Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted through X Spaces by Michael A. Gayed, CFA, Publisher of The Lead-Lag Report (@leadlagreport), each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
In this exciting series, you'll have the rare opportunity to join Michael A. Gayed as he connects with prominent thought leaders for captivating discussions in real-time. The Lead-Lag Live podcast aims to provide valuable insights, analysis, and actionable advice for investors and financial professionals alike.
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Lead-Lag Live
Nomi Prins on Central Bank Dynamics, Gold Reserves Strategy, and the AI Impact on Commodities Market
Ever wondered how the intricate dance between central banks shapes the global economy? Join me in a fascinating conversation with Nomi Prins, a former Wall Street senior manager and acclaimed author, as we unravel the complex dynamics at play. Together, we explore whether the actions of these financial powerhouses teeter on the edge of coordination or collusion, and what their increasing gold reserves mean for the global monetary landscape. Gain fresh insights into the strategic maneuvers of the People's Bank of China, the Bank of Japan, and others as they respond to financial emergencies and navigate geopolitical pressures.
As major economic players like China and Japan find themselves balancing currency stability and growth amidst rising debt, we dissect these global policy dynamics. Learn about China's unique approach to maintaining its financial influence, its ties with Russia, and how these relationships impact the global stage. From Japan's interest rate decisions amidst a daunting debt-to-GDP ratio to the broader implications of BRICS nations challenging the US dollar, our discussion covers the delicate balance of power that defines our financial world.
Finally, we venture into the broader implications of rising global debt and the transformative power of AI on the commodities market. Discover how energy demands drive shifts in nuclear energy and commodity mining, and what the future holds for commodities like gold and uranium. With market volatility and the tech sector's 'concentration bubble' in focus, we emphasize the importance of a patient investment perspective. Join us for an enlightening exploration of the cyclical nature of debt, market fluctuations, and a look ahead to future discussions with Nomi Prins, as we promise to keep you informed and engaged in these turbulent economic times.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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Is it fair when it comes to central banks colluding in quotes? I mean, is it colluding or just coordinating to prevent tail events from one central bank impacting others?
Speaker 2:You can call them coordinated movements, but you can also call them collusive movements in terms of trying to preempt financial flow activity. Not so much what are we doing to adjust for inflation? Or what are we doing with rates?
Speaker 1:How does China fit into global monetary policy?
Speaker 2:Well, as you kind of alluded, the People's Bank of China tends to do their own thing.
Speaker 1:People have been talking about debt for the longest time and it hasn't mattered. I mean until it matters, and then they add more debt and then again it doesn't matter.
Speaker 2:The reality is that central banks, particularly in the larger countries, are created and have taken up the role of allowing this debt to continue to be monetized.
Speaker 1:A little bit back and forth here, talking about macro, talking about where markets are likely headed For somebody I've seen doing a number of podcasts over the last year and a half or so and I'm excited to have her as a guest here. My name is Michael Guyatt, publisher of the Lead Lagerport. Joining me here is Nomi Prins. Nomi, again, I've been tracking some of your work over the last year and a half or so, as I mentioned, and I think you give some really interesting perspectives. But for those who are not familiar with your background, who are you? What have you done throughout your career? What are you doing currently?
Speaker 2:Sure, thanks so much. Thanks for having me on, michael. I've, in a snapshot former Wall Street senior manager, managing director Goldman Sachs, left all that behind to become a journalist author. I've written seven books. The most recent one is Permanent Distortion, which delves into the disconnect between what we see and feel in the finances going to the real economy versus what we see going into the markets, and I've also authored Collusion, which is about the central bank interdependence and activity throughout the world that led up to financial crisis after it and continues to go on to this day. And right now I'm just continuing to write, to speak with governments around the world on real economic policy, for infrastructure to energy transformation, and I travel a lot to do that and I'm excited to talk about everything that we have on our plates today.
Speaker 1:The word collusion is an interesting one, because of course it sounds nefarious. Is it fair when it comes to central banks colluding?
Speaker 2:in quotes. I mean, is it colluding or just coordinating to prevent tail events from one central bank impacting others few years out of the financial crisis? And sort of looking back and I looked at it as sort of unfolding movie You're now and then you go back to the source and you see what happened along the way and digging into it, speaking with central banks around the world with whom I had contacts for decades, from the Fed to the People's Bank of China, to the Bank of Japan and ECB and so forth. The pieces that came together you can call them coordinated movements, but you can also call them collusive movements in terms of trying to preempt financial flow activity, not so much what are we doing to adjust for inflation or what are we doing with rates, to adjust for a potentially hot job market or what have you, but literally how finances were acting and flowing amongst the private banking institutions to the governments, to the central banks of the world. So it's a word that really definitionally captures that, particularly when there are emergencies or there are preemptive moves to emergencies and what we see in behavior patterns of central banks and certainly that was the case in the wake of the financial crisis where immediately banks, basically, central banks set rates to zero. Quantitative easing really expanded in the several years that followed that.
Speaker 2:In the United States we saw rates eventually sneak back up to the 2% level before COVID and then immediately back down to the 0% level. Now we're back creeping up to you know. We're going down from four and a half 5% to potentially a lower level, but not yet. But all of these moves happen in patterns where the largest central banks actually do communicate with each other. They do talk to each other and they do wait to see generally what the Fed is going to do but also balance what they need to do for their own currencies and inflationary situations as well. But a lot of this is done in phone calls, behind the scenes, looking at reports, coordinating with the BIS, the Bank of International Settlements. But again, when there are crises unfolding or happening, there is a collusive mentality across the central banking community. That does actually unfold when you look back at the data, the conversations, as I did and as I put forth in that book Collusion.
Speaker 1:Are they also colluding to buy up gold? Because I see all these stories around central banks are buying up gold. I mean, are they actually talking to each other and saying let's increase our tonnage on that?
Speaker 2:It's a really interesting question because what we've seen from 2018, for example let's just take China as an example, because that is discussed a lot in terms of the price of gold and how much is the People's Bank of China buying and what we've seen since around that time 2018, the first round of tariffs with China and then, as it's grown since then, there's a reduction by half of the amount of US treasuries they held and an introduction by moving up to a 5% of reserves of gold, of physical gold. They're, of course, not the only central bank, but that's the one that we tend to look at, but it's not just them, it's Russia, it's Poland, it's a lot of emerging market countries. It's nations that, effectively, are re-establishing what their reserves look like and incorporating more gold, rather than more dollars, into that mix. And in the wake of all of that, the Bank of International Settlements you've got the Central Bank of Central Banks has also indicated that gold can be used as a primary reserve asset. Now, it's not included.
Speaker 2:When we take a look at the percentage, for example, that the dollar makes up of reserve currencies in central banks throughout the world Because gold doesn't count it looks like the dollar is actually stronger than it is still the number one reserve currency and so forth, but it looks like it maintains a higher percentage than it would if it were adjusted for gold.
Speaker 2:It would be significantly less and gold is continuing to be bought and these conversations are being had between central banks. Um, during the g20 that that brazil was um discussing what, what their uh gold footprint could look like in the future. At the same time, um there was there was a number of chinese down there for um for around all of the events as well. But, looking at focusing on how they're going to increase their gold, what they're going to do to back um a potential digital currency that is global on a digital platform, platform that has the technology and infrastructure to accommodate a global central bank currency or digital currency against which gold can be a physical asset that protects that reserve, relative to just a fiat asset, which all of these currencies currently are or have been since 1971.
Speaker 1:Do you get a sense that the Bank of Japan is trying to figure out what to do and asking all these other central banks about what to do? I mean, they were the model for QE. They were the first ones to do it, yeah, and now they've got a real issue. I've highlighted the reverse character rate ad nauseum. I was running for two days. I still think it's out there, right, but as we're chatting, it looks like they're going to hike rates again. We know how much debt Japan has, or else the GDP Is there. If you were flying the wall, what do you think those conversations look like between the BOJ and everybody else?
Speaker 2:Well, first of all, them hiking rates is still having rates effectively be zero. So for them to hike rates is a bit of posturing in a way, because what's happening is, obviously, the Fed has begun to reduce rates by 100 basis points last year as indicating 50 basis points this year I think it will be more, because economies and economic growth are actually slowing and there is more uncertainty in terms of what trade will look like, how much it will cost, which tariffs will come from the US, which will be reciprocated by China, and so forth. But Japan is in this really interesting position of being a major partner, an emerging trading partner of both the US and China and, of course, from a proximity standpoint, being physically closer to China, except they've had a history of financial and other hostilities over the years. But behind the scenes, there's very much knowledge of what's happening with other central banks on both sides of that triangle, with Japan in between.
Speaker 2:So I think what they're trying to do right now is say look, we recognize that inflation was a thing, even though we invented or basically fostered the beginnings of QE, which of course, went turbo in the wake of the financial crisis and, of course, covid, and we want to try to look as if and get some political or geopolitical capital back, as if we are actually trying to do something about that. That said, significant debt to GDP ratio, significant quantitative easing that runs that country or that basically has monetized a substantive amount of the debt that the Bank of Japan holds more of the percentage of debt that is outstanding for Japan than any other central bank in the world and that's not going to be dialed away. What they're trying to do is just indicate that they not going to be dialed away. That's what they're trying to do is just indicate that they're going to be on top of it a little bit more in this, whatever iteration we're in right now in terms of economic growth and the relationships amongst these superpowers.
Speaker 1:Speaking of superpowers, I wonder how China fits into those discussions, especially given the way that their yields have behaved, which are totally opposite of everything else that we're seeing, despite supposedly having some 5% GDP growth, which is almost typical of how does China fit into global monetary policy?
Speaker 2:Well, as you kind of alluded, the People's Bank of China tends to do their own thing, in a way, in the wake of the financial crisis of 2008,. Of course and I talk about this collusion of permanent distortion they do also have to kind of be somewhat lockstep with what is going on with dollar, what is going on with this liquidity, this reserve liquidity that it provides, and so forth. On the other hand, it's changing its composition. I think it will continue to do that because, at the end of the day, the People's Bank of China is way less of an independent central bank than even the Fed is, and we could have a separate discussion as to how independent it actually is and how its moves actually do connect to government debt and other types of economic policies in the US, but in China, it's very clear that the People's Bank of China is very connected to the government. It's very connected to development in the country. It's very protective of its currency. On the other hand, it wants to be a bigger player on the global stage and over the last 10 years, and particularly actually since 2018, when it started rebalancing its portfolio and then also, in the wake of Russia, invading Ukraine and having more established relationships with Russia and other sort of energy supplying countries to China. It's really had to keep up with that as well. So it maintains a different kind of a role in terms of economic policy and government policy than the Fed does or than the ECB does, and so, for that reason, when we look at you know you mentioned, is it really 5% growth? You know what actually is it. What are the numbers?
Speaker 2:Whatever the numbers are and whoever they're massaged, the impetus is that the funding for a substantive amount of that growth actually does come directly from the government, as opposed to, for example, what we do, which is we issue debt. It goes wherever and it's not clear how that goes into the economy. In China. There's a much tighter channel between what is created where currencies are, where it goes into the economy, and then, of course, from a trade perspective. It's a large trading partner, certainly regionally, with the United States, throughout the world, and so it has to, on the other side, balance the value of its currency to enable itself to get enough revenue coming in that it can basically balance that against its internal domestic policy. So there's this always inside-outside perspective. I spent a lot of time in China over the years and also speaking with people who would sort of generally off-the-record talk from some of those areas, and the general sense is that they're domestic first and they're international second and yet they are growing and wanting to continue to have that international superpower status.
Speaker 1:The word growing. When I hear the word growing, I can only think of growing debt. I think we need to hit on, obviously, that big elephant which everyone's aware of. Sure, there's growth, but debt is what's fueling that, and the amount of growth we're getting for every single new currency printed is less right. The margin of propensity is not as it once was, and people have been talking about debt for the longest time and it hasn't mattered. I mean until it matters. And then they add more debt and then again it doesn't matter.
Speaker 2:Is there. They add more debt and then again it doesn't matter. Um, is there a point where this, uh, the sixth cycle carousel ends? The people have been calling for for a long time, yeah, and, and this question is, it has come up, I think, since, since I left wall street back in the early 2000s, I think what's happened is, um, obviously we look at the us debt 36 trillion dollars. It's since we lifted the debt cap, um, not long ago, basically two years ago. Debt was then at $31 trillion and change, now it's at $36.
Speaker 2:We're growing at a faster and faster rate and we're not bringing in revenues, for various reasons, to accommodate the growth in our debt, not the growth in our economy, the growth in our debt. So that's why, if we look at debt-to-GDP ratios, we're sort of up near depression levels, pre-world War II levels 123%, 24% of debt to GDP in the United States, and then, if you sort of zoom out to the entire world, it's almost, if I use dollars, two and a half dollars of debt relates to about a dollar of actual economic growth, of actual economic growth. And so when I look at economic growth and we do measure in terms of GDP, because it's just a sort of easy measure, with whatever goes into it per country, to sort of look at these things on a general basis. But I consider growth, as you know. Where are we building lasting infrastructure? Where are we building lasting power lines? Where are we building lasting security for people who work in order to be able to pay for the things they need without being slammed by inflation, which I do not believe is controllable by central banks, despite the narrative that's happened over the last couple of years? So you take all that into account.
Speaker 2:Central banks have bought debt from their governments. They're basically subsidizing part of the debt. In our situation, the United States, the Fed, is still holding just under $7 trillion worth of debt in different ways the bulk of the US Treasury, some of it mortgages that relate to US Treasuries, but that's 25% of our GDP. That's basically being held in $28 trillion, let's say, being held effectively by the Fed. Now they're not holding our economy on their balance sheet. They're holding debt that should have been issued in order to help these economic components and that should be allegedly what governments do for their nations throughout the world and then sort of coordinate together and so forth. But what happens is when there's so much debt before, for example, the US turns the lights on to even do anything in the economy or for citizens. It's paying about a trillion dollars worth of interest on that debt and that trillion dollars-ish has grown. That has grown. That is real. Those are numbers Since COVID, basically, and more so since the Federal Reserve went from a zero interest rate policy and quantitative easing and buying debt during COVID to pivoting to a tightening policy and getting up to the five-ish percent rate and lower where it is right now, but still holding a lot of that debt on its books.
Speaker 2:But in that process debt has grown. Debt has increased in number, rates had increased in number and so therefore the cost of servicing that debt has increased and there remains no real policy to counterbalance that, to really get the revenues that are produced from a healthy economy that can actually pay down any of the debt. So to answer your question about, you know, can we keep going or is this going to reach some sort of a finite point? We're going to all go off a cliff.
Speaker 2:The reality is that central banks, particularly in the larger countries, are created and have taken up the role of allowing this debt to continue to be monetized, and even when rates rise, and even when it's more expensive, they might, for a moment or for a few years, ignore that fact. But the reality is, if we have another financial crisis because of it, we're looking at a lot of bankruptcies coming into the retail sector. We're looking at a lot of bankruptcies coming into commercial loans and other areas. Banks indicate they're capitalized, but when you look beneath the surface, it only takes one or two large ones going down or exposed to smaller ones that are to create a more financial contagion, and then central banks come back to the rescue help. The banks monetize the government debt.
Speaker 2:This can go on for a long time. This can actually go on forever, because in the periods of safety or of some sense of equilibrium between rising debts, slowing economies and potential financial problems, underneath the surface they can continue to do what they do in the event of an emergency, and so in those emergencies, we can see things falling off the cliff, we can see markets contract, we can see all of the things that we saw in the wake of the financial crisis and even in the wake of COVID. But we also know that these other mechanisms are in place and don't have limitations on their powers. They're not elected. The Fed doesn't have to say well, we're only going to buy X amount of debt. There's effectively no limitation in the event of those emergencies. So you could have them. You could have these crises, you could have another bank crisis, and then you just kind of reset and go from there.
Speaker 1:One thing I haven't heard, from an intellectual thought experiment perspective, is how AI impacts debt. Does it cause debt to actually increase or decrease? The argument is sure. Ai is efficiency enhancing and if somehow you actually had the right artificial intelligence in government, as opposed to the actual artificial intelligence that runs government now, that you'd have better outcomes on the debt to GDP side. The other side of that, of course, is that if AI is going to replace a whole bunch of labor, there goes a whole bunch of taxes. Where do you stand on that?
Speaker 2:That's a really interesting point, because AI is also very central to where financial systems are going, where central bank digital currencies are going, where digital payment systems are going, and so the amount of information that AI can capture on individuals or companies is actually increasing as well, and what that means, for example, is you can tax at source individuals or companies because the AI mechanism, the blockchain mechanism, will be there to do that. So there is the possibility that, even if the labor market is contracting because people are being replaced by AI and I believe there will always be jobs that will pop up that are different we continue to evolve as humans, as intellectuals, as people who want to actually produce, so jobs will change and there will be these patterns. But from a tax perspective the revenue perspective going in, there's a lot of mechanisms that are being tested and adopted by central banks down to private banks, governments and individual businesses that ultimately can connect and potentially tax at source. That can. It's a scary thought, but it can actually maintain some sort of a revenue coming that ultimately can connect and potentially tax at source. That can. It's a scary thought, but it can actually maintain some sort of a revenue coming in, but again, we're already seeing how revenue doesn't doesn't, you know, keep up with debt in any of the governments throughout the world, and certainly we're in a precarious position here in the United States from that perspective.
Speaker 2:On the other hand, ai from a productivity standpoint. It needs energy on the one hand, so it's basically requiring, for example, the energy sector, a lot of growth and development there, from the standpoint of both updating electric power grids that in the US and in other places throughout the world are too weak to accommodate that extra drag, that extra need of data on our power system. It's driving expansion into the nuclear energy industry. There's other reasons for that expansion as well, but from an AI perspective, it's allowing more efficient means of mining commodities, whether that's gold or silver, uranium or lithium or graphite, for more efficient battery technology as well. So, at the end of the day, ai has a lot of different pieces to it and it can move economic building and real asset development and sourcing and processing forward, which can help to actually expand the overall economy and, potentially, revenues, and also cut costs in the process. It can also again tax its source and provide revenue into a system that way as and it's not too far away digital platform systems for digitalized currencies come into our world.
Speaker 1:You touched on commodities a bit there. I want to get your outlook on commodities. It's like everyone seemingly got really excited from 2022, and then everyone changed their minds. Where are we in the commodity cycle?
Speaker 2:I still think we're in a major bull market for commodities, particularly along the lines of what I mentioned, um, you know, from a standpoint of gold, for for reasons of of central bank and and dollar diversification, which which are happening and continue to develop. Um from the standpoint of of silver and copper, which are major industrial use uh metals, which are involved in um of transformation, in creating these data centers that are already commissioned and are already in build processes to establishing more efficient electricity, conductivity and so forth. Looking at lithium perhaps being less of a necessity, or more developments in the battery storage area to graphite and other rare earth minerals and materials into permanent magnets and other forms of storage which can actually reduce the amount of, well, actually increase the amount of storage that can be done with less of railroads in those capacities. I see growth there. Uranium, because of the 2050 pledge by every country, which continues to grow actually in terms of the commitment to adapting nuclear energy, is that sort of middle area between fossil diesel fuel, coal, natural gas, et cetera, to solar and wind and things that are less efficient from a standpoint of getting into electricity and into the power that we need, and so therefore, uranium, I think, is going to see tremendous upside.
Speaker 2:There's going to be volatility. I mean we saw gold really hold in last upside. There's going to be a volatility. I mean we saw gold really hold in last year. It reached its highs Historically. It reached multiple highs but it got to $2,800. It's very close to that right now as we have a conversation. It did go down a little bit in the wake of the election because the dollar strengthened and because other sort of focuses were on Bitcoin and everything. Not that Bitcoin is the opposite of gold or there's room for both, but the reality is that it's now back on the trend that it was on. And the reasons for purchasing gold from a safe haven perspective, a diversification against digital assets, a reserve currency diversification relative to the dollar I mean all these things still remain in place.
Speaker 2:So I believe that has a lot of upside. You know we're at 2,800. Now I see that you know getting to 3,000 pretty quickly and towards 4,000 by the end of this year and I have numbers on our site, a print site sub stack, that talk about why we'll get to 5,800 by the end of this particular rate cycle. And that's accounting for what the Fed could do. It's a bit cut rates 50 basis points this year if it's more rapid than that, et cetera. I think silver again we'll appreciate. Copper we're going to see over $5 this year Again.
Speaker 2:Uranium's around the 70s right now. It had a great run last year and the beginning of last year and then sort of fell off out of favor for a minute because the concept was that there's enough supply. There isn't, and so I think that's going to. We're going to see it touch last year's average, which is the 85 to 90 mark, and I could see that going this year and see that going higher next year. So there's a lot of opportunity still in the commodities market. The reality is that the supply for most of these commodities and the processing for most of these commodities a lot of which actually occurs in China but depends on the commodity remains less than what the demand. For different reasons're going to see higher levels in all of these commodities because they're all a part of how our financial system is recalibrating and how the world is developing and the areas into which it's developing.
Speaker 1:I was looking at your Substack at printinsightssubstackcom and I see a couple posts from late last year around BRICS and them challenging the dollar's status. Seems like it's really hard to challenge the US as a reserve currency when the US is where all the AI momentum is focused. Take the audience through sort of a little bit of a history lesson in terms of what the BRICS have been wanting to do, what they attempted to do, what they failed to do.
Speaker 2:Yeah. So they have wanted to have a trade bloc, not a political policy bloc, but a trade bloc, initially for the early BRICS actors of BRICS Brazil, russia, india, china and South Africa to allow them to trade, to share resources and, in the initial stages, not necessarily to have a currency that was different from the dollar, but to create trade agreements that allow them to work with each other and with their regional partners to trade away from the dollar. And that is something that we have seen happen in these years, not as quick as they might have wanted it to happen In their recent incarnation, having grown to include other countries Iran, the UAE and so forth. What they're positioning themselves to do now is to continue to develop those trade relationships and the infrastructure to have a digital currency system, which means a digital payment system which facilitates the rapid transactions of any form of trade down to the individual retail level, through the government level and the intergovernment level of all of the countries that are BRICS or BRICS aligned. And that is something that is happening. It's happening slowly. It takes a minute to create that sort of a platform.
Speaker 2:The dollar has been preeminent since Bretton Woods. Before that, the pound was preeminent through the dollar stage when it sort of emerges that role in the wake of World War II, because Europe was trying to basically fix itself in the wake of that devastation. The was trying to basically fix itself in the wake of that devastation. The dollar sort of came in through all those agreements and the US came in to basically take that baton. So none of this is an overnight thing. So when people say, oh, the dollar is going away or you know it's binary, you know either the dollar is dead or we're going to have some other global currency that isn't the dollar tomorrow. Neither of those are right. This is an evolving process that has a lot of actors, a lot of economies and a lot of trade partnerships. But for example, right now oil trade is 20-25% done now not in petrodollars, so not done in a currency that translates or is converted back to US dollars in any form of the transaction along the way, but in other currencies. That's a development that's just happened in the last few years. So a lot of what's happening is happening very slowly and to an extent it's happening where energy is important, where there's a trade between natural resources that are sort of more traditional natural resources to new ones, and that's where we're seeing a lot of these trade partnerships get penned. Now.
Speaker 2:When I was, I spent a lot of time in Brazil. I did my PhD at a noted Brazilian university and my dissertation was actually the triangle of Brazil, the United States and China China from a trade perspective, a power perspective and a currency perspective. And a lot of what I looked at historically really didn't move fast at all until the wake of the financial crisis, where China and other countries were like look, we can't be beholden to what the Fed is doing, what's happening with US banks and so forth. And then all of that development since then has been predicated on that initiating point and that the initial infrastructure and conversations like Rixen, new Development Bank, the NDB, which is currently presided over by Dilra Rousseff, who was the former president of Brazil. Anytime any of these things happen, they have a different factor attached to them, but none of them happen quickly.
Speaker 2:This is not a switch, this is ongoing development. Even the payment system Brazil has the only payment system that is created and established, pix, by and I wrote about this a lot on print sites by the central bank, and that'd be equivalent to the Fed owning PayPal or the Fed owning Venmo, except that everyone in the country is attached to it and it's owned by one institution and every financial bank that's connected and has any kind of role in between that is basically supported by that central bank, by that institution. That's what we have seen as a model from Brazil, and that model is being exported. China's a similar model, but it's developed in a different way, even even toward Europe. There are conversations in sort of corridors of the G20 off campus, where Brazil and Italy were talking about how to move forward with a global payment system, and you know, italy is definitely part of the US track as well. So there's a lot of movement happening, just nothing over there.
Speaker 1:Yeah, and arguably you need to have another crisis for that to be a catalyst for any of this stuff to really move faster. Yeah, not to be on the kind of doom and gloom side, because I get accused of that often Is there? Look, the whole thing about a black swan is that nobody sees it coming right. I mean, it's only known with hindsight. But are the conditions set up here for some kind of a tail event, like I myself have been on podcasts and argued that? It's not that I'm bearish on thoughts, it's that I'm bullish on a tail event? I think we are due for some kind of extreme, you know, and it will be temporary, like they typically are, right, obviously.
Speaker 2:But I want to get your sense on sort of where are we in the risk cycle? Right, and then I I hear they're. They're they're temporary until they're not, and they're acute when they are, and and any sort of event that that we can foresee, like like a meteor hitting part of the earth or whatever you know. These are, you know, exogenous events that will have obviously a major impact on on, as could an illness, as we saw, and so forth, but from the standpoint of things that we can see. But we can see, I do think there's a lot of stress on the financial system, and I think this element of banks wanting to sue the Fed, for example, because they believe their stress tests are too onerous in terms of the amount of capital they need to set aside for an emergency, is a very scary thing, because what they're basically saying and it's not like the Fed doesn't help the banks anyway so what they're basically saying to their main benefactor is don't look at what we're doing, even though actually we help to create the stress test that you look at, to talk about how much capital we should put in. So things like that actually scare me, because to me they mean that these banks are looking at their books. They're looking at how they've evaluated their loan portfolios. They're looking at valuations that I believe are too high. Even the New York Fed said they talk about this extended pretend scenario where in the US, because commercial loans have had so many problems because of higher office vacancies, multifamily homes and so forth, not paying in as much or defaulting on their or going delinquent on their loans, so money not coming in these are all things that banks can extend and pretend they can restructure loans only so much. And what we're just starting to see now and we just wrote about this last week in our money trends we're just starting to see now that some of the restructured loans from last year, these extended pretend loans from last year across the banking system are now going delinquent. So what we're seeing is a doubling down, effectively, of risk in the banking system in insignificant sectors.
Speaker 2:You add to that the fact that we had a real increase in retail bankruptcies, uses and sort of household names that are closing their footprint. What does that mean? That means that their space goes away, so they're not paying rent on it, so that money is not going into whatever loan was attached to it. So if there was an extended loan that's attached to it, it's not going there either. So I see problems coming from some sort of a major bankruptcy or group of bankruptcies that hits just the wrong set of hedge derivatives at the wrong time in some situation with the bank where they've been not honest or forthright with the evaluations of their loan book, and that's a definite problem. As long as rates stay where they are and you can't really restructure stuff away in terms of payments or give that much alleviation, as we just saw, to these loan holders, that we could see some real problem.
Speaker 1:I love this comment from Dirk McGurkin, which I'm going to show here. So the level of effort required to kick the can makes the fraud obvious. It can no longer be sold to the masses.
Speaker 2:That is, that's the kicking the can. That's exactly what it is. The sort of eloquent term is extended for 10. But, yes, kick the can is the right way to think of it, and kicking the can means you're you're you're either hiding something or you are um hoping it will go away. Um, and hiding something, and so that's what we saw with the subprime crisis. Um, and that's why we we are in this current, you know, qe can ultimately save the day. Um, and central banks will ultimately come in and save the day. They might, you know, wait a bit longer now to to look a bit more legitimate in the process, but but they will and they can Um, and people were very angry at that time, right, and and people um recognize that there's something wrong.
Speaker 2:Right, my whole book permanent distortion was about this disconnect between, like this, this massive subsidy that's provided to uh, the financial system, and the companies that are sort of in the a group or just work together in that capacity. They're subsidized um by our central banks and and and similarly in other places um around the world, and people know there's something wrong. Um, and people know um that at some point, it can go even more wrong and we can have another crisis, something like I just said, but but on the other side of that, then you have the fact that these central banks can come in and you can just rinse and repeat, and that's the environment that we're in.
Speaker 1:Another good comment off of LinkedIn from Jose I'll share here Nomi, when is bubble vision over in US markets? It seems like it was coming to an end until Trump won the election. We have too much debt everywhere, so much that bond vigilantes have made an appearance. Well, we're certainly in what I've termed many times over a concentration bubble in terms of the large cap tech side Obviously driving the market weighted averages pretty well documented. But bubble vision, well, I guess that's a good question. Is this a bubble? Is it a weird selected bubble? Is it a mania? Are these the early stages of it? Is it about to burst?
Speaker 2:What do you think to see is that with that you know it's just US $36 trillion, but at historic levels and growing throughout the world is that it's going to continue? I think, whether Trump will be in and there will be higher debt. There's zero way, absolutely none, that debt's going down from $36 dollars between now and the end of his administration. Just, it's not um, and that has to do with policies. It has to do with the trajectory, it has to do with paying, uh, the interest payments on and therefore that money not going into revenues and trying to make up for it in a different way, which is debt. And so we're still in these stages of the debt bubble growing and the only thing that that really will get it to pop and I think debt is the biggest bubble.
Speaker 2:I think debt and the subsidization of debt is what fuels a lot of the market bubble. But it's debt and how debt is handled by central banks and governments that actually is the impetus for that bubble, because as long as that debt can grow and as long as that debt can somehow be monetized away, particularly in the event of a financial or other crisis, then there's no ramifications for how large it is. It's not even really part of the policy. It would not have been part of a policy had Trump not won this election. It's just not. It wasn't discussed by by either party and it's still not particularly discussed.
Speaker 2:In fact, there's more discussions about how to just either go do away with the debt cap or just sort of extended forever and basically do a government version of extend and pretend when that will go away. And as long as that exists, what we can see is market volatility. We can see the market react to events or react to, you know, treasury yield being up by so much, even though the Fed was cutting rates at the short end, and it's deepening, and so we're not able to get debt relief on the individual or business basis and so there's defaults and that works its way into the system and that's painful from an economic basis to companies and individuals. I think we are in this cycle for quite a long time. It's positive for the stock markets actually not for market volatility, but again for the markets because that cavalry exists in terms of the infrastructure that we have financially and from a debt perspective.
Speaker 1:So you've got two books. Are you planning on doing a third?
Speaker 2:Well, I have seven.
Speaker 1:I am. I really did my preparation.
Speaker 2:No but here's the thing, because I actually look at them in part. So the last three I did were all the president's bankers, the hidden alliances that drive America, and in that book, basically I delved into the historic um America and in that book, basically I delved into the historic um actions, the, the individual documents across presidential libraries, going back to the oil uh barons and when we we basically converted from the industrialization uh part of America to the financialization of America and how the intersection of the biggest bankers, the treasury uh secretaries, the Federal Reserve and presidents and vice presidents have such a longstanding history. That's a massive. That's like my most massive book. It was just, it's just big, but that brought me into collusion because that brought us into the financial crisis and we discussed that here. All the inter on the economic side, central bank side, globally permanent distortion is how that disconnect is now evolving between the markets that are subsidized by relationships those relationships as well as those subsidies and how that disconnects to the real economy.
Speaker 2:I'm trying to write another book that was a trilogy, or I look at it now as a trilogy. Not when I started writing it, I didn't even know it was going to become what I now think of as a trilogy those last three books, but I am wanting to have the time to do a next book. That's either the sort of bonus of the trilogy or just a standalone. To really dig into some of the things we talked about here is really you know, what is actually driving real assets? How will they actually take their historical trend into the future, and not just where there is value, but where the relationships come into play as well, because I'm not seeing a lot of conversations about who's driving what you know just institutionally, but not really getting into the weeds of conversations and that sort of in documents and that sort of thing.
Speaker 2:Um, and I think that's really interesting. Then add on to that the, the ai, um, energy, uh, codependencies that are going to continue to grow and that would be a component of the real assets that are needed to produce, to process and sustain all of that transformation. So my agent's on me to write that book, but I'd like to. So it's really just a question of setting aside the time to really dig into it, because I dig into these things when I write these books.
Speaker 1:And I thought I was prolific. That's pretty impressive. No, for those who want to track my thoughts more your work, I want you to talk about the Substack First of all. Why did you get on Substack to begin with, and what types of people should that things should people.
Speaker 2:Sure, I just joined six months ago, so we're into our first, still first, year, and the reason I launched a Substack, which is print sites dot Substack dot com, is in order to have a place to really consolidate all of my thoughts. That was my editorial. So I mean I have a great team doing fact checking and data analysis and all of that that I've been putting together People have known for some time. But also I wanted a place where, unlike some of the media channels and I've written for all of them really there isn't a sort of external editorial ban or perceived necessity and I can really be independent with what I am doing. Way the stuff sub stack is like like many of them it's. It's really um, a combination of my, my insights, my print sites, um analysis, um research, um conversations with um individuals from entities or, or you know, companies to government entities that that I know or want to hear perspectives from um, as well as um.
Speaker 2:A premium component that's related to trade recommendations, model portfolio suggestions that connect to all of these long-term and I do look at things on a long-term basis Trends are basically evolving and how people who are looking at things from an investment perspective can do that as well can look at those suggestions. So we just put out like a 5,400 word review today, in fact, of the first six months of our portfolio, which delves into all of our recommendations, the trends, what happened individually with the need company versus how that connects to the overall. You know a lot of things that we've been discussing and so that's the intersection of geopolitics, economics and finance, finance and then down to those levels. So it's been fun, it's been, it's been a lot of additional work in this one area as well, but I really like having that freedom and that independence on that platform.
Speaker 1:I am a huge fan of Substack. I actually signed up when Musk was losing his mind over it.
Speaker 2:I figured.
Speaker 1:If he's worried about it, there must be something about there. I've got to go. Yeah, you've got to go to that. Any parting thoughts here for the audience Toby.
Speaker 2:Depending on where your mindset is. For everyone out here. I mean, I think it's a really interesting time for the world. There's a lot of geopolitics at play, there's a lot of economic from trade and financial perspective changes. There's a lot going on in the very nature of money itself, and it's a really interesting time to kind of go away from the noise of it all and just follow where all these things, what's actually happening, what's actually unfolding. And I think from an investment perspective and I say this constantly the best thing is to really have a patient process towards investing, because there's going to be volatile times. It's going to be. What is the Fed going to do why didn't it do that on Wall Street back in the late 80s is to have that long-term what I call zoom out perspective on what's happening, how it's impacting, and staying patient.
Speaker 1:Appreciate those that watched this episode live. I personally enjoyed it. We'll have Nomi on in future episodes and I'll see you all, hopefully, when I get some more sleep. Thank you, nomi, appreciate it, thank you so much.
