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- [00:00]
Andreas
Foreign.
- [00:23]
Miglo Rosenwald
Hello out there. Welcome to another edition of Macro Mondays here at Real Vision. My name is Miglo Rosenwald and I'm joined as usual by my co host Andreas. Welcome to the show, Andreas. Lots of good stuff to talk about today.
- [00:36]
Andreas
Yeah, and also bad stuff. Let me just briefly disclaim that to.
- [00:42]
Miglo Rosenwald
Begin with that Andreas, we're going to be talking a little bit about crypto, a little bit about geopolitics and a couple of other issues, a couple of really interesting developments in some of the thematics and stocks that we are covering in our model portfolio and obviously look a bit ahead towards a very, very interesting macro week depending on which data we get and how well we can trust these data. We'll get back to that later. We also have a bunch of listener questions. If you do have questions, please post them. Whether you're watching on X, on YouTube or Real Vision. Please post the questions and we'll get around as many of them as possible. We appreciate those a lot. Remember, this is our free weekly show and podcast that gives a sneak peek into the analysis and advice that we give on Real Vision. For the full picture you have to sign up to Real Vision that will, amongst a host of other of other contents, give you access to our monthly editorial Macro Meets Micro, where we take a deep dive through our current macro thematics and how we trade them in our model portfolio. This was released on Friday after our show of the same name. It's a big one, Andreas. I think it was around 50 pages all in all, but it's a very, very good, very, very actionable piece of content if I have to say so myself. So checking that out at Real Vision Pro, it's great value for money and the portfolio has been doing really, really well. Andreas, how much are we up this year?
- [02:10]
Andreas
At this point, 65% or so. We have a few high flying names in the portfolio today, but we also have a few names that look quite wobbly. So it's a K shaped portfolio, currently put it like that, maybe as K shaped as the economy.
- [02:31]
Miglo Rosenwald
And that is how it is. Andreas, we need to remember our catchphrase here that some of our trades are really, really good. Some of our trades are not very good.
- [02:39]
Andreas
Things are sometimes may be good sometimes.
- [02:42]
Miglo Rosenwald
Maybe exactly generic two for you. Okay Andreas, maybe sticking in, sticking to the last part of that catchphrase. I want to give you the, the laugh of the week up here because we keep, I keep seeing rumors on X that Trump is going to initiate a zero capital gains tax on crypto, perhaps a temporary One, but people are beginning to laugh at that because they haven't made any capital gains this meme a lot. So, so another tough day in, in, in, in crypto, Andreas. I see all kinds of various analysis floating out, out, out there. Obviously if you look at a bit of a broader perspective, this is fluctuations that you must accept. But, but, but I, I had much higher hopes for Q4, I had to admit. Andreas, what's going wrong?
- [03:32]
Andreas
Yeah, so, so first of all, I, you know, I'm kind of in the same camp as, as this meme. I haven't made a whole lot of money in this space this year, to be brutally honest. I've made my money elsewhere and I think that's a story that sort of resonates with a lot of people out there, that they've seen better returns outside of the crypto space than in the crypto space. I'm of the view that we're, you know, the crypto space is currently overshadowed by an incredible investment cycle in AI. And I made this simple but yet still, you know, thorough study on the user adoption of crypto versus AI. And AI has simply been moving faster than crypto. I think that's safe to say and fair to say. So to some extent the tech savvy investors have moved attention elsewhere, at least currently with deals being announced right, left and center within the AI space. And I do personally hold some sympathy for that change of focus. I've been through the same journey myself this year, having shifted more of my portfolio in that direction with good results. So I think that's one simple explanation that you simply see a theme that is currently working faster.
- [04:48]
Miglo Rosenwald
I just want to show one more chart. We're not going to take a deep dive into crypto here, Andreas, but one of the sticks with me is that we've had almost a rotation of crypto holders over the past maybe 12 to 18 months. So I had personally a lot of expectations of all these ETFs going online, government taking bigger positions, officials, institutions. But it seems like they have to some extent simply replaced some of the OGs of Bitcoin here. And we'll have to consider how that changes the psychology in the price action Bitcoin because it's simply a different set of investors and holders, it seems to me. So just wanted to mention this. We have a lot of other crypto content obviously on Unreal Vision, so we'll get on with some of the macro stuff. But yeah, it's, it's hard not to, to take notice of these development address. I wanted to do a bit of a follow up address because last week we talked a lot about the, the Trump Xi deal, the rare earths case. We've, we covered that in our macro meets micro editorial as well. And I'm a little bit confused here Andres, because when I saw the Trump she dealt with, it was a one year delay or postponement of Chinese export limitations. The US Reduced the fentanyl tariffs and to me that seems like a stopgap measure. The underlying dependence on China for these rare earth and materials still persists. And we even had this clip with Scott Bessant which I think is should be fundamental for a very interesting investment case. Let's just have this and then let's discuss why this isn't breaking through into markets yet. So, so let's, let's have the clip with Bezenger.
- [06:38]
Scott Bessant
Well, I think it's naive for the Wall Street Journal editorial board who I call a bunch of grumpy old men to the think that the Chinese weren't going to roll out these rare earth restrictions. They've been putting this plan together for 25, 30 years and the US has been asleep at the switch. And now this administration, we're going to go at warp speed over the next 12 years and we're going to get out from under the sword that the Chinese have over us and they have.
- [07:08]
Andreas
It over the whole world.
- [07:10]
Scott Bessant
And this time we have rallied the allies. And so it is going to be all the Western democracies, the Asian democracies overseas and India are also going to join us in this in trying to form our own supply chains. We don't want to decouple from China, but we need to de risk they've shown themselves to be an unreliable partner in many areas.
- [07:37]
Miglo Rosenwald
So Andreas, to sum this up, there was a lot of other remarks in this special interview, but just to focusing on this rare earth case, the us, Europe, India, Asian democracies all moving at warp speed towards solving this dependency on China. That must mean incredible amounts of public investment into mining, processing rare earths. What do you make of this case? Where are you? Because we've had this thematic in our portfolio for a while now.
- [08:09]
Andreas
Yeah, I mean we've been involved in this trade since before the summer and with very decent returns. By the way, we saw how China limited the global access to seven rare earths already back in April, May. Those restrictions are by the way, still in place. And it's not like it's the detail that a lot of people have focused on after this deal because it Felt like an entire deal around this topic was made. But we still have these restrictions on seven critical metals, including samarium used in the F35 fighter jets. So it's not a perfect deal by any means. That's point number one. Point number two, yes, we've seen public investments into this. We saw how the treasury took a stake in MP Materials over the summer, which was kind of where the market started focusing on this. But that's kind of it for what we've seen. We've also seen a stake in Lithium Americas, not a rare earth, but obviously connected to this theme. So, sure, we've seen some action, warp speed action. I think that's taking it too far. We simply need to see some more action and less talking. I'm pretty certain that the Trump administration is an administration that is willing to take action, so we stay invested in this theme. And the final thing I want to say, Michael, and it's a slightly amusing angle to this. Do you remember the last time they used the term Operation Warp Speed? It was the public private partnership that was initiated by Trump to solve Covid and the vaccine. So apparently they're not scared of referring to that after everything that happened during COVID and all of that. But it was a slightly amusing angle to this. Obviously, a vaccine was invented fairly fairly quickly. And I guess that's joking aside here. That's probably the purpose of calling this warp speed operation. Again, they want to send the signal to China that we can solve this within, say, 12 to 18 months. I think that's a fairly optimistic timeline. We've written a whole thematic study on it in our editorial on Friday. But at least for large parts of this supply chain, it's manageable within, say, two or three years if the investment pace is the right one. Remember this, Mikkel, this is not a free market bet. It's a terribly small market terrorized by low margins and so on and so forth. So you probably need some price guarantees, price flaws, as we've seen in other parts of the energy and commodity space, to ensure that this is a supply chain that feasibly feeds itself, if you know what I mean, in a Western context.
- [10:57]
Miglo Rosenwald
Absolutely, Andreas. That's what it's going to have to take. What is a free market, Andreas, and this is an ongoing topic, is the expansion of computing of data centers all across the world, especially the U.S. we had news this morning about Microsoft and iron. Is that right? Pronunciation. Having agreed on a $10 billion cloud computing contract in Texas, we already had iron in the model portfolio doing very Very well in pre market we get this question a lot and dress. Where are we? Are we in the, in an AI bubble? Where does this fit into this? Is this getting out of hand by now? The investment into all this? How do you view this?
- [11:42]
Andreas
We actually got a pretty decent question from one of the listeners that relates to this, to this question. Maybe we can bring it up. Absolutely the context of this because I think iron is an asset heavy case compared to some of the other former miners that have turned into, you know, high performance compute lasers. And there are, you know, there are pros and cons of being asset heavy versus asset light in, in a context like this, you know, when you're asset heavy relative to others, it obviously provides you with barriers of entry relative to the others. Scaling benefits also a slightly better durability you could say of the business model. But you also of course have a greater sensitivity to the whole capex cycle to utilization rates of your assets. So right now I, I would consider it a strong advantage to have an asset heavy business because that's basically what people are after, right. They want to be able to secure utilization. And for Microsoft this is basically an attempt to ensure that they two, three, four years down the road have access to high performance compute power in the size that they need. But obviously in a downturn you're equally sensitive to utilization rates going down. So I think to sum it up, the more asset heavy you are, the more cyclical your bet becomes on the AI cycle. So as long as you accelerate in the investment cycle, that's a really good thing to be. But as soon as you move towards fading investment levels and slowing utilization rates where far from being there in my opinion, it obviously also makes your sensitivity worse in the other direction.
- [13:40]
Miglo Rosenwald
Absolutely. We had some decent earnings reports from Amazon and Alphabet as well last week, so still a lot of arrows pointing in the right direction for the AI and the capex bit there. Andreas, before we get to some of the numbers this weekendreass, I just want to touch on a few geopolitical topics because that's always an underlying risk. We've had some relatively stable months in geopolitics, but you always need to be on top of these situations. So just going through the two that we had this week, it's starting to feel a little bit 90s to me. Andre, to be honest, because we had obviously Trump is really increasing the rhetoric on Venezuela. He's moving a carrier task force down there and he is in the way I see it, sending a bit of a mixed signals, mixed bag of Signals here because on one hand he's saying that President Maduro of Venezuela, he's got to go, his days are numbered. That's the rhetoric you used against Saddam Hussein in Iraq. And I mean if you want to enforce that, then you have to go to war, you have to send boots on the ground. That would suggest why you move an aircraft carrier there. On the other hand, what the US is actually doing is attacking smuggler ships, smaller pramps, they're preparing perhaps to strike some drug cartels within Venezuela. The Venezuelan government has suggested that, well, people are, no one is growing cocaine leaves within Venezuela. I'm not too, too, too sure on that supply chain, but it seems a little bit of an overkill to bring an aircraft carrier to, to, to attack supply share, to attack smuggling ships, speedboats, etc. So I'm still a little bit bewildered by this. But I have to say that the buildup is very substantial. It's not substantial mass, mass ground invasion, but it is substantial enough that we are in my opinion getting close to the point of no return or point of no taco where we have to see some kind of action down here to, to, to make it worthwhile moving on. Sometimes it has an effect of its own when, when you move all these military assets in position. Remember, Venezuela is a big oil producing country. The best bet on this crisis, to be cynical, Andreas, is still an opening of the Venezuelan oil and gas industry because that outcome covers both a regime shift that is forced, it also covers a negotiated solution where this will most likely be what the US asks Perdura for. So I'm not, I'm not going to go into the, to, to. To bets on weapons, on the defense industry here. I'm still looking at that. And you can, you can check out my latest drill for, for more on this and then another one addressed that could potentially be really, really big. And it's still also very, very 90s because you may remember the movie Black Hawk down. Also a bunch of movies about the Rwandan genocide in the 90s. That's where the Clinton administration invented the phrase responsibility to protect and that the US is the world's policeman that needs to go in and save civilian populations getting slaughtered around the globe. That's a concept that we pretty much threw away through the zero, through the noughties and the tents. But it seems like Trump is moving back in that direction or perhaps that's at least the front for taking action in Nigeria, another big oil producing country. Neither of these conflicts have the same direct market implications such as The Iran conflict. I know you felt that personally, Andreas, when it hit. Not personally, but in your portfolio, at least directly. Neither of these conflicts have that potential. But, but, but, but still worth keeping an eye out, especially on, on oil markets where we are moving perhaps to a bit of a tighter supply situation. So we'll be keeping an eye on these and covering them also in our, the drill articles.
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Andreas
Yeah, Miguel, let me add that, you know, in, in, in the, in this context you could say we saw a very small production hike agreed upon by OPEC this weekend and they've moved to more, let me call it the defensive stance on the whole supply cycle, which is interesting in the context of two oil producing countries potentially being targeted soon. So I personally think that oil is bottoming here. I'm not saying that it's a huge case short term, but I think it's a very asymmetric one, especially given what's ongoing in Venezuela and Nigeria. And it's one of the cases where the market's leaning so short that I can't remember anything like it for a load of good reasons with OPEC increasing supply and so on. But it seems like an asymmetrical bet here to the upside.
- [18:38]
Miglo Rosenwald
Yeah, and most OPEC countries are simply at max production, almost obviously not Saudi Arabia, but a lot of the other countries are. Okay, Andreas, let's get back to macro and a look at the week ahead. ISM numbers, non farm payrolls. What numbers are we even getting? How reliable are they in this shutdown territory? What are we looking at? Or should we stick to our own numbers simply?
- [19:00]
Andreas
Yeah, well at least I always use our own numbers. It sounds like we're inventing numbers, but we obviously now cast the US economy best numbers. Yeah, but we got the ISM manufacturing report 23 minutes ago and on the headline and it wasn't really a good report. Basically sideways since a month ago, slightly down in some of the categories. And I don't consider that a big surprise given the standoff that we had between XI and Trump through the month of October especially, inventories are down a lot, which to me is a result of a lack of shipping momentum through the month of October with the threat of tariffs, et cetera. So if you look at the spread between new orders and inventories, I'd actually argue that we have a couple of really good months ahead now that we're past the worst on this Trump, she standoff. Again, it's not like we've had a major reaction to the, to the markets. We've seen yields down a Little bit and equities down a bit on the exact timing of the release. But we're rebounding again, which to me makes sense since this is kind of an outdated report given that we've seen a deal since the data collection of this survey. Right. So the ISM report, I've had issues with it for quite a while. I think it's too focused on cross border operations compared to the S&PMI and the S PMI remains a lot more upbeat on the economy and on top of that we shouldn't expect a whole lot of government data. Obviously given what's ongoing with the shutdown. What you can take comfort in is that we see some data being released on the state by state level, for example claims. So I'd argue that we would have known by now whether the non farm payrolls would have printed a negative more or less. Claims have been decent through October on a state by state level. So I don't think that we've seen a major deceleration of the labor market while we haven't had any data. We also know that the ADP Institute, covering mostly or sorry solely the private side of the labor market is intending on releasing a broader a one week measure soon. So we have decent coverage. I'd say despite the government being in a shutdown, the most important impact of the shutdown is currently that the U.S. treasury holds cash because they don't have a lot of bills to pay simply because people have been furloughed. So it's quite a peculiar situation where they actually withdraw money from the system because they're quote unquote not allowed to pay. And I actually think that's a pretty peculiar situation because the longer this drags out, the tighter the market will be. So it is in my opinion something they have to deal with fairly soon in order to avoid the majority of the negative ramifications of this Shutdown. We're past 1 trillion now in cash holdings by the U.S. treasury in a steady state it should be 250 billion lower. And those 250 billion, they've basically removed those from private markets.
- [22:09]
Miglo Rosenwald
Okay, just let's get to a few listening questions before we we round off here. We have a question that we can get on the screen here from X from, from James, asking for your thoughts on the Solar Tan Tan etf. Is that a good way to, to, to, to play this thematic or would you try and concentrate your focus on on the US A solar buildup playing catch up to China.
- [22:32]
Andreas
So I mean the interesting thing is that the build out of solar has been quite slow in the US compared to even the European Union. And I'd argue that you have better spots to utilize solar in the US compared to Europe to a large extent at least you have more space. And that's why I think the most underappreciated bet here is that the domestic buildup of solar in the US will be larger than anticipated by many, including the administration by the way, because they don't hold this year, to be honest. They're all in a nuclear and I get why. But they'll also have to find short term solutions to many of the data centers. They're currently mostly chasing the gas turbine solution. But we do see bottlenecks in that space, meaning that you have to look elsewhere on top of nat gas, which is the obvious bet here otherwise. So I think solar is underappreciated, especially versus expectations in, in the domestic market in the U.S. what annoys me a little bit with the solar bet to take the flip side is that it's a very China heavy supply chain again. And, and given what's been ongoing over the past couple of months, it's probably one reason why the US administration is not super keen on accelerating this agenda too fast because it essentially just means that you become dependent on China. Again. If you look at the supply chain, China is heavily on top of polysilicon and exceeding 80% market shares, probably even 90, meaning that you essentially cannot really build a solar panel without involving China and its supply chain. So we've, I think we have four, five if you include indirect bets on solar in our portfolio, being that obviously we like the tan ETF as well. I by the way like the abbreviation. I could need a bit of 10 here, watching the dark cloud side side here. But I think it's important to, to have bets in place in the input part of the supply chain. We saw how Daco Daqo, you know, released early results of positivity alongside their quarterly results last week. But I also think it's important to look towards the software part of the supply chain with companies that are not too impacted by the margin pressures that we've seen from China overtaking this supply chain.
- [25:05]
Miglo Rosenwald
Let's just have one more here from Marty Kay. I think a great question here. What do you think about the huge spike in so in the sofa rate and the 50 billion injection into the overnight repo facility on Friday and during the weekend?
- [25:19]
Andreas
It's, it's a result of, of the buildup of cash from the Treasury. So I, I think it's an a natural consequence of the, you know, the narrow money market being in in scarce liquidity. And, and you know, first of all, this is the reason why they've ended QT from 1st of December. I think the Federal Reserve is currently content with having a solution for this in place with the standing repo facility. So that's basically what the viewer refers to the standing repo facility being utilized. And it's the first time in a long while that we've seen more borrowing from the Federal Reserve than depositing of dollars. A good sign that we're no longer in an abundant liquidity regime. So this is obviously the first clue that we get that we need to see a balance sheet expansion from the Federal Reserve. Again, typically we've seen those moving in four year cycles. It seems like that it's been postponed a little bit into next year. And ultimately that's probably also where you see the true debasement bets starting to gain some traction. We need the Federal Reserve to expand its balance sheet and expand it fairly fast to see the widening of the debasement bets into some of the crypto names that have suffered this year. So I also think that answers the question that we get a lot. When will we see the positivity that we currently see in AI bets and some of the related names spilling over to crypto? I simply think we need to see some action on the balance sheet from the Fed first.
- [26:48]
Miglo Rosenwald
Well, that's another question covered, Andreas. Great for that. We do have a lot of questions coming in on specific, especially in the rare earth and solar sector questions on MP materials question on Cleveland Cliffs. That's one of my favorites. Andreas, we'll cover all that. I'm making promises on your behalf now, Andreas, but we'll try and cover all these single names in our State of the State of the Union show. The Ask Me Anything show that you're doing on Wednesday, Andre, so be sure to check in with the, with the Real Vision crypto or the Real Vision Pro set up to to access that show on Monday. That's going to be great. We have a lot of great content for you as well. Well, this week on on Real Vision, Jamie Coots doing an AMA also on Thursday and obviously our trade ideas, portfolio updates and all flagship reports. So lots of great stuff especially on the approach here within Real Vision where we publish all our articles. That's all we had time for this week. Thanks for joining, Andreas. Another eventful week. Things are getting very dark here in Copenhagen. I think we might have to invest in some additional some lighting in our studio because it looks like we're in a cage or something here. But we'll have a look at that for next week. Anyway, thanks to all for joining this very dark show, at least visually. And we'll be back next week.