Transcription
How are you, Michael?
I'm fine, Mario. Congratulations on uh getting into oil at the right time and getting out at the right time. Let's start there because this is something that a lot of people are struggling to understand. Um, I think it's a good place to start the conversation. um, in the mi in the midst of the war which many argue has not really ended. Well, Trump says the ceasefire has ended. So Trump says the war is still ongoing if you want to listen to what he's saying.
But a lot of people during the war, Michael, we're talking about $150, $200 oil and then oil prices dropped so quickly even though the ships coming out of the straight of Hamuza are still and have been since the ceasefire significantly less than they were before the war. So from a supply demand perspective, a lot of people are looking at it and just saying it doesn't make sense. I had one of my guests talk about the crack spread and his his argument is that the price the spot price on the markets the paper price is not the same. It's very, very different to the price of the oil coming out of the straight of Homus. That's the crack spread there um that they were talking about. Um, so I'd actually would love to get your analysis, Michael, of the current price of oil. um, why did it drop so quickly >> and what's your analysis? What's your answer to all the people saying something just doesn't add up?
Well, I think looking at transitory news events >> uh that seem to shape the world is an error. Uh, there are bigger things underway in asset class pricing or repricing or underpricing and overpricing regardless whether you talk about stock market, oil prices, commodity prices in general, price of monetary metals etc. They're bigger long-term fundamental factors primarily the ongoing degradation in the money units that which we buy oil with dollars, euro, yen, whatever. It's our unit of measure, how we measure the value of something. And if you look at oil, we turned bullish on oil based on our own unique long-term momentum technicals back in January. And oil, frankly, then was already just turning up from lows in the 55 area. I'm talking West Texas. And got up to 65 at the January close. And we said that's it. Bull market commencing. We didn't provide reasons. We certainly didn't anticipate the war which occurred you know a month later. Uh, but our technical said this guy is turning up after a very long protracted pullback. Remember back in 2022 oil was 130. So it not only had been cut in half, it had been cut to like a third to $55. So the question then is, well, isn't this asset maybe just underpriced relative to everything relative to commodities, relative to its own history, relative to the stock market? Oil was cheap as hell at that point. So in January, we put out a buy signal. We expected the uptrend to last probably for several years, but unfortunately we had the headline chasers, the guys who came in based on Iran, like that's the only thing that mattered. And yes, it sure certainly mattered because it constrained, you know, oil shipments, but they overdid it as they usually do on war news. It's like that's the only thing that matters is the war. Okay, how about that? Oil is just cheap as hell. Off the page, cheap historically speaking, by its own metrics measured versus any other asset. And the thing we measure it by pieces of paper are are changing in value. But oil in 2022 was 130 and now it's 65 in January. So we stood by it. It broke out and we unfortunately they came in where March 3rd was the first I think trading day after the war began at the end of February. Oil goosted got up to $117 a couple times in that surge in the next month or so. What it meant was that yeah, we were right it was going up but we didn't expect this reason. There's bigger broader reasons. you had an orgy of newschasing traders and we argued at that time though we're bullish on oil and we think yes you could go to 250 300 even higher in the next several years for longer term reasons but we knew that when these kind of guys come in they get dumped on it's very rare when war chasers make money sustained so sure enough they collapsed oil back down and we got down to a low I think of 67 the other day or 68. Right now it's in the low 70s. Uh, it came back to our buy point and I think now it's refreshed enough to where it can go up on its own reasons regardless of the Iran war. So I bet when that war finally goes out of the picture, however, however that happens, that oil is still going to go up. Uh, and that's so I think the Iran war is a transitory conf transitory and confusing event.
But why? Okay. So, why did it drop so much? Simple question. If if you've got the world's biggest energy choke point closed up and not enough ships coming out, isn't it basic supply and demand? The price should be higher. I understand if you want to say $120 is too high, people projecting $150 to $200 is too high. what say 60s back to 60s when the strategic petroleum reserves are still being drawn down. Yes. >> And ships are barely coming out. I think the reason for that was simply the technical bubble created by uh headline chasers who one created excess on the upside by taking the market from 65 in January and when you open March I think we were trading in the 70s and boom burn it to 115 117 and just like they drove it too far too fast on the upside when they puked it back up it went down too low probably as well went almost all the way back to our original buy point. So it was it's a technical excess. It's not saying that no oil should be valued at 70. It's you puked out a lot of people who bought oil at 100 110 and they just got stopped out. Therefore, a lot of selling hit. Had nothing to do with whether the wars actually ending or not. Had to do with excess buyers got rejected, paid.
But I still don't for buyers to be rejected to that level to the 60s. Doesn't that sound a bit bizarre? Yes. On the issue because there is a genuine supply constraint, a major supply constraint, the biggest constraint in many many decades. >> Yes. Yes, it it you would think it would and I think it will, but I think that was a speculative bubble in effect, a little mini bubble where they drove it too far, too fast on headline news that could be transitory. You know, maybe we win the war or maybe somehow the Iranian government, you know, isn't in control anymore. Uh, these are all speculative events. We don't know the answer. And yes, it is a choking situation, but it's likely to be transitory and I think maybe the market knows that. But there are far bigger reasons why oil should go up that are not specifically tied to a headline.
What are those reasons?
The reasons are that asset prices move. Generally speaking, we live in a world where the thing you use to measure asset prices is fiat money, unbacked paper money that degrades in value constantly. And therefore, if an asset sold, if if oil was 120 back in March of 2022, uh, yeah, 130 and it collapsed too far, it still the the measure the money unit we measure by has degraded in value even since 2022 due to the the best way to answer that is get an M2 chart, a money supply chart, and you'll see an upward parabolic curve. Well, this is true with the euro, the yen, etc. where the money is degrading and therefore the price that is attached to this or that asset is affected by the degra deg degradation in the money unit. We don't live in a stable world because our money unit our unit of measure is totally unreliable, unpredictable and we're not factoring that into the pricing of oil. So if oil was 140 a decade ago and it's now 70 or something, that's half its price. But if you factor in the money supply issue, it's probably cheaper than that even. Uh
Wouldn't that But wouldn't that apply? Yeah, I do. Of course. Wouldn't that apply to all other commodities, though?
Yes, it would. Yes, it would. It would apply to stock prices. It would apply to commodity prices. And over time we'll see if you look back 50 or 100 years at stock market movements and commodity asset movements. They don't always move in sync. Quite often investors will finally decide that after enough years of stock market buying and overpricing of the stock market.com bubble for example or the real estate bubble uh that they'll move the money somewhere else and the money flow continues because the governments keep printing money for this cause or that cause mainly to sustain their their budgets. Money supply charts from Japan, US, Europe, etc. hasn't been going into commodities. They've been vastly underpriced relative to their own history, relative to other key assets like the stock market. And once you get an asset or an asset category in this case that is so vastly underpriced by any way you want to measure it, is it going to go free? No. It's going to finally reassert itself. That is a subjective decision often made by investors, asset managers who say, "Okay, this one, this category has been great, but I'm getting out. I'm going to go somewhere else." Well, where did they used to go? Government bonds. Remember the 6040 rule? Well, several months ago, we've seen some CIOS of various major firms on Wall Street say, "Uh-uh, 6040 is out the window." It's now 60 2020 gold. which is finally an acceptance that monetary metals have value and that maybe our notion that government bonds are safe is eroding or going out the window. The Japanese were one situation now suddenly if the US becomes the next situation. Wow. What does that do to that asset category in terms of generating fear pricing changes in other asset categories? A lot. And I think that's where we are. I think that's probably one of the prime drivers of commodities.
Someone told me today um that Germany struggled on their bond sale. I think it was half only subscribed, half of it was subscribed >> this week. Not sure if you know what he's referring to. He mentioned it to me earlier today.
They were doing a bond sale and only uh the demand just wasn't there.
Yeah. Well, that's that's interesting. It's just another piece of the of the overall puzzle that's coming apart here. And you can't have that occur because if the investment public, if pension funds, if governments won't buy our bonds, then that creates a crisis that's far bigger than anything you can imagine in the stock market because it's bigger than the stock market. And if these guys are right, the CIO of I think it was Morgan Stanley, I think, was the first one who said no, the 6040 is 60 2020. Now, he was aware of something going on there. And our technical work argues that we're at a point now in history, market history, where this next phase, this new asset class shift will disfavor the bloated paper assets that have been boosted by monetary expansion over the recent decades. And we had free interest rates 10 years out of the last 15 almost in the US. We're talking the short-term rates. Uh, so it created a flow of money into an asset category that's now we argue technically well overdone and when that shifts that money is going somewhere and we already see the evidence that it's moving into the commodity categories. We measure it technically and the Bloomberg by our metrics turned up long-term bullish again in October of last year well before the oil surge and price then of Bloomberg was 10650. It's now 1225. So it's, you know, it's >> 126. >> Yeah. It's it's a it's a good appreciation without headlines because oil really didn't contribute to this. It was the broad commodity complex.
Um, by the way, I checked I tried to find the German bond sale news. I couldn't find anything on it. So maybe my guess was mistaken there. Um, so essentially what you're saying is that the trust in government bonds is eroding because trust in the as you called it at the beginning of the conversation the ongoing because the ongoing degradation of the money units used to price commodities the the US dollar and other currencies as well and there is no alternative safer alternative to the US dollar. So where that money is going instead is commodities and that's why you're bullish on the commodity index call which includes oil >> and likely the dollar will demise as well. We turned bearish on the dollar in 2025 at a price of 10450. Right now it's trading around 101 uh primarily because weakness in the yen which is one of the major factors in the dollar index. The euro and the yen constitute 70% of the dollar index. The euro has been strong over the last couple years but the yen has been conspicuously weak because of the bond crisis. But uh that could change as well. And I think the dollar is in a state of technical demise that likely is to go a lot lower. And the dollar index, remember that's merely measuring one piece of fiat versus another. It's not measuring true value. It's it's relative of one fiat to another. All losing value constantly. But I think that's another factor that could come into play and be noticed by investors and asset managers. uh that will further probably hurt the T- bonds as well. Well, the T- bonds are hurting the dollar. Either way, uh a major change is occurring underneath the surface here and it's not going to be ultimately looked back upon as oh that's because of Iran or oh that's because of this. It's going to be because of these very broad glacial events that are underway and expressing themselves in different ways where money is going to move out of what used to be fully respected the US dollar for example or the stock market and we are a bubble by the way. China for example has uh since 2009 bare low uh doubled in a half in price the Shanghai we've gone up 20some fold on the NASDAQ so while they've moved up with us and most global stock markets will move with us uh they're not a bubble we are and when that bubble breaks and now we're also facing our government bond crisis we've got a a nuclear event here and I think It's only at this at the initial phases of acknowledgement. Uh, the Fed obviously acknowledges it because they've been buying T-bonds. Uh, supposedly according to Williams, the head of the New York Fed back in November who said we're going to start buying bonds was to provide just liquidity to the market, right? Uh, they're trying to support it and it hasn't worked. And we think the are technicals that what's about to happen in the bond market could become sudden headline. And when it becomes sudden headline, it'll impact financial institutions even more so than it already has. Debt markets, not just US government, but private and corporate debt. We know that's at dangerous levels. Uh, and therefore a lot of investor perception about where should I be? And I think one of those categories that will be acknowledged, especially once the Iran thing sort of gets out of the way, is why are commodities still going up and there'll be a recognition that maybe well they're just historically cheap? Uh, you know, it's it's a good safe investment bet and that they're not going to clobber it anymore. It's it's done going down. The issue is now what speed does it go up? And we think for over several years you could have a major investment grade asset class rise including in stocks that are related to the commodities such as grain related stocks or base metal related stocks uh oil related that could all appreciate due to the general rise in commodity asset prices not because of just the Iran thing and the Iran thing could just exasperate it a a long-term trend that's that's going to happen before fundamental reasons you've explained, but the Iran war could accelerate it or make it harsh.
Yeah. Or it could dissipate or, you know, I I don't see how it could get worse. I mean, you know, if you've cut off the oil, uh the question is, can that really last? And, you know, I don't want to get too involved in that that subject matter because we don't like to when we consider it frankly transitory and not the real factor underlying the commodity asset class rise or oil rise even. Um, but I I cannot see it continuing forever. Uh, we already know Iran is in economic troubles domestically and therefore that that puts pressure on the government. But you know I don't know how it's going to end up and I don't want to get involved in that. I have some ideas but it's what are my ideas good as the next guys? I don't think it's a permanent event. And I think once it passes and people then realize, well, how come oil's going up again? How come it's reasserting itself? That's when you'll get finally an acknowledgement by investors that there's some bigger reason here why oil's going up. It's dirt cheap.
Looking at the the Treasury yields, um what do you expect it to get up to? Because I've I've had a lot of my guests warn the 5% mark is >> pretty close.
Not sure on that. We don't have a target on T-bond, especially T-bond, longdated bonds, 20, 30-year bonds. Uh, we simply say we're at a technical point now in T-bonds. Forget the short end of the market that the Fed can control. They can up down rates there and it won't necessarily impact at all the 30-year bonds. You can look at a chart and make that point. The 30-year bonds at price, they had a price collapse starting from 2020 when I I'll give you some prices here. T-bond futures were at 190. Yields were low. T-bonds collapsed between late 2020 to late 2022 down to 117. Think of 190 to 117. Yields went up. But since October, it was in 2022, you can draw a line sideways on a T-bond price chart and it's comeosse dead. We've had multiple rallies in bonds, meaning attempts to drop yields and and then renewed drops in price, but there's been a floor on the price chart of the bonds that we're now back sitting on, meaning yields are pressing at the multi-year highs. So, whatever the Fed has tried to do to help abate that, nothing has helped. And we're at a technical point now where it's even evident on the price of the bonds that oops they plunge through those lows. Where are we going? You could have a crisis type news event if the bonds break that low. And we think they are because momentum is already saying they're going to bust that low, meaning new high in yields, new lows in price. That's when you'll start to hear headlines from financial TV channels that don't discuss this very much that suddenly this is a big issue and the Fed will have to come in and when it when it's noticed that the Fed comes in with fire hoses which they have to do they can't let the house burn even if it's not a mandate you know it's not an unemployment issue it's not an inflation issue it's saved the government debt market issue if they come in with big fire hoses like the Japanese the BOJ has There's going to be an increased acknowledgement probably very fast panic type acknowledgement. Uhoh, something's underway here and it impacts every other asset out there including the stock market because we have a lot of credit problems we know in the financial sector. Uh, and when that hits, suddenly all the discussion of what is AI doing, what is the semiconductors doing will take second place to what's going on in the tap market. Are we like the BOJ again? Oh gosh, we've joined that club. So the whole world could be upended and because of a sudden perception that my god, the monetary excess is going to begin real big this time because they have to print the money to save the bonds. Well, that's if if I were to fundamentally summarize what I think is a driving force right now, I think that is the driving force.
Okay. Um, is there a level where or do you worry this could get to a level where it's no longer just kind of a a commodity super cycle, but becomes something a lot more concerning, a lot more uh what was the term used during the '08 financial crisis? Uh, system systemic.
Yes. Yes. >> systemic risk for the >> for the world economy.
Yeah. Yeah. Uh, we are a world economy after all and that's we pointed this out in a report on the Shanghai recently comparing it to the S&P. While the S&P has gone up a dozen 15fold, NASDAQ's gone up 20 22fold. They've only doubled in a half. But their moves in the Shanghai are pretty much coincident with our moves. The up and down moves, the pivotal highs, the pivotal lows. So it is a world market. China's part of it obviously and so if we go down the world market will go down. Japan wasn't enough apparently but you know we join in with Japan suddenly it's a global financial crisis government financial crisis and no doubt that will cause a lot of trembling in the stock market bubbles out there especially ours. Japan is also a technical bubble, the nicay uh Europe is not so much a bubble in terms of the multiple gains it's seen since 2009, but it it it'll break too. But all these things are tied together and I think yes, you'll have systemic wave effects that will suddenly people well this is connected to that and why did this bank go you know you can't have a bad headline about a big bank right now. We very closely are watching the banking sector and a lot of people are happy because the banks have firmed up recently. But if you look where the banking sector is right now versus where it was in 2022, remember S&P back then made a high at about 40 I think it was 4,800. Well, look, we're now 7500. The banking sector is about 10 to 15% higher than it was in 2022. Remember, it's only marginally higher than it was four years ago. So, it's very anemic when you compare it to the stock market. And we see a lot of also negatives starting to show up technically in the financial sector broadly. Last October, for example, we put out a report saying, "Watch out, the credit card companies look technically vulnerable." And if you look at Visa or Mastercard since o last October, no, there's no crashing effect, but they've just been steadily going down, down, down as if they're not even part of the stock market. And we also see some extreme vulnerability potentials in some of the major banks, not the regionals. Regionals were headlines a couple years ago, but everybody had okay, just regional. Talking about the big name banks, they don't have much tolerance on the downside at price. If they do, they're going to trigger some long-term momentum breakage that could spark pretty significant price decline. So, we notice these things going on and we think that the driving force ultimately is that potential debt crisis, which we're already in, but it's just not acknowledged yet. And so, yes, major wave effects.
Last thing I want to ask you about, Michael, is the Chinese economy. um depends who I speak to. They have a different story. What's your um what's your thoughts on how they're doing? I know it's a bit of >>
I don't have an opinion on their economy. I don't have any opinion on that. As far as their stock market goes, the stock market is right now dancing at levels that you probably don't want to close the month out, any month during this quarter where you're trading right now, because it will break some of our long-term momentum metrics. And whenever that occurs in Shanghai or it occurs in the US, the similar thing will happen in Shanghai and vice versa. So we think that the US stock market is also in a topping process. And there are key levels below, not visible so much on price, but on our momentum metrics long-term that if you sneeze a bit and ooze back down, not in a in a crash type way, just, you know, ratchet your way back down below certain levels that aren't far below our recent lows, which were what, 7,300 on the S&P, for example. uh you don't want to go there because you're going to start to break some long-term momentum technicals that argue uh oh you've topped and we're flexible on that by the way we're not we've been thinking the stock market would peak over the last couple years and it when we had that war sell off remember S&P also sold off during the war while oil went up we we decrieded that anybody selling the stock market here is going to get hurt because you're not going to have a bare market with a bare headline like anybody shorting the US stock market, you're going to new highs, guys. And sure enough, they turned on that March low and exploded to a new high. Even though I still think we're topping out now, I think it's more likely that the best time for the stock market to roll over is when the war abates and everybody says, "Oh, great. It's party time. We don't have any problems anymore." That's the way markets move. And so our suspicion is probably when the stock market does roll over and break certain technicals that we think are critical, you'll have a blue sky above and then you'll get hit with the T-bond action and then suddenly it'll get dark again.
Anyway, >> I can't >> Michael um really really enjoyed this. I really enjoyed the the bigger picture of how you analyze things kind of moving away from the noise, the daily noise where straight home was is closed, straight home is open, the war's back, the war stopped, where all this in a way, as you said, is transitory or it doesn't really matter in the bigger picture long term. Um, you've done a great job explaining it. I really enjoyed it.
Thank you.
Thank you, Michael. Um, all right, guys. We'll be live again in uh 21 minutes with Alex Jones to continue the conversation. We're going to talk about the reports that came out yesterday from Axious about an an Iranian assassination plot against Trump again. So, we'll go through that and uh get Alex's latest thoughts on the um on the um end of the ceasefire as Trump said. I'll see you guys in 20 minutes. Bye.