Transcription
Now with Venezuela, you know, the messaging from the US administration with Venezuela is you get access to commodities if we say you do.
Now when you look back to Russia, when that happened, most central banks turned around and said, you know what, maybe I should have less treasuries, more more gold. Uh, and you saw last year roughly a quarter of global gold purchases, global new gold output was purchased by central banks.
Um, now you've gotten to the point where, you know, gold, silver, uh, uh, platinum, they've all gone parabolic. So now the price of gold, because it is the cheapest commodity to store by far, the price of gold relative to other commodities is now quite expensive. You know, historically, uh, an ounce of gold is 2 to 300 bushels of wheat. Today, it's 900 bushels of wheat. Historically, one barrel of oil is 3 to 4 ounces of silver. Today 1 ounce of silver is 75 bucks and a barrel of world's 55 bucks.
So I think if you're a China now and again in India, Turkey, anybody who wants to have a foreign policy independent of that of the United States and that could perhaps clash with the United States, i.e. not Europe since we're I say we because I'm French, we're behaving like a bunch of lackeyis. But aside from from Europe, everybody else would look at this and say, you know what, do I buy gold and silver? They're expensive but cheap to store. Or do I buy the commodities like oil and wheat that I do need that are expensive to store but that are today quite cheap.
Uh so you know, look, we we live in a reflationary world. Commodities are going up. US dollar is going down. Everybody's following very loose fiscal and monetary policies. And the geopolitical situation to me means that a lot of countries are going to bump up their commodity inventories.
So, you know, we were talking about this offline a couple seconds ago before he went live. Uh, right. Uh, and this is to do with uh uh Venezuela and oil and the state of the petro dollar. But I think one of the things that got concerned was there were I I think Chinese names in Venezuela where Venezuela actually decided to uh to uh to transact in runment B if I'm not mistaken. Right.
So, uh, this gets to the whole Chinese currency question. Since probably late last year, we've been noticing, I think both of us, right, daily fixes always firmer, firmer, firmer, firmer, firmer. What is going on here? Obviously, I mean, at some stage, uh, uh, a weak competitive currency is not as helpful, but now it's going the other way. What's going on, do you think?
So, you're absolutely right. For me, one of the most important market development of the past few weeks is the rise in the remn. you know, because the headlines on Iran and Venezuela have been so captivating, people haven't paid that much attention to it. But to your point, the ren's gone up 27 out of the past 31 days, which is highly, highly unusual. The PBOC usually likes to make a two-way market sort of go up 3 days, down two days, etc. So, what is going on? I think the PBC is signaling to its own exporters, its own importers, guys, the removing up uh and you know, adjust your hedges accordingly. So, that's the signal.
Now to your to your point why why would they do that today? Um I think it corresponds to a number of things. First the Chinese trade surplus is enormous. Um you know when the trade war started in 2018 it was 20 billion a month. Now it's 100 billion plus a month. So just to show you how the trade war has been a failure really. Uh that's 1.3 trillion a year. That's the GDP of Saudi Arabia. Like no country has run trade surpluses that are this big ever. This is like mind-blowing. So I think to begin with when you're taking in 100 billion a month from um uh from the rest of the world if you want the remn to stay at 7:1 you got to print 700 billion renmanb every month and at some point you're going to lose control of monetary policy so that could be one thing but I think more importantly the real reason is when you listen to the rhetoric of the Chinese government for really seven or eight years everything was we need to move up the industrial value chain we need to de-westernize our supply chain the US is trying is coming for us. That was the shift. That was the the policy for 78 years. When you want to dewesternize your supply chain, having a weak currency helps.
Today, China feels perhaps wrongly, but I think they're actually right. It's okay. We won the trade war. The US can't uh can't come after us anymore. That was very clear when Trump started to talk about a G2 world. Uh, and the fact that China no longer feels threatened by the United States now means that China can turn around and say, you know what, it's no longer about pushing industry, it's now about pushing consumption. And you see that change of rhetoric in the government, they keep talking about pushing consumption. One of the tools you have to push consumption is a currency revaluation. A cheap currency favors the producer. A weak cheap a stronger currency favors the consumer. So they're doing that shift and it's a super important shift for the world because a stronger renmanb and a shift towards more consumption in China is very very reflationary for the world. So I I'm not surprised that in the past few months all the reflationary trades have worked. Financials are outperforming, miners are outperforming, yield curves are steepening. uh you look at it, you know, it's it all corresponds to China shifting from being this huge deflationary black hole for the world as it was trying to move up the industrial value chain to now all of a sudden being reflationary for everybody. But