so much liquidity for so long and finally it stops or it's never going to stop. I figure, okay, if it never stops, that's a wonderful thing. We're all in here. We're doing great. We don't have to worry about anything. and you can say McGloin was an idiot a year from now. I didn't make as much money as everybody else. That's what'll happen a year from now. But if I'm right, you can at least when unemployment does go to 6%, which it always has, always has gone to 6% when it drops below four.
Um, and you're not um and you're not getting hammered in your investments while most everybody else is, that's an okay thing. And that's why as a, you know, as a strategist, I see a hurricane coming and I must warn people. And I'm certainly taking reputational risk doing it, but I was also taking reputational risk calling for Bitcoin to drop to 50,000 a couple months ago. Still am.
Yeah. Yeah. And and I believe at at some point you're going to be right. I mean, obviously it's it's hard to predict the timing of of things, but I mean, we we know that this market is is unsustainable, right? And uh and it and it needs to it definitely needs to kind of uh revert and get some common sense uh in there because folks are changing uh chasing anything that I mean we've seen the AI bubble folks chasing anything that has AI in the name in in its name whether they're producing um any type of product or not or generating any revenue or not. And so we we definitely know that this market is is uh overheated and overbought and needs to come down. And so I I definitely agree with you and I think that at some point we're going to see that and people are going to need to get liquid so gold is going to, you know, could come down with it, you know, for sure. Um, and so u I definitely could see that. So appreciate you for sharing that. Well, Mike, where where can people connect with some of your articles and some of the things that you're doing? Uh, you know, I think you're on X and such and so just uh curious where people can connect with you.
Well, on your show. Thanks for having me. Yes. Um definitely on XML1 LinkedIn senior commodity strategist. You send me a message and and send me your email. I'm happy to add you to my list. You can get you on my distributions because right now I just post snippets from what I produce on the terminal terminal subscribers first and I post the snippets on X and LinkedIn. But those are the spots and I want to thank you for coming on. And one thing I think that's really important that I I detect in you that I think is what I really sense sometimes the best way to um is is there's it's important to never be too emotional about investments and I detect in you a stoism that's very important and I that's what I sense in markets is major emotion in things like cryptos which is when I hear all the emotions that's when I say sell.
Um and I saw a lot of that recently. So, um, to me that's an important thing, but that's way to reach out and looking forward to the next time I come back on.
Yeah. Yeah, definitely appreciate that you all got the information, so be sure to connect with Mike at those locations. And Mike, love to have you back on at some point. So, uh, look forward to staying in touch and and continue to to build this friendship.
My pleasure, Darl. Thanks for having me.