Transcript generated automatically with Descript.
Hello, listeners. Welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. Rob is busy this week attempting to get French citizenship. Good luck, Rob. Chase Taylor from Pinecone Macro joins us for our Friday recap of all things macro and markets.
As a reminder, if you want to learn more about Chase or Pinecone, just go to pineconemacro. com. Chase does great work and it’s really great to have him on the show. Otherwise email me at jacob at cognitive dot investments. If you want to talk about anything in this podcast or about our investment services or research services, anything else that’s on your mind.
Cheers. Take care of each other. See you out there. Listeners. I want you to know it has taken every bit of self control. I have not to fling my computer out into the Mardi Gras stricken streets of new Orleans because of the technical difficulties that we have, but we care enough about your having access to the incredible insights of chase that we fought through it.
Chase. It’s good to see you. Good to see you too. And they they have the Vaseline on the white poles down there yet. Why would they have Vaseline on the light poles? Do I even want to ask, know the answer to that question? It’s to keep people from from climbing up during Mardi Gras. Oh, God. I can thankfully say I’ve spent the way that I celebrate Mardi Gras to the chagrin of maybe some of my friends down here is that I feel like I’ve celebrated if I just gorge on king cake in the comfort of my own house, drinking my own coffee, rather than having to be out and about in the middle of the street it feels like a better approach to me.
I’ve been there once for Mardi Gras. That was enough. Yeah. Anyway, that’s not why we’re here to talk we’re going to, we’re going to post this in two days. I’m going to lead off by jinxing you. How do you feel about your number two in the Eastern conference? Cleveland Cavaliers looking nice, huh? Yeah. The funnest thing about that is that we got good when two of our best players got hurt and now they’re back and we’re still good, which I thought Oh, our best players are gonna come back and then we’re going to fall apart.
But so far they came back. They’re taking less shots, which has been interesting, but it’s been a, it’s been a blast to watch. They share the basketball, they compete for rebounds. They out hustle people. Like they’re fun. Do you think Donovan’s going to stick around or? Honestly, I have no, no idea.
I don’t think we’re trading them right now. I don’t know if he, but I don’t know if that means he sticks around. Yeah. All right. Basketball hot takes and Mardi Gras analysis, probably not why people are here. So maybe let’s get down to it. Chase, it’s been a while since we talked too long since we talked and I’m obviously up on, on your stuff and you’re up on my stuff, but maybe just stepping back, what’s the most important thing or the most interesting thing that you’re watching right now in the world?
Cause it’s, it’s crazy out there. There’s. Two active wars. There’s the never ending Trump show. There’s all kinds, the market is surging to new heights from strength to greater strength. What has your focus right now? What has the lion’s share of your attention? I really, I think it’s just trying to figure out the trajectory for just macro in general.
Because last year I struggled mightily to, to get the trajectory correct. So it’s been a lot of tearing the process down to the studs and rebuilding it, but then not feeling great, at any given moment about how well it’s going to work moving forward. So came into Q1 with a thesis that because of the massive ramp and asset prices in Q4, that Q1 would be very hot from a.
From every, way you could think about it, but just growth would be really hot data would be really hot. And purposely kept it at that, like Q1. He was like let’s get halfway through Q1. We can figure out where we go from there. And I think that where we go from there part is where it’s February 7th as we record.
I still don’t know. Like the hot Q1 part is played out. I think it will continue to play out. But where we go from there, just super difficult. And I’ve been saying, I think the keystone for macro in the US just the economy and markets is going to largely hinge on construction employment because it’s kinda the one area of employment that is significantly higher than pre pandemic and we know is very cyclical.
I think you can look at like apartment construction and reasonably assess that’s going to be a lot lower at the end of the year than it is now. So those construction jobs will be in trouble, but we also know that we’re still ramping up a lot of the spending from the government side on projects that will require construction workers.
So how much of those people end up unemployed versus how much of those people just get a different job, maybe after. Six weeks on unemployment or something. To me that’s the key. And just the jobs market in general is the key to the whole cycle. ’cause at the moment it looks like we’re mid-cycle reaccelerating, not, the very end of the cycle.
But I think that could flip very quickly and the jobs data could not be any more confusing than it is right now. , so I just watch construction every month to see if that’s gonna be something that changes. So far it’s. At the dead highs so I’m going to take it a month at a time and say, everything’s fine right now.
Yeah. Pulling some of the data from your most recent or one of your most recent reports to your point, on the good side of the ledger, we have a hot jobs print. So we added over 350, 000 jobs. We’ve got hourly earnings, beating expectations. And when you have, as you said, in your piece, when you have wage growth over 4%, unemployment under 4%.
And yet, every day I feel like the wall street journal or CNBC. And then the other thing that you see is, oh, rate cuts are coming. It’s like I’m taking crazy pills. I have no idea. But then, you had some interesting stuff about we’re going more from full to part time. And hours worked is super down for the construction employment data.
Does that get broken down at all? Can you see how much of that is residential versus commercial versus infrastructure? Not infrastructure but as far as you can see residential, you can see whether that’s see whether it’s tied to multifamily. It gets a little confusing and a lot of people just focus on residential, but then you have all these little tiers of different kinds of contractors.
And people don’t count that as residential, but obviously that ties in. And it has that little section that has all of the little construction, like components, and then just try to like basically figure out what’s going on. But they do have the non residential side and you can look at the non residential, spending same thing.
You look at construction spending this residential versus non residential. And then if you look at those and then the job side that’s residential and not, you can get a a feel for what is being led by building chip factories and battery factories and bridges and roads and all that stuff.
Yeah. This is purely anecdotal, I’m living in downtown new Orleans. It feels like we never stopped the renovation boom that started with COVID. I have a, another house across the street is now getting renovated. It’s crazy. I go visit my sister and her family in rural Georgia.
That’s also part of Georgia. Georgia is booming in general for lots of other reasons. But again, non stop building. The small town that I grew up in is no longer a small town. It’s becoming a mini city of its own. I even, I fly into random places in North Dakota in the winter, and the airport is under construction because they’re building new airports and all these other sorts of things.
So I feel like everywhere I go, there is building. If you were just to be asked, because, the American consumer, when asked, does the president have a good hold on the economy? Can he manage the economy well? Is the economy doing well? Polling data suggests the average American consumer says no, despite the fact that there’s all this economic activity around.
Extrapolating from the psychology of all that, or I guess excluding the psychology of all that, if somebody just came up to you and asked you, how do you think the economy is? Do you think the economy is doing well? Do you think the U S economy is doing well? Do you think that there’s rot underneath it all?
And that maybe the data is just obscuring it. I know I’m asking you an impossible question, but I’m just curious what your sort of sentiment is. Yeah. So my view is the economy is doing very well at the moment. It is very strong. But I think at the same time, do I think it’s growing as fast as data is currently capturing with, like four or 5% that could easily just be revised out a year or two down the road.
And I think when it goes to the consumer side the, now granted, like you’ve seen a kind of a rocket ship in the last three months on the way consumers feel. But that’s what happens when you make people’s 401ks go up, 30 percent in three months. Like they’re, yeah, everything’s great now.
And that’s why it flowed right through into all the hard data is you give people 7 they’re going to feel good about things and they’re going to spend money. But going back to the economy as a whole, we’re seeing high productivity, like we’re at the top of the range of the last, call it 15 years for productivity.
And we have a, like very significant government deficit and not just to, So that’s actually flowing through into the economy with some sort of multiple multiplier effect. So when you have high productivity, high budget deficit, you’re building a lot of stuff, like you’re going to have some growth and you’re going to have some heat in the economy. You’re going to have asset prices moving higher, even with, rates where they are last year, I thought we’d have a recession mostly because I thought, Hey, we’re going to go from zero to five and a half percent rates.
Like something’s going to happen. Then as it turns out, the conveyor belt that says five and a half percent doesn’t really touch anything in the factory. So no one had to pay that five and a half percent almost. So it turns out rates only matter if you pay them. And even evens today, like almost nobody’s paying them.
If you don’t have floating rate debt. You’re able to term out your debt, even for a couple of years. Like those people are just completely unfazed by that, especially households, almost all of household debt is phased out or termed out. And let’s just credit cards here and there maybe on an auto loan outside of that, all your debt’s going to be turned out pretty significantly.
So we see a lot of stress and credit card delinquencies, but as far as real household balance sheets they’re still more than fine. Unorthodox approach taking a pot shot at Granny’s Medicare as we talk about the economy. Good luck with that. One place you and I have been similarly confused here, and in the last weekly episode we did with Rob, we talked a little bit about this.
And I know that you’ve been looking at this too. Both oil and natural gas are a little bit befuddling for me, and I know you’ve got high conviction views on natural gas right now. Full disclosure, we got stopped out of our position and we’re sitting there thinking about all right do we want to take another bite of the apple?
Because prices have not really moved that much and oil as well. We keep on getting these head fakes and then it still goes range bound. Brent is at 78 this morning, which is, maybe another one of those tipping his head above where it might actually start to break through, but nothing seems to push it through.
So we can start with nat gas or we can start with oil. But I wanted to get your take on both. Where do you want to start? Thank you. Yeah, I’ll go with oil, but at the moment, oil makes the least amount of sense to me. I think it should be a lot higher to me. I don’t even understand why people, view geopolitical premium in oil since it has been wholly unaffected by what’s going on in the East Med right now.
So to see that but then to see the fake report that there was going to be a ceasefire and just completely knock off 4 percent really quick, like it was like I guess there was some geopolitical premium for some reason. Granted, once, once we learned it was fake, they never went back up, which was interesting, but I, when I look at oil, to me, the number one thing to focus on is just how much is it, how much is there, and we know looking at satellite data, which. To be clear, only looks at above ground oil and that’s not all the oil in the world suggests a global inventory has been rapidly drawing down to start this year, which tells me supply and demand, is on the side of the bulls at the moment.
When I look at positioning in the markets, like it’s very much unloved. No one wants to own it especially the equity side. No one owns that because the only thing to own is tech. I look at it, I see supply and demand that is supportive. I see recent price action that’s decent and then just looking forward and actually let’s start with looking back, let’s look back about a year, everything that could possibly go wrong for oil did every barrel of oil.
It could have found its way back onto the market or onto the market. A new, it happened to like us production blew everyone’s mind blasted past all expectations. You had a lot of Latin American oil come online. You had a lot of Iranian oil come back online. You had everything go right in Libya for a year to where they didn’t, mess with their production by fighting each other.
So it was a pretty, pretty wild year for everything to go right on the supply side and then on the demand side for a while there last year, China decided to stay locked down for some reason. So you had like demand side issues as well. Obviously the global economy has been. So like you would think that was supportive, but globally not at all.
So like India, India hadn’t do essentially all the work on moving higher in demand last year. And that’s just not enough to overcome everything I just described on the supply side. So moving forward, if you look out a year into the future, You have to ask yourself, will all of that continue and will all that even get even that much better moving forward?
My answer is probably not like it’s very rare to have everything go right for the supply side of oil for one year, much less two in a row. And I, to me, looking at the way inventories are drawing down now, if you get some sort of issue on the supply side, let’s say the U S is yeah, all right, you know what you’re in Iran, we are actually going to pay attention to the sanctions that we are pretending to have against your oil. So that’s back on. Or obviously what’s going on with Venezuela, like you guys, went back on the deal. So we’re going to reapply sanctions to your oil. At the moment we’re buying back a little bit of oil to put in the SPR.
So if they keep doing that, like that’s another That was a, incredibly large headwind last year because we drew the SPR down significantly which really helped the supply side globally last year, oil could have done a pretty significant shot higher without that. So like you had, it was like, you had six one trick ponies, all of the show up for 2023 on the oil side.
I just doubt that they all show up again in 2024. And some of them might flip and go back the other way. So I am very bullish oil, especially if, this hot Q1 I’m talking about can extend into Q2, like the demand side is going to be fine. You look at what’s going on with global exports coming out of, especially Asia that are starting to on a year over year basis, like really bottom, we see from the freight recession ending the manufacturing recession ending.
The earnings recession ending in the U S that all suggests to me incremental demand moving a little higher in 2024. So yeah I’m very bullish on oil moving forward. I think it’s mispriced here. You can handle that or I’ll go straight to gas up to you. No. Let’s stay on that for a second.
Cause there’s something I wanted to pick your brain about. The first is you mentioned Venezuela and Guyana this morning, the United States apparently announced that it’s going to sell a lot of military equipment to Guyana. drones and things like that, and I said this in the CI Knowledge Platform.
I don’t think this is just where my conspiracy theory brain went, because I never understood the deal to get rid of the Venezuela sanctions anyway. So maybe this is all just the U. S. military industrial complex trying to get Guyana to buy U. S. weapons because they want to sell their weapons. I don’t know.
But the points I wanted to make about oil and two things that I’ve been ruminating on that I wanted your take on. The first is Even if the United States is not really enforcing the Iran sanctions, you now have both Iran and Russia, which are in pariah state category, which means maybe the data isn’t so good, or maybe we don’t have real, really good access to information about how much are Russia and Iran producing, how much are they exporting, Who is importing it?
All of that data has gotten really shrouded in mystery. And that’s before you get into the price caps and all the things that people are trying to avoid there. And the second thing is, I wonder if there’s also something happening with the regionalization of oil. So we’re you have countries that are buying supplies closer to them, either because of red sea shipping disruption or political expediency or price chains or things like that.
I have this nascent feeling that maybe one of the things that is happening is that we’re moving away from a global oil market to more regional oil markets. Have you seen anything to substantiate that? Or do you think I’m just two sheets to the wind and have my finger up trying to find the direction?
Study that a little bit more, but one, one counterpoint that immediately comes to mind is India who is doing the opposite. They’re buying from like 20 something different countries now. And we know China famously make sure that no single supplier on the oil side is above, a certain threshold.
So they, if they start buying too much from Russia or from Iran, like they chill out and go find a new place for, just a basic security side. And those are obviously the two biggest buyers are going to be, moving forward, especially India and China. And if those two are trying to stay very globally diversified and who they buy from it makes it tough to get particularly regional and, Yeah, that makes sense. But before we leave oil, the other thing I wanted to ask you about, you were really ahead on YPF in Argentina and on the Argentine shale revolution.
That continues to go apace. Petrobras is still sitting there very interestingly, and I already mentioned Guiana. I don’t think there’s really a way for us to play Guiana. Maybe you’ll correct me. But if you’re looking towards South America. And oil in particular, does anything strike your fancy there is YPF too high.
Does the melee sort of circus cause you to move away from Argentina? Does the Lula circus cause you to move away from Brazil? Just curious if those opportunities are more or less attractive than other opportunities in the market. Yeah I still really the Argentinian assets from the oil and gas side but I also bought into them, a long way.
So if I was looking to buy it today, like it would make me nervous where they’re valued versus where they came from, but I think they’re going to be fine. And I don’t, I personally don’t worry about me lay at all. I think he’ll be good for good for the oil and gas business. And in Argentina for sure.
Big time, actually. So if anything, he’s a tailwind. I’ve never been a Petrobras person. And I do worry, not necessarily like Lula, but just Brazil politics in general. Like I’ve found that like YPF gets significantly less politicized in Argentina compared to the way it works with Petrobras.
It is a political football and I don’t want to own a company that is, it is that exposed to the whims of political leadership. But with that said, any valuation measures you, you can think of when you look at a company and that thing is just shocking. It’s like a shocking buy signal.
As far as Guiana goes, I wish there was a better pure play. I felt like Hess was a decent one before before Chevron went in and bought them. So that kind of made that tough and I haven’t done a like really deep dive. Maybe there are a few like little services companies that have, more than like a normal weight of exposure to, to get Giana or something.
But I just hadn’t looked hard enough for me, I, my favorite exposure from an investment side is still the offshore services side. The supply and demand for rigs is good now. And I think we’ll be. great as we move forward. I think offshore is going to be an important area of growth for oil production.
And the next, this ties directly into, to Guyana. But looking out the next decade, that’s where a lot of incremental production is probably going to come from. It’s cheap. It tends to actually be from a carbon standpoint, clean, cleaner. Obviously we know the. If we both, you live on the Gulf Coast.
I grew up on it, so we know how that can go awry, but as, as far as a pure carbon standpoint, it tends to be less carbon intensive. And I look at the way those assets are valued compared to the economics that they’re probably moving into. And they’re I think they’re priced, but like in Argentina.
Argentina, like some of that stuff you were able to buy, 200, 200 percent of go at levels that made it a little easier to buy them now. All right. Natural gas. I’m not even gonna just take the wheel here. Cause I know you, you felt this one stings because I’ve been, I had this great running gas where like I called the moon shot.
I, I, it was like 2 and I was talking about 10 gas and we got there and then I pulled away and like I took my exposure way down and we went all the way back to two and I’m like, all right, it’s time to do this again.
I thought this last summer week, we could have an a decent move higher because summer electricity demand is is growing its share of importance in the natural gas market. And people will have not paid attention to that, but on the production side, like going back to oil productions, just shocking everyone, the associated gas production with that oil production is really high.
So no matter how cheap gas gets, they just keep, Yeah, I keep producing, over a hundred BCF a day. So that makes it really difficult to get the price up. And then going into this winter, I thought we could have a cooler winter than expected, but that’s what the caveat that what was expected was not cool at all because of El Nino.
So far, like we had one super great shot and in January, and you would think that would do a lot of work. We had, I think it was the second largest weekly withdrawal in history. A couple of weeks ago, which that’s the kind of thing that really can help move the price, but then it took two weeks of really above average temperatures to just undo that wild polar vortex cold shot you had.
So just how warm the winter has been, has just kept, the price down and that perfectly makes sense. That’s just how it works. I thought we could end call it April at. Like at, or maybe a little below the five year average. And the way we look now, like you would have to have the polar vortex like just camp on the eastern half of the US for three weeks to actually get under the five year average.
Not impossible to get enough cold to get there by late, early spring, but it looks a lot less likely now. I still think it’s mispriced at $2 for sure. But I had a bunch of May, may gas exposure.
I took a little bit off, I should have taken a lot off, but what I’ve done now is like move it out to the end of the year and the end of 2025 to get away from the immediate winter exposure, because the chances of it coming through in a meaningful way have been reduced, but I still I want to, I’ll mention one thing and that is long term I’m writing a piece right now about data center.
The power demand coming from data center build outs. Pick your timeframe, but just call it the next decade is I don’t even, I don’t even have the adjectives to describe how much power it’s gonna take it the way it looks now anyway. And in the US like we get most of our power from gas.
So unless we build. A lot more nuclear in the next decade, which doing in the next decade is a tall task. You’re gonna need a shocking amount of natural gas just to power those things. And I have a conspiracy theory too, and that is that I think part of the whole Hey, let’s take a harder look at LNG exports coming outta DC might actually be partly people saying, Hey, now, hold on.
If we go exporting a bunch of this stuff and then we build out a bunch of data centers. And I will say that as a, that is a very real conversation that has to be had. And unless you’re going to do build in enough nuclear for it to not matter. I’m mostly opposed to capping LNG exports, but through that one lens, I think it’s smart to sit down and do the math.
I very rarely bang on the table about things, but I have been on a lonely island talking about the United States government will make that decision, and they will choose the data centers. We’ve seen this happen before in U. S. politics. If the United States government feels like its security is threatened by the export of mineral commodities abroad, they will restrict the mineral commodities.
Greenwash it, whether it’s national security, they will use whatever language, tools, etc. they have to use, but I think they’ll limit it, and I think you’re right, I think that was an initial salvo for the joke I always say when I’m talking to audiences is, show me a U. S. president who’s gonna raise natural gas prices in the U.
S. so that the French or the Germans can have cheaper natural gas prices in Europe, and I will show you a chipmunk that speaks Swahili. There’s no there’s nothing there. It’s, at some point, it’s gonna come crashing through. It’ll be interesting, everything sort of hangs on the election. It would be interesting if you had a Trump White House.
And the juxtaposition, cause I, I would think he would want to support the energy industry and the energy wants to energy industry wants to export. That, that would be an interesting tango, but there’s lots of interesting tangos if that’s what happens. And it’s important to remember that the data centers are mostly in Virginia, right around DC.
So the political clout that is built in locally there might end up mattering as well. Yes, which is why one of, one of my there’s no way to, we’re not playing this at CI or anything like this. This is my own personal thing. But I’ve been looking very hard at West Virginia real estate the last sort of three to six months.
Now if you live on the Gulf of New Orleans, you’re always looking at real estate because you’re just waiting for the next storm to swallow your home and your city completely. But I have this sneaking suspicion that. West Virginia, rural Virginia. I feel like that’s the next move in terms of real estate.
And I say that because just look at what has happened to Charlotte. It’s still cheap there. It’s super cheap, but just look what has happened to Charlotte and Raleigh, Durham, and those areas in North Carolina, which are fairly close by. Virginia, West Virginia is prettier, more access to coal and other resources.
That’s my thing. So maybe I’ll see you there. That’s where my roots are. My, my parents grew up in Charleston, West Virginia and stuff. What do you think you want to head back or you’re, you’ve moved all the way to the other coast, Charleston, but yeah, I’ll skip on Charleston, but there are some unbelievably beautiful parts of West Virginia that, that really, the land value, you’re just like that can’t be what that costs granted as a coastal elite now, like how much I have to have, how much I have to pay in the Seattle area just has completely numbed my view of how much things should cost, but.
Cause my dad’s actually, he lives in Florida, but he’s he’s always looking at West Virginia real estate. So I always know what it costs because he’s, he tells me every time we talk. I’ve been poking around thinking about taking my small stack of dollars, such as it is to.
To go around looking there. Funny story, you’re talking about being a coastal elite. I don’t think we can call ourselves coastal elites in New Orleans. Even though we are technically on the coast. But, fun fact, I was looking up to pay my property taxes for the city this year. And they somehow decided that I had underpaid three years ago.
And they were charging interest on the underpayment from Three years ago, the great part of it though, was they also calculated. I had overpayments for the last two years. So technically the city actually owed me money, but they had an underpayment on the books and were charging me interest, even though they were the ones that owed me money.
I went back and forth with the department of treasury. It’s all handled, but welcome to new Orleans. That’s how it works here. Wow. Hey, we didn’t tell you about this video. It was interest like bank error and their favorite. Yeah. I don’t know. Moving away from that, how are you feeling globally?
Because, I’m the geopolitics guy and we’ve talked a lot about macro and honestly, in the podcast, we’ve been talking a lot of commodities and things like that. But one of the other things that, that we’ve talked about as a theme, and I know that you’re interested in is the international market opportunity versus domestic U.
S. market opportunity. And S& P. It’s super high. We’re talking about the Magnificent Seven again in tech stocks. And some days I just sit here and I’m like, Why do I even work this hard? Should I just buy Apple every day and then go play golf? That’s, that never seems to go wrong if you’re just looking at the chart over the last 12, 18 months now, obviously that’s not what’s going to happen, but I’m curious where you are at us versus international.
Cause I get the sense that people are interested in international, but when you actually look at where the money is flowing, it’s flowing to the big tech companies again. Yeah, they are literally eating them in the world these days. So I, I’m always watching it. I’m always thinking about it. I’m not always investing in it.
To me, there’s going to be, but I want to be prepared for when it becomes time to do it. And I think that time will be whenever the dollar is like, begins like a very real downtrend. And I think you can be close to that because you could be in a situation where, and we’re very close to being in the situation we might already be in where you have really high productivity.
You’re at full employment, you have strong growth. And despite all of that, that the fed has to cut rates anyways, at some point, like you, you start, we’re going to start threatening the financial side, meaning. A lot of private equity portfolio companies aren’t going to be able to exist with rates where they are.
Cause a lot of them are tied to floating rate and very short term debt. You, small businesses can be tied to shorter term debt. So they either are paying these higher rates or they will. So like I’ve said, Hey, no one’s paying the rates yet. So it doesn’t matter if anything, it’s stimulative because rich people are getting the rate with all the treasuries and all the T bills they buy and money markets.
But there’s a point where it goes from being stimulative to not when enough people have to refi into the new reality. And you can watch that by watching effective mortgage rates and make a, build a proxy for effective corporate rates which are all very low to this point, but they are inching higher.
So you can get into a, to a point where you’re cutting rates into a lot of strength. Not to mention if they cut rates from five and a half to say three and a half. You just save the government $200 billion in a year. Yeah. On interest payments, which would go a long way for them right now.
So if you get into that situation you could have I think global markets kinda look and say, now wait a second, do I really want to own treasuries? If this is gonna be the way this is gonna go down, do I really wanna have a lot of us assets? If we’re seeing financial.
Financial problems but strong growth, I think you could get some weakness in the dollar where it looks like, and what I’m describing is more of a let’s cut, even though inflation is more like three than two and everyone just like deals with it. That, that’s to me where the currency comes under pressure and when the currency comes under pressure, that’s when the rest of the world can actually.
So that, that’s what I’m watching for. I’m trying to keep up with what’s going on around the world and the different countries. Yes. So that, when that time comes I know what I want to buy. Yeah, and in the United States, we all know that an election is coming, because our newspapers and our TV channels won’t cover anything else.
That and Taylor Swift and the Super Bowl. But And my unsolicited texts I get every day now from some political campaign. Yeah, seriously. But it’s also a crazy year worldwide. We have so many elections in the world this year, whether it’s Mexico, we just had Argentina Indonesia’s a big one that we’ve been watching here.
So it’s not just the United States. I feel like there is this sort of holding pattern in general. I wanted to ask you specifically about China. So we’re recording on Wednesday, February 7th. This will come out in two days. For all I know, we’re going to get more news out of China. But already this week, We’ve got a state owned enterprise buying up shares of China ETFs.
You’ve got Xi getting, briefed on a big package of measures to support the Chinese stock market, which is weird. This morning we had a new securities regulator appointed. Somebody from the old from the 2000s who apparently cracked down quite a bit then, but he’s in there to stabilize.
And I say all that is weird because the Chinese stock market is not like the U. S. stock market. It’s really not like stock markets in any sort of developed economy at all. It’s not where most people have their wealth. People have their wealth in real estate or in property in China.
Not in the stock market. The stock market is more casino like there. But the Chinese government, wants to do something about that. And apparently it’s gotten to that 2015 16 level where now it’s featuring in Xi Jinping’s thoughts. He’s talking about it, thinking about it all the time.
And I, I don’t want to bottom tick China, but I know that you’ve been interested in Hong Kong for different reasons. We share your optimism on Hong Kong right now. We’re playing alongside you. Rob and I, Rob is off doing stuff at the end of this week. But he and I have been going back and forth about China because I, speaking about valuation, I just keep looking at the valuations in China and I see, hey, maybe we’re really getting support.
And the market, I can’t figure out which way to go. So talk to me about Hong Kong and China in general, because if we are making that move to international, that does seem to be the first place we have to talk about. Yeah. So I do Hong Kong and it’s basically it’s a half China proxy, a half, like just, I Hong Kong.
I share the view in China of just, and so first of all, let me say I’m a China perma bear I have in ways that I don’t normally let. Things cloud, my investment views I do with China. Like I came from the U S intelligence community. So like those views are pretty deeply held. So I’m more of a that’s uninvestable camp that has formed.
But to your point go look at the cashflow for Alibaba or Tencent versus the valuation. And you’re just like that doesn’t make any sense. That is, that’s way too cheap. If you feel like if you just buy that and just close your eyes at some point, you’re going to have made a lot of money.
And I think that is true. And they’re starting to do the smart thing and be like, whatever if this is where you’re going to value us, we’re just going to buy back a bunch of the stock or and that, that’s what kind of what you want to see and that has begun to happen. So I think from the financial side, you may have to close your eyes and not pay attention to it for a year or two, but buying those companies like that does make sense. But at the same time, the, on the economy side, like it is genuinely worrisome where they’re at. They, I think their model’s broken and they haven’t really accepted that fact yet.
Obviously she. Is he just doesn’t mind hurting things and going the kind of austerity route. I jokingly call him Jeevon Mises at times because he’s like more of an Austrian economist. It seems like in practicality, then the folks that kind of claim that he, and like you said, like wealth isn’t, doesn’t come from the capital markets.
Wealth comes from. More or less the property markets, and that is the one he’s sitting on. So if you’re gonna sit on that and you’re sitting on incomes lately too, because while they’re not mass firing people, there’s been plenty of out, like we talked about, the hours worked being ugly in the us.
That’s brutal in China where people are just told ah, don’t come to work next week. Come in the week after that, stuff like that because they, the demand side’s not there. So when I look at the actual economy, they have so much debt, they have outright deflation. Like those are the kinds of things you don’t, you, if you shouldn’t play with, you should make sure that doesn’t allow itself to, to form too much of a feedback loop.
And I know you guys have talked about this a ton on the show, but it’s really, it’s the it’s the most important thing in China. And that is the consumption versus the production side. And all I care about is production. That’s all I know, but they’re the animal spirit side and the consumption side is so bad and it’s becoming a feedback loop throughout the economy that you have to do something to interrupt that and get it back together.
Or, the whole thing feeds on itself to the point where you have a real crisis on your hands and then you so to me, like you better do some real stimulus and I don’t mean building another piece of infrastructure. Find a way to get money into regular people’s hands, find a way to, even if it’s make work jobs, that does employ a few people, even if that is infrastructure, but like you have to break this loop they’re in.
So I like the investment side, but until they do something meaningful that makes sense on the economy side, like it is hard to like really fall in love with the financial side. Yeah. And to your point, one of the package of measures that. It’s apparently under consideration is that China’s, they’re using the magic words.
They’re saying we’re trying to increase consumption. But then when you actually read the policy, it’s okay we want to, we want people to buy new cars. We want them to buy new household appliances. We want them to renovate their homes. We’re going to incentivize them to do and you’re exactly right.
If they take out the fiscal stimulus bazooka and say, Hey, we’re putting money in your bank accounts, go forth and spend. That’s probably what you want to see versus the, Oh, we’re going to incentivize you so that you’ll replace your car with these new fangled EVs that we can’t sell abroad because we made too many of them.
But with all that said, so why Hong Kong? Why are you sticking with it? So the biggest reason for Hong Kong is they have China’s economy and the U S is. But there’s a lot of benefit in that it took a lot of the heat and froth and financial stability risks out of Hong Kong, like properties down 25%, things like that, like obviously the equity market has been slammed.
I look at those things and look at the forward trajectory for US monetary policy. And I’ve made fun of, That whenever we got it to Oh, we’re going to cut seven times price to the market. Talk about crazy pills. That was completely insane to me. Especially with my view that Q1 was going to be hot.
Now that we’re back to four and a half, I, at the moment, I would say two, three cuts is what probably actually makes sense. But Hey, that, that allows Hong Kong to do two or three cuts. And let’s say the U like the labor market in the U S actually starts to crack.
Now you’re talking. You are going to get up to six, seven, eight cuts. That would be really significant stimulus for Hong Kong as they were able to back off their rates. And then if you just look at the bottoming of Asian exports in general the bottoming of things like the semiconductor cycle no one was buying consumer electronics for the last couple of years.
And people are that, that’s starting to come back a little bit now, all that has, small, like little overlaps on a Venn diagram for Hong Kong and in, in ways that I think can at least make them stop going down rapidly. So really for me, it was China has to find a way to get rid of deflation and get, growth back on track.
Part of that would just be. The whole world economy is getting back on track and they’re still the factory of the world. So obviously they’re going to do okay. I, and I did, I like buying things that everyone’s extrapolating doom on. It’s just part of who I am and what I do. And the sentiment side on China and Hong Kong has just been become so it’s so bad that.
I just naturally wanted to buy it. A lot of that was go look at the charts and there’s a giant trend line on Hong Kong. Like I want to buy it. First of all, thank you. Just gave us the title for the podcast, extrapolating doom. Second of all, I hope that people don’t start buying consumer electronics again, because I’m convinced they’re all going to buy these Apple vision goggles or whatever.
And now instead of everybody with AirPods, I’m going to see everybody with their goggles out in the street. And we’ll say, I read Ben Thompson’s big feature on them and he. Describe the one use case that makes sense to me. He talked about how an Asian markets where there’s lots of people living in small places like you might have 89 people in a very small home, and there’s not one screen for you.
So you know, you can get the idea that, Oh, I can get some privacy to watch my thing. But I have the sinking sensation that I’m gonna be at the grocery store and somebody gonna walk into the vegetable produce, and it’s gonna spill everywhere because they’re obsessed with their new vision goggles. So I hope that we’re not buying consumer electronics anymore.
Are there any other places in the world where you feel like doom is being extrapolated where you’re optimistic about it right now? Not really from a doom extrapolation standpoint. So we had some of that last year with so it’s funny though, like when looking at, country ETS from around the world, sometimes like I want the doom.
So a lot of times you find the worst place that has rapidly accelerating inflation. That’s what you want to own because it forces the people of that country to go buy equities to protect themselves. So like right now, the second best performing country ETF in the world is Egypt. It’s up 11.
4 percent year to date. Are things are going great in Egypt? They are not, that’s it to me. It’s a place to be we. My wife’s done a lot of work on just the goal states in general. And we like what we see there. That’s definitely not extrapolating doom. But it’s a part of the world that we think it makes some sense.
Last year was a perfect example with Argentina and was like one of the best performing countries in the world. And it wasn’t because things were going awesome, so sometimes like I, I want to buy. The issues Turkey’s obviously doing great. And you guys know, forgotten more about Turkey than I know, but it’s a mixed bag there.
I thought whenever they raised rates from basically nothing up to 40 something percent, like that, it could help the currency slow the economy. I wasn’t really sure on the equity side, but the, you pull up a chart of the Lira and it just looks like the Argentine peso. Despite the rate increase now it has helped inflation cool down for sure.
But they’re leading the world right now year to date. And I know that’s not a surprise to you guys, but so not really from like a an extrapolating doom standpoint, I think at the moment Chile might be one to take a deep dive in because it’s off to an awful start in the year and it’s having real problems.
So it’s worth. Going to looking at the problems and then going and looking at, how it can get better and trying to go from there. What are your thoughts on Chile? But before I get to Chile, just to say when you said it was Egypt was the best performer, I thought you were going to tell me Pakistan, because Pakistan really is a dumpster fire and has increasing inflation.
They had elections just today. It looks like Sharif is going to win just because Imran Khan is in jail. IMF austerity, things like that coming down. I think the ETF for Pakistan is like. So like from a liquidity standpoint, it is, and it’s like a lot of them, it’s all banks and but we did work on that last year and we liked it and it’s, and it took off it was just one of those yeah, it’s bad, but it’s not as bad as you think maybe.
And then sure enough, like it just ripped in Q4. And I think the Part of me think if they can like elections have been violent. It has not been particularly stable They have a lot of problems, but it hasn’t been as bad as I thought it could be So if they could digest and get through I mean Pakistan’s basically it’s a mini India when you’re thinking about it geographically and we see what India’s do exactly So if you could get even a Semblance of normal policy or stability there which, also a big if.
Chile, I, I’ve been on and off bullish Chile for a long time. In October I was in Boston giving a presentation to a group of Chilean entrepreneurs telling them how bullish I was about their country. And it’s funny because Chileans themselves are very down on their country. He, I was, I joked to them, Yeah, I’m this white American guy who’s coming in and talking to you guys about how great everything is, and you guys are all depressed.
I don’t understand it. You have the best solar wind potential in the world. You have all of these natural resources. You have, relative to everybody around you, Great education. You have great I don’t say great military, but like a stronger security force than a lot of other countries in the region and a capacity to use it, especially from a Naval perspective.
So you go down the list, like everything looks good. When I was out in December. They rejected a new constitution for the second time, and I think at least at the political level, that’s what things really hinge on, and I can’t decide if the rejection of the second attempt to rewrite the constitution means, okay, we’re just going to stick with the one that we have and move forward.
So now we have political stability and the mining companies and all these other things can stop worrying about what’s going to happen in terms of concessions and taxes or if we’re just adding more debt. To the political crisis that eventually people are going to come back out into the streets and say, Hey, we protested in 2019 because we wanted a new constitution, the government has not given us anything.
We’re still not liking where we are. Like we want change. Like I could see it going in that direction, too. So I think that’s where I’m at. And I can’t decide if you put a gun to my head today, but I think it’s probably stability. If I’m a mining company in Chile and I just watched the government try and pass a new constitution and everybody at Morgan Stanley, everybody else is writing about, Oh my God, there could be new extractive taxes because a leftist government and she like none of that was going to happen.
So the copper companies and the lithium companies and the fertilizer company, like they’re going to be fine. They’re going to keep exporting and things like that. So I’d probably go that direction. But the downside scenario to me would be, how much political debt are you putting in the system where people are.
Wanted change, voted for change, and yet they’re not getting anything. Nothing has basically changed since 2019 from a political perspective. That, that could, I don’t know. I don’t know how that metabolizes. Yeah the changes that came out of the proposal for the constitutional changes were just, it was just laughable.
It was wild. So maybe they go back to the drawing board and come up with some, a real life one, but that was brutal. I don’t know. They did that though. First they had the leftist crazy constitution, then they had the rightist came in and did a crazy constitution, and the only thing that Chileans seem to be able to agree with is, no, we don’t like either of these, but they haven’t been able to put forward a centrist one.
It’s really not to be banal, it’s hard to write a constitution. Can you imagine in the United States? If we try not one, two, just nuts, especially if you let all the low rung people on both sides, like really get in there and put their, their favorite stuff in it, it would just be yeah, not anymore.
I literally don’t want to think about it. And for better and for worse, like a lot of these countries. are more democratic than countries were 200, 300 years ago. So the United States constitution writing process was also incredibly fraught, incredibly contentious, was by no means going to go through.
And that was just rich, white, basically English dudes. Nobody else really got to say, if you opened that up to everybody in the colonies like you probably wouldn’t have got a constitution. You probably just would have stayed a part of the British empire. Democracy. I don’t want to say cuts both ways.
Again, I don’t want to be banal about it. It’s I saw a poll on, everybody’s thinking about El Salvador right now, right? Because you’ve got that President Bukele who has made El Salvador much safer and is buying bitcoins and doing everything else that he’s doing. But he’s probably a little authoritarian and waiting.
But he has massive support. So is El Salvador a democracy even though he’s an authoritarian? I think you can raise some of those same questions with Turkey. I don’t know. That gets into a politically explosive conversation, and Chile’s in that conversation. Their constitution was written by, or written for, the Pinochet authoritarian administration.
And that does not reflect what Chile is today, and that’s the friction that’s gonna be there. It’s there, but if you just are looking at the fundamentals and don’t look at the politics Chile should outperform. It has all the advantages in the world. So dead last place right now. So we’re to look dead last place that also doesn’t make sense down 11, 11.
4 on the year. That’s great. So I haven’t even thought, how is copper doing this year? I haven’t looked at copper real close. Is that just we’ve had two fake breakouts in copper in two months. So like it’s doing okay. But every time it looks like it’s really about to go and it sucks everyone in and then it drops pretty much instantly.
It could be that plus lithium is driving things there. The other reason that’s confusing is also because, the two countries that got inflation right at the central bank level. The entire time, starting 2020, one was Brazil and one was Chile, like the Chilean central bank understood what was happening with inflation early on was early to hike early to cut.
Like they’ve been at the front of everything else. But I guess if you are getting failed breakouts in copper, lithium prices, going down a toilet bowl, basic levels of political instability. There have been some weather concerns that are also hitting Chilean agriculture. I guess that’s your perfect storm of things That create the lack of performance, but interesting.
You’ve given me some homework to do. Welcome Chase before, before I let you go just curious. Cause I know that you cover, you at least cover Bitcoin and some of your charts and your daily charts and your weekly charts, any thoughts on crypto and Bitcoin in general from over the last three weeks and how you’re playing it from a macro perspective.
Yeah. So I like it at the moment. So I, I. I don’t have hardcore fundamental views on it. I treat it like a trading sardine that is very useful for doing that. It is probably the best liquidity proxy in the world. So if I think liquidity is going to be high or I want to hedge liquidity being higher than I think it might be, or should be, then it’s a good instrument.
But looking at just the basic supply and demand from a like flow standpoint. We’re making less and less of it. We know the supply is fixed other than the fact that derivatives can pop off, obviously. I think, and I know a lot of people are arguing, oh, all the flows into the new spot ETS have been underwhelming.
Like it’s not what everyone said it would be. I’m still of the opinion that those flows will be enough to keep the price of Bitcoin doing pretty well. And a quick aside, that’s one of the reasons last year went really well for financial markets and you could argue the economy. Yes, we raised rates and we held them up at a high level, but the Fed.
Added net liquidity in 2023, despite doing QT, they added liquidity. So if you think things like that will continue and they probably will they’re going to start talking about tapering, quantitative, tightening in March, like then Bitcoin’s going to probably do well because it’s going to have inflows from the ETFs.
They’re not going to make a whole lot of new ones. A lot of the a lot of what is held by a few really large holders which, which actually, always presents a really big risk that if a couple of whales decided to sell in the same week you have a problem. But at the same time is if they’re not selling and all the minnows are buying very steadily for their 401k these days like that can create a squeeze.
Like they’re in there at the moment, there’s really none of that crazy retail mania extrapolating it, all the crazy doge to the moon gifts on, on, on Twitter and stuff. So you could still even have that come back. There’s no need for it right now because I got it. All you got to do is buy Nvidia.
But if there’s ever a need for it again, like you could get another crazy move, but just in general, right at the moment, I’m bullish. I think we can be at 50, 000 no, no problem later this year. And, but it’s pretty simple. Like you it’s built a nice uptrend for the last few months. So you break that, you just get out.
All right. Chase, I know I’ve kept you a little longer than I wanted to, because we had those technical issues. Thanks for making the time and staying on and we’ll talk to you soon. Okay. As always, and I’m about to start my own podcast, so be ready to come on that here before too long. Oh, I’m ready to come on and cross post and everything else, so you just let me know.
And thanks to you, I have a producer. We share the same producer. Yeah. We’re going to build our own little mini podcasting empire because, I’m probably not going to make it in West Virginia. Yeah. Because, I’m here talking about buying Pakistan ETF.
So probably my entire investment career is about to blow up in my face. So there you go. All right. Later.
Thank you so much for listening to the Cognitive Dissidence Podcast brought to you by Cognitive Investments. If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive. Investments. That’s cognitive dot investments. You can also write to me directly if you want at Jacob at cognitive dot investments.
Cheers. And we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Cognitive Investments LLC is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Cognitive and its representatives are properly licensed or exempt from licensure.
For additional information, please visit our website at www. cognitive. investments. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security that does not take into account any investors particular investment objectives, strategies, tax status, or investment horizon.
You should consult your attorney or tax advisor.
