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- [00:08]
A
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish. No holds barred. Now here are your hosts, Eric Townsend and Patrick Seresna.
- [00:33]
B
Macro voices Episode 535 was produced on June 4th, 2026. I'm Eric Townsend. Another week has passed and the Strait of Hormuz is still effectively closed, and I don't think we're any closer to a deal than we were a week ago. In fact, President Trump even made the comment that the US Blockade of Iran could be lifted as soon as Labor Day. As soon as Labor Day. That's 95 days from now, more than a quarter of a year away. The only good news I can see on the geopolitical front is that the situation has earned you another Macrovoices double header. Robo bank strategist Michael Every is our headliner this week and Michael and I will discuss all things Iran, from geopolitics to the inflation outlook to what it means for China, to President Trump and Secretary Bezant's stablecoin statecraft ambitions. Then Commodity Context founder Rory Johnston returns to go deep on crude oil delivery delivery logistics, from a detailed look at the latest flow stats to China's curious inventory and import statistics that don't frankly seem to add up and why oil prices haven't reacted nearly as much as so many analysts, including Rory and I, expected them to. Then be sure to stay tuned for our Post game segment when Patrick's Trade of the Week will explore a setup built around Michael Every's view that economic policy is shifting toward economic statecraft, with a greater focus on rebuilding the physical economy and strategic industrial capacity. Then we'll have our usual coverage of all the markets with Patrick's postgame chart.
- [02:12]
C
Dick and I'm Patrick Ceresna with the Macro scoreboard Week over week as of the close of Wednesday, June 3, 2026, the S&P 500 index up 44 basis points, trading at 75. 53 markets remain along highs but showing early signs of exhaustion. We'll take a closer look at that chart and the key technical levels to watch. In the post game segment, the US dollar index up 20 basis points, trading at 99.55. It's attempting to break out of a one month trade range established through the previous month of May. The July WTI crude oil contract up 828 basis points, trading at 9602 the July R. Bob gasoline contract up 229 basis points, training at 3 the August gold contract down 31 basis points trading at 44.67 the July copper contract up 252 basis points trading at 650 and the June uranium contract up 94 basis points trading at 85.90 the U. S ten year treasury yield down 3 basis points trading at 448 and the key news to watch this Friday is the jobs numbers and next week we have the much anticipated CPI and PPI inflation numbers and the ECB rate statement and press conference. This week's feature interview guest is Michael Every. Eric and Michael discuss why the Iranian crisis may be a part of a much broader shift towards economic statecraft, how energy swap lines, stablecoins and supply chains are becoming tools of a national strategy and why the next policy regime may focus more rebuilding the physical economy. Eric's interview with Michael Every is coming up as Macro Voices continues right here@macrovoices.com.
- [04:18]
A
And now with this week's special guest, here's your host, Eric Townsend.
- [04:23]
B
Joining me now is Robbo Banks, global strategist for economics and markets, Michael Every. Michael, it's great to get you back on the show. I'm sure you've heard the great news today and we are recording just so our listeners will know on Monday afternoon, so three days before this episode will air. A lot can happen in the news flow lately, but as of Monday afternoon, the news is President Trump says, don't worry, everything's all set. Oil prices are about to drop like a rock and time is on our side. Do you concur, sir?
- [04:55]
D
No, I don't think that time is on anyone's side. First of all, I think that's true for every human being throughout history that time doesn't work in our favor. Entropy is a universal truth. But specifically, that news flow, of course, that we had on the Monday as we're speaking was superseded within I think about an hour and a half, two hours maximum. Where we went from a tweet saying, okay, Iran doesn't want to talk, that's fine, we don't have to talk. Maybe we've done too much talking. I, I'll just maintain the blockade to then suddenly backpedaling and saying, well, no, the reason for Iran not talking is because Israel was still moving against Hezbollah in Lebanon and now I'm telling Israel they can't move against Hezbollah in Lebanon and Hezbollah have promised they're going to stop attacking Israel. Pinky swear. And Therefore, everything should continue and we're going to continue talking to Iran. So maybe that doesn't necessarily contradict the fact that Trump thinks that time is on his side. And I think you can put that to one side as a separate argument, but it certainly shows just how dynamic the news flow is and how incredibly confusing and befuddling this tweet driven crisis continues to be for all of us.
- [06:09]
B
Michael, let's go a little deeper on the time on our side perspective with respect to the global oil market. A lot of people have been warning for a long time, myself included, that we're going to run out of the buffers in the system. We're gonna get to the point where we don't have the crude oil needed to supply the and the only resort left is gonna be a wild price reaction in order to destroy at least 10 million barrels per day of demand. A lot of macro guys are saying, look, stop listening to these doomer commodity idiots. They don't know anything. Obviously they've been proven wrong. Oil prices didn't go to 200. Everybody relax. Time is on our side. We've got plenty of time. We produce plenty of oil. We can wait this out. The President is right to feel that he can wait this out. What do you think it's true that the oil prices have not gone to the moon yet. Does that mean that we're safe?
- [07:06]
D
First of all, full disclosure, I'm not an energy expert and I know you speak to many and indeed you're very well versed in that field yourself. So I don't want to try and overrepresent my specialism here, but I can't really recall such a dichotomy and passionate dichotomy of views as we have over this particular crisis where as you said, you've got absolute experts saying this is going to end in absolute catastrophe within weeks. And these are people who are neck deep in this industry. And then to be fair, you have a few who understand the industry who are saying, well maybe it can be okay, but you get a lot, as you said, of macro fellow travelers who are great with an Excel spreadsheet and very good at being similar to that sarcastic meme of the elderly guy with the white beer drinking a cup of coffee saying I finished being an expert on X, now I'm an expert on Y, saying well it hasn't gone wrong yet, therefore everything will be okay. And when you've got that kind of talent, stack really disagreeing. But the people who are really well versed in the industry panicking the most. That makes me extremely nervous because I've worked through many different potential crises similar to this. And most of the time I've been the one pointing at the Gray Rhino or the Black Swan and saying this is bad, be it all the way back to the global financial crisis 20 odd years ago. And everyone else around me who's making money by not seeing it saying no, it's all okay, and most of the time it's worth listening to those downside risks when they're that big. So I think at the very least everyone should be paying attention rather than confidently rubbing their hands and saying the people who understand this industry like the back of their hand are all wrong.
- [08:53]
B
Let's talk about what the follow on and knock on effects of this could be. One of the things that's really perplexing me is at first I thought this has to be inflationary. We already, I thought, were probably into a secular inflation. Seemed to me this was going to really force the argument. And I was really surprised when I talked to Mike Green who said he thinks that it's going to be deflationary and the Fed is going to be forced to cut aggressively because of this oil crisis. And I said, Mike, can't you see that Hutter oil is inflationary? And he said, yes, I can see that. Can't you see that $500 oil is deflationary? And I said, oh well, that's a point. How do you see this playing out? And how in the world do you analyze this if you don't really know? And it seems like experts can't agree on how far this can go?
- [09:45]
D
Let's break that down for a moment. First of all, you would get a lot of heated disagreement about whether we'd ever get to 150. And if we start talking 500, which is the first time I've heard that number mention, and I think that's a heart attack on the screen, isn't it? In its simplest form, we have to recognize that central banking as currently constituted isn't able to deal with these kind of crises. We've had repeated examples of that over the past few years where institutions which are effectively neo Keynesian and all to do with demand management, struggle to adapt to something, the supply side, and then have to try and work out do they deal with second order effects? And more importantly, is it temporary on the supply side, which of course, or that famous word transitory, or is it something that's potentially structural and if so, what do they do? And effectively it's almost like that old comment, I think from the 1960s, the feminist comment, you know, a woman needs a man like a fish needs a bicycle. Like central banks understand supply side or structural supply side shocks, like a fish understands a bicycle. They're just entirely different things. So you can listen to any number of different central banking experts who will say, well, they should do this, they should do that, they should cut rates, they should raise rates, they should do nothing at all. They're all wrong and they're all right at the same time because it's a very complex problem and I don't think any of them really are the full solution to it.
- [11:21]
B
We've got Kevin Warsh taking over as the Federal Reserve chair. How does that factor into this equation?
- [11:28]
D
Well, he was already, prior to this happening, muttering about the fact that he wanted to change the Fed. And I don't think that's going away. And looking at the fact that AI in his mind in public statements is likely to be very deflationary. And as a result there's room for the rate cuts there because of that future deflation. Now it's a bit of a curveball to say that you've got that deflation plus the potential for the absolute economic cacophony and chaos that could be caused by the kind of outcomes that you're referring to hypothetically. It's very, very hard to call. But I think the interesting thing will be listening to these central bankers who, while they may talk less under a war, tend to be so apparently transparent about what they're thinking and try to make clear to everyone how they're thinking about these things. It will be interesting to kind of watch them squirm to an extent and make clear they just don't know what to do. Because I repeat my larger point that I think the mechanisms we have set up now simply cannot function the way that we want them to. I mean, clearly what you would need instead, at the very minimum, are vast strategic petroleum reserves or the equivalent across various different products which are no longer flowing because of the Horman's CRIs, which central banks could look to tap to try and smooth these processes out, which hundreds if not thousands of year old policies used in various different countries around the world and which China still uses today. And you have to say to yourself, is that not a better mechanism than just making borrowing costs on aggregate for the entire economy either more expensive or less, with all the second and third and fourth order effects and with a lag? So I'm not trying to dodge the question in any way. I'M actually trying to hammer the point home that I don't know what Walsh will say. I don't know what any central bank will say. I'm not sure whether they'll all be united, and I'd imagine they're probably going to be on the phone to each other trying to make sure that they all at least hang together collectively, rather than bravely trying to go in different directions, with the odd exception. But I don't think any of them are set up for it intellectually, and I don't think any of their advisors are, because all the economists who do the number crunching for them also don't have any models which work in this particular environment that we're talking about. They're presuming that this were structural and is as bad as you were just alluding to, which is not what I'm forecasting. But if that is the case, yeah, what does one do? The entire infrastructure that you set up isn't fit for purpose anymore.
- [13:53]
B
You described Kevin Warsh as muttering about changing the Fed. What do you think's on his mind long term? What do you think he and President Trump and Scott Besant maybe are architecting in terms of a new central bank regime for the United States?
- [14:10]
D
I think it is important to return to Iran, and I'm sure we'll do that in a few minutes. But if we kind of segue to that particular discussion, from my perspective, if you'll recall, in many of the chats that we've had over the years, I've been underlining that I thought when Trump was reelected that he would shift from economic policy to economic statecraft. That was the line I was traveling with. And the US Is openly now saying publicly that economic statecraft is what it's pursuing. And that's absolutely part and parcel of the argument I was just making then about this energy crisis. Because you cannot have an independent central bank which is trying to target 2% CPI and all the other paraphernalia that it claims to be targeting and not have joined up thinking across every element of state and government towards the national security goals or the foreign policy goal that you're aiming for with economic statecraft and not have the central bank as part of that. I mean, the central bank is so important in all that we do. It's just logically ridiculous to conceive of a Fed saying, well, we're not going to change. We're going to keep doing everything Greenspan did or Bernanke did or Yellen did, and who cares about the struggle for AI, who cares about the struggle for the supply side, who cares about national security, who cares that we're at a war at the moment or that we need to rearm rapidly to make sure that we can fight the next one, wherever that were to pop up. None of that matters to us. We're just going to look at 2% of CPI. Now, I can assure you there's a long, long queue of economists will say that's the right way to go. Well, of course, they're apparatchiks within a certain Soviet style machine and that's how they think and that's the answer they'll always give. But from a political economy perspective, you know, looking down from a helicopter view, it's just really irrational to conceive that Walsh would not be aware of the fact that Bersent, who's been pushing for him along with Trump to get this particular role, is himself plotting that particular course. So unless he's worn a mask the whole time, now gets his, you know, his feet under the table at the Fed and says, right, I'm just going to be the same as everybody else, which you can't rule out, but it's pretty unlikely the Fed will, from my particular perspective of global strategy, gradually be moving more towards the economic statecraft field. And I think one giveaway on that before we maybe pivot back to Iran again, is that Walsh, when he was asked what do you think about dollar swap lines, which I think are really crucial at the moment in many different ways, he gave an interesting answer where he alluded to the fact that he thought Fed independence didn't apply to them because they were a geopolitical transaction effectively, and they are, which I think is an honesty on his part. But if he's serious about that, what that means is that potentially instead of everyone just thinking the Fed is a technocratic institution which is there to provide Eurodollar liquidity to anyone around the world, particularly the old boys club of largely Western and OECD central banks who need it to prop up their financial markets from time to time, of course, in the US interest. Now, potentially this can be very much under the remit of the presidency or the treasury with a much more explicitly quid pro quo agenda, which we have actually seen, of course, running through the oil market via the UAE recently. And I think that speaks to exactly the point I'm trying to make here about economic statecraft emerging. And again, this all factoring into this
- [17:49]
B
Iran crisis, let's pivot back to Iran. As you said, you told me off the air that you had several wild outcomes that you could conceive as possible. Not predictions, but possibilities. Let's go wild. What are they?
- [18:03]
D
Okay, so this isn't a forecast, but again, it's from an economic statecraft lens, taking a big picture view, joining dots and projecting them forward as a what if? Which I find is a useful discussion point. So before we get into the nitty gritty, or maybe even avoiding the nitty gritty of how long this crisis is going to grind on and what the ultimate outcome is, let's presume that the US Is cognizant of the fact that were we to get a taco, which actually would be, as far as I'm concerned, the whole enchilada of a retreat from the Middle east, an abandonment of US allies there, and effectively handing over Hormuz and all the energy in the Middle east to an Iranian nexus along with its allies, that that would be a geostrategic disaster for what the US Is trying to achieve in terms of economic statecraft and for the entire West. So if we presume it can't do that, and we presume, therefore, it's going to just keep maintaining this blockade going forward, if it can't move ahead with more aggressive military action, which is seemingly the message that we're getting at the moment, you know, how long is a piece of string? How long can this blockade run? Well, potentially long enough to start taking us towards some of the worst case oil scenarios that you're describing, if you're in that particular camp. And I think a lot of people are. What is to stop the US taking even more radical economic statecraft action itself vis a vis energy? Because we've seen the US for example, regularly dip into the spr. Now, that's economic statecraft. Biden did it. Trump's doing it again now. And that's one of the reasons why we're not seeing energy prices going up and actually, if anything, they're coming down overall trending lower. But that's obviously a pot of physical capital that's only got so much in the banks, so to speak. But what if they were to say, right, number one, we are going to stop exports of refined products? Now, they've denied it, but of course, you should never consider anything until it's been officially denied. And I think lots of people can talk through the nuts and bolts of that, and it wouldn't necessarily achieve what they want to achieve. But you couldn't rule it out. But that's the U.S. in isolation. The more radical idea I had is that we could actually see the US in the face of a looming energy crisis where it really is just catastrophic, potentially in the near term horizon, looking at a certain subset of countries, for example, Mexico, Canada, Venezuela, Guyana, others in Latin America and key players in the Middle east who are still prepared to work with it, and key countries in Asia who are US allies who have key refining capacity and saying, look, let's do the math here. If we look at oil production and oil consumption, and I know that oil is not generic, I know there are different kinds obviously, but we have the right mix and match between us of production, consumption and refineries. If we form a closed loop, we can potentially get through this and it's everyone else who's in serious trouble. So that would really fragment the global energy markets in a way that we've already started to see in terms of different pricing for different kinds of product for different geography. But it would take that to an extreme. And the kind of the pun that I'm playing on for this idea is instead of having nafta, which of course no longer exists and the USMCA itself is now being renegotiated as we speak, instead of having nafta, you have nafta, which is the North American Petroleum and Hydrocarbons Trading Hub association, where effectively you have again this closed loop for energy, which means that the US could say to others, well, look, we can ride this out, it's you who can't. Are you going to help us solve it or not?
- [21:39]
B
And what would the next card be in that deck? If, if it's we're going to force you to play ball with us, you're going to have to do what we ask you to do in order to solve this. And they say, okay, uncle, we have to do what you say. What does the US tell those countries to do?
- [21:57]
D
Well, again, this is purely a hypothetical, it's not a forecast. But I enjoy these kind of scenario projections. Rather than using military statecraft, which is obviously what worked in Venezuela in a very focused manner and is what is not working at the moment vis a vis Iran versus where it was a few months ago, we've hit this stalemate. This comes purely back to economic statecraft and coercion, which is work with us. And together with Fed swap lines, which of course have now been offered to the uae, which itself very cash rich, has a currency pegged to the dollar and has an awful lot of energy and is no longer in opec. And OPEC as we know, let's start offering swap lines to people. So they have that ultimate financial backstop, which most commodity producers traditionally don't. It's only the old boy network of, you know, Europe, boj et cetera, et cetera, who have it when needed for financial assets. Well, no, okay. Now it's for new allies rather than old allies, and it's for physical commodities. So let's offer that. Let's offer the defense umbrella while it still has some meaning, which is one of the reasons why the US I think, can't cut and run and do a taco, which as I joked, is the whole enchilada. But if we do do that and then say, and together with these other countries banging heads together, we can make sure that we can survive the energy crisis and others can't. I think just that carrot itself would see a lot of people rethinking in the same way, an adjunct to this, that while Canada has been obviously daggers drawn with the US because of the way it's been treated in public, and one can understand why it's gone there, the change in rhetoric in some recent headlines from them has been remarkable. That in January you had the Prime Minister Carney saying that we're in favor of a new world order working with China, which is quite remarkable rhetoric for a NATO ally bordering the US to last week saying, we want to form a new partnership with the US to make America great again. And that's a direct quote. So imagine what's going to happen or what could happen were we to see that kind of looming energy crisis. And I think that coercion itself, that carrot together with that stick, that we're creating this crisis by not just walking away, could do a lot of the moving parts or be a lot of the moving parts in and of itself without any guns being needed to be placed on any tables.
- [24:20]
B
You're describing a scenario where the US Has a stronger hand of cards than other players at the table because we could weather the crisis longer than others could. To me that in some ways, China, I mean, China has more oil reserves than anybody, including the United States. They haven't drawn them all down. The US during the Biden administration had already drawn down its Strategic Petroleum Reserve considerably. It's now being drawn down to much lower lows. China's held onto all of theirs. Now, China doesn't have the production capability that the US has, so it's not an apples to apples comparison. But. But is China in a particularly strong position here? And what are the scenarios where China might assert their strong hand?
- [25:09]
D
First of all, let's Think about what their strong hand is. And obviously they are a commodity champion either as the net importer and therefore everyone has to pay attention to them. And if they have the stocks, in theory, they can be the net supplier to people in the way that the US actually is at the moment and Japan is by drawing down its particular reserves and sharing them with others in Asia. So if China's stocks are as high as they say, and let's just say that there are different views on that, I'm not getting into it and I'm not trying to nudge, nudge, wink, wink, but there are public views out there that they're not as high as people think or they're even higher, we really don't know. But let's presume they're very, very high. Well then potentially China can turn around and say, look, the US has the ability for now to dip into the SPR for a while. It's got that defense stack. It's got the ability to step in and help on other fronts too. So we can step in physically with product and say if you actually need oil, we have buckets of it. We can offer you the renminbi via renminbi swap lines which can be set up in various different ways. And effectively we can be there through a medium term crisis in the same way that the US can. And maybe we don't have the same military cards to play yet, maybe in another few years we will and Russia can help out at the margin. So you could potentially see that as being some kind of alternative emerging over time. But that really does depend on whether China wants to share. And you'll notice that initially during this crisis, the first thing they did was to stop exporting refined products and fertilizer, et cetera, which didn't exactly stand behind that view. And interestingly enough, it's only I think around an hour after the UAE left OPEC and OPEC that suddenly China started exporting again. Because I think they've realized that these geopolitical tectonic plates are shifting and they needed to start staying ahead of the game and realizing that that would be potentially an offering they would have to make to people. But that's only true if they have the reserves. Let's take the other completely hypothetical case that they don't. Let's say that they're not there the way that they profess. And how would we know? Well then they're not in particularly strong position. They can maybe keep going for another couple of months and then just as many other countries would realize by the time that we get to late summer, things are looking really pretty messy. At which point, that brings us back to the hypothesis that I've been expounding for quite some time, which is that ultimately part of this resolution could be, ironically, China having to work with the US against its own ally, Iran, because it realizes that the potential damage to it from this crisis is even larger than losing Iran as an ally. Now, we're not there yet, clearly, otherwise there'd be more movement, or at least you'd pick up rumors of it. Even if it isn't being reported in the mainstream press, it's still logical that could appear at some moment. But it purely depends, as I said, in terms of what China can assemble, and that's a product of what they do or don't have as cards in hand. And there's no transparency on that front.
- [28:13]
B
Michael, let's come back to the US Implications of this. Experts are telling us that even if the crisis ended tomorrow, it would take four or five months before oil prices and particularly finished product gasoline prices would start to stabilize again. Okay, well, the midterm elections are only five months away now. So if gasoline prices stay at these extreme elevated levels all the way through the midterm elections, does that make it extremely diffic for the Republicans to hold on to the Congress? And if they lose the Congress, what are the implications?
- [28:53]
D
Well, let's unpack that in a couple of different ways. First of all, as we have seen and as you were referring to at the beginning of this conversation, all it takes is a few handy tweets and prices can go down 5, 6% in a day. So tweeting doesn't cost that much, and it's amazing how much of an impact it can have for a while. You know, ultimately, if we are going to hit that pinch point up ahead, it's not going to work forever. Unless that particularly optimistic view that this is a crisis that can be worked through because, for example, China is importing much less at the moment. And is there some kind of background cooperation going on with the US we simply don't know, then that might be one solution. If not, and we do find that tweets don't work anymore and prices start moving higher, that's exactly the pressure that would lead to, hypothetically, the US Making one of two different choices. Number one is saying, okay, we have to go the whole enchilada and say this is a mega taco, which really does us enormous geostrategic damage and the entire west. Or we have to look at the naphtha scenario I was just talking about, which is we will have lower prices in conjunction with others, but it means that they're going to be much, much, much higher in a larger subset of countries and we're not going to get our reputation back on the other side of that. But we can live with it. But that's just the energy side of it. I mean, you then have to look at the US itself and I'm actually speaking from the US today, which is one of the reasons why I apologize if I'm stumbling over my words somewhat. The jet lag traveling here from Asia is quite remarkable sometimes. But we've seen this constitutional upheaval and I do think we have to be cognizant of the fact that obviously high gasoline prices are very unpopular. But at the same time it's always a binary, one party or the other. And it's also about enthusiasm. So provided enthusiasm can be kept up by Trump one way or another. And I'm not saying that can happen, but it's not impossible if you can make it a sharp binary between whatever Trump is putting forward as a platform at a time versus what the Democrats are doing with the redistricting that we're currently seeing. It's still not a gimme that he loses the midterms. And we have seen very experienced election callers really humiliated several times, not just in America, but around the world in recent years. And I wouldn't rule out that the confidence that people have of what it will look like in November could prove misplaced once again, Michael, let's move on to gold.
- [31:20]
B
Now a lot of us thought that the reason gold has been so weak and why we saw a breakdown in the usual correlation where normally bombs start falling, gold goes up. In this crisis it's been bombs falling, gold goes down. Most people, myself included, have assumed that the reason for that has been that we're seeing an oil price driven inflation signal that's kind of spooking the precious metals market. But you know, we just had a 10 day long, pretty significant risk off cycle in oil prices and you know, gold didn't recover to new all time highs or anywhere close to it. So maybe we're, I'm feeling like maybe I've misdiagnosed why we've had all of this weakness in gold. And so I wonder what do you think has caused gold to be so weak and what's it going to take for it to bottom and eventually turn around? Or does it turn around well again,
- [32:16]
D
without giving any kind of investment Advice and looking at this as part of a bigger picture thesis rather than focusing on one asset and then trying to explain everything back from there. Because that's my methodology. The former, not the latter. I think an interesting anecdote and that's the best I will do here because people who look at gold full time will obviously get, you know, passionate about this and send me very angry emails. But I think the best I think to explain this is very early on in the war you saw the fact that people were finding that they were having to sell gold for dollars to try and then move them abroad and then buy other assets again. So when it actually came, push came to shove in the Middle east. You actually had missiles flying in a region which historically likes gold a lot. You suddenly have people realizing it's not the easiest thing to flee with. You're actually a high net worth individual with a safe full of dollars. Sorry, a safe full of gold. And it is ironically for all the problem with fiat currency, which I, you know, I'm not going to unpack here. We're all aware of the downsides. It's pretty easy to get out of the country, you know, via one press of a button at times. And then on the other side of that, do you really want to put it back into, you know, very heavy to carry metals on the other side? Now that's only one factor amongst many, but I do think it feeds into a broader thread running through Iran, running through economic statecraft, running through what the Fed and Warsh are doing. And that is what is our emerging geopolitical, geoeconomic, geo financial architecture looking like on the other side of this war? Because at the moment the, you could say the war is an interregnum. We don't know if it's going to start again or just fade away. The shooting we've seen over the past couple of days has been, quote, unquote, mostly peaceful bombing, if you can get away with that phrase. But people aren't genuinely focusing yet on what things will look like when it is over. Whether the U.S. wins or loses or this draw drags on longer. And we've talked about the energy side of it to a degree, but many other things factor into it. And the dollar, gold, stablecoins, commodities, all of them factor in too, and in a very big way.
- [34:34]
B
Michael, let's come back to your specialty of economic statecraft. That includes stablecoins. It includes the swap lines that I think have been offered to the uae. There's probably other dimensions of this. Take us out to the bigger picture of what's going on here in terms of what you think Trump and Bessant really have in mind. Longer term, what are their intentions for the US to assert economic statecraft and how are the ways that that's going to play out?
- [35:01]
D
Sure. Well, I think the easiest summary of that is that clearly there's absolutely no appetite from Bessem or from Trump to give up the global power of the dollar. But there's a full understanding that the Eurodollar system, which does give the US a great deal of power, is also responsible for deindustrializing it because everyone demands the euro dollar, which comes from holding US Financial assets rather than productive assets. So you can make the link that effectively the rules based order was propped up ultimately by the US Military, the US Military was propped up by US Industry and US Industry was killed effectively by the US Dollar system. And therefore the US Dollar system killed the system, the rules based order, which actually props up. So it's a closed loop and I've been arguing that in various different ways for a long time. But that doesn't mean you want to give the dollar up completely. So I think what they are going to try and do, and we've discussed this in part before, but again, it runs through this war. It runs through energy, it runs through commodities. We're trying to push back at once. China is doing like letters through a stick of rock, is the use of stablecoins to effectively create lower interest rates in the US and effectively sucking euro dollars out of parts of the global economy and replacing them with these digital tokens which to an extent for the US are buy one, get one free. So why would you not want to do that? And they also have a sorting effect and that the countries that will trade with you, that will put tariffs on China and share a common external tariff with you against them and split their technology supply chains and work with you on defense. They will be the ones that will accept these digital tokens which are not money, but they can become money if people will accept them as money. They will be the ones who will accept them and the ones who won't ultimately weren't going to be your allies anyway. So there's a sorting effect, there's a reorganizational effect, there's a buy one, get one free and there's fiscal breathing room through all of that. So that's what I think the US Is trying to achieve there. And I think they were already, they were moving towards that. The Iran crisis war is likely to accelerate that particularly, you know, depending on how it ends. But that's just the US View. There are other countries and other players involved here. Obviously it's not only the US playing the game and the interaction of how all the different players come together will drive ultimately what that architecture looks like.
- [37:37]
B
You mentioned earlier this scenario of you said something to the effect of if the US Wins this war with Iran or loses this war. It really got me thinking. Obviously the US Is not going to lose the war in the sense of Iran won and destroyed the United States and the country doesn't exist anymore. So what does losing the war for the United States look like? Is it just the scenario where Trump is forced to taco and walk away and say, okay, that didn't work out the way we thought and just walk away from this, leaving Iran kind of controlling the strait? Is that the lose scenario or is there a worse one I haven't thought of?
- [38:14]
D
It's a cascading effect that flows on from that because what it would do at a meta level is show that even when you have a very ostensibly gung ho president like Trump, I mean, in reality, of course he hasn't been getting involved in wars on a large scale up until recently. And of course that's what he's campaigned on so successfully in the past, which is counter to the image that some people have of him domestically and internationally. But even when you have someone who's prepared to talk very tough about these things, that effectively the US Would be in a state that the geostrategist Edward Luttwak refers to as post heroic. Whereby, and this isn't any kind of criticism, it's just an observation that the US is so casualty phobic that while it has this magnificent technological military machine which is of course very highly reliant on inputs from China and others, and that's, that's part of what Trump is trying to address by onshoring and shifting supply chains, et cetera, et cetera. It's limited in what it can achieve. It can do a lot, but it can't achieve everything it needs to. In the same way that Israel wasn't able to fully defeat Hamas because it would have required many more men on the ground going everywhere the US would have needed to have boots on the ground versus Iran. In some scenarios you could argue that. And if that political will for that isn't there, then you can say, well, therefore there are certain geostrategic problems or quandaries that the US simply isn't going to be able to resolve and the cost of being involved is going to get higher and higher without any realistic prospect of victory. Ergo, the more logical thing to do is to, as you said, cut and run and say, right, however we dress it up, Iran controls Hormuz, et cetera, et cetera. But that would shatter the US image globally, which is why in the past I've referred to it as a 1956 crisis for the US in the way that the UK and France experienced one, and it dropped them from being great powers to just being powers. And the US would of course remain a hyper power were this to happen. But people would recognize, well, there are lots of things it just can't or won't do anymore. And that does absolutely change the parameters within which its opponents would expect it to then operate. So it really is very significant. And within the Middle east in particular, just to underline that it would change the dynamic totally, it wouldn't necessarily be for the better for anyone else either, because if Iran says, well, effectively we're top dog, even though the UAE has openly come out and attacked Iran several times, it's now been revealed much of the Gulf might end up having to try and make terms with Iran, even though they don't like it. But not everyone would. It's potentially the case that the UAE and Israel would continue sniping away at it and you could still therefore have have structurally high energy prices. Even if the US says well, we're out of here, countries that are permanently based there may not accept the fact that that happens and say we're not going to give up. So there are lots and lots of cascading effects both for the region, for the U.S. and for the entire west that flow on from it. And how you price that is interesting, but I think you would have to really take a step back and think is one still as positive on the US dollar and on US assets in their totality, if you're accepting that there's a very firm limit to what the US is prepared to do.
- [41:36]
B
Final question, Michael, let's go back to the Kevin Warsh Fed. I think you're right that the theme here is going to be economic statecraft, stables, coin statecraft and so forth. What, what policies do you think if you had to kind of predict the wild surprise scenarios that nobody sees coming? Not predictions, but scenarios or possibilities, wild outcomes. What are the Fed policies that Kevin Warsh might advance that would surprise everyone?
- [42:08]
D
Well, I've been talking about this for a while, so this isn't completely new, but I'm not sure if we've discussed it here. Or again, my jet lag is so severe that I can't remember if we had that apologies. And that's this that Walsh is openly talking about trying to reduce the Fed balance sheet, which itself would really set the cat among the pigeons, as I'm sure you're aware. But at the same time, Trump is talking about expanding the Pentagon budget next year by $500 billion. Well, how do you square that circle? And ultimately alongside a corollary to this, which I think is the Fed may have to start looking at the supply side rather than the demand side, and which sectors of the economy need lower or higher rates than others, rather than one size fits all, which I've never understood the logic for, in a geopolitical environment, the Fed might be having to think right, do we really need to be offering QE style balance sheet support to the financial part of the economy, which effectively doesn't do anything in terms of actual physical bang for the buck? Fair enough. But do we need to be looking at some kind of acronym tacit balance sheet support using one mechanism or another? And there are lots of ways, of course this could be dressed up in a technocratic way that wouldn't make it look quite as egregious as it is when I describe it in a simple form like this to saying, well, we can offer the same QE support that we have done up until now, but for the physical economy. So for example, again, swap lines or stablecoin support for countries that are going to physically build out mines, port infrastructure, shipbuilding, military supply chains, et cetera, et cetera, et cetera, to re industrialize and remilitarize parts of the US And I think I've made this joke on this podcast before and if I haven't, now's the time and if I have, I humbly apologize. Which is I've said for years that we are now living in a World of Warcraft, and I think we can all recognize that whether this particular war is on hiatus or not. But effectively the joke here is that that would be using what I also call financial fartcraft, which is just financialization, to try and prepare for a World of Warcraft. And I don't think people have, in markets broadly got their heads around what it would mean to have extra liquidity that goes to some sectors, but it doesn't flow to all the favored ones, which is what an entire generation, if not two, of financial market participants have grown up expecting as normal. But I think we are now in a new normal, and therefore that paradigm will have to shift.
- [44:53]
B
Well, Michael, I can't thank you enough for another terrific interview. I really enjoy our talks every time we get the opportunity. Before I let you go, please tell our listeners a little bit more about what you do at Rabobank and how they can follow your work.
- [45:05]
D
Sure. Well, as you've probably heard, I'm the global strategist at Rabobank for the economics and Markets team, which means I look cross asset, cross geography and cross disciplinary to try and join the dots and project those dots forward to look for the kind of rather esoteric emerging trends that I'm talking about that once upon a time only happened every few years or every decade or so and we're just just colorful entertainment up until that point, but now seem to be happening once every couple of weeks. And so we really do need to be spending much more time talking about them. And if you'd like to join me in those conversations, if you're a Rabobank client, please go to the Rabobank Knowledge website. And if you're not, look for me on LinkedIn and also look for me on X and the handle is hemichaelevery.
- [45:57]
B
Patrick Ceresna and I will be back as Macro Voices continues. And be sure to stay tuned because we've got a cameo appearance from Commodity Context founder Rory Johnston with an update on some of the logistic issues in the crude oil market.
- [46:13]
C
Eric, it was great to have Michael back on the show. Now Rory Johnson is next on deck for a special second feature interview with an update on the Iran conflict, the Strait of Hormuz and what it all means for the markets. Then Eric and I will be back for our usual post game chart deck and trade of the week. Now let's get to Eric's interview with Rory.
- [46:35]
B
Joining me now is Commodity Context founder Rory Johnston for the update on crude oil and what's happening in the Strait of Hormuz. Rory, let's start with the flows through the strait and get an update there. I'm surprised that we haven't seen more people publishing charts or other clear indications to visualize exactly what's going on. But we know that, you know, 20% of the world's oil under normal times flows through the strait. But there have been mitigations like the Saudi east west pipeline and so forth. How much crude oil is flowing through the Strait right now with the small amount of traffic that has been turned back on and how much is still constrained, you know, not flowing as a result of this and hasn't found its way around the corner. So to speak.
- [47:21]
E
Yeah. So I think it's. And thank you for having me back on, Eric. It's been a. An extraordinarily long three months. Let's break this into two pieces because I think there's a question of crossings in terms of what's getting through the strait, and then there's this question separately about what's currently shut in. So right now we still have hundreds of vessels trapped in the Gulf, the Persian Gulf, the Arabian Gulf, depending on which side of this you're on this large body of water, 2,000 vessels or so now, 800 of those are the large merchant ships that we typically track. And what we've seen over the past couple, basically over the past month is we've seen between one and maybe a dozen or so of those ships cross every day. That is slowly trickling down what is now effectively, I think it's important to think of the oil and water trapped in the Gulf. Think of that essentially as a stockpile. At this stage. It's dead oil. It's been produced. It can't go anywhere. It's sitting there waiting to be exported. So as you let. As Iran lets these ships pass, what's effectively happening is Iran is tapping a type of strategic petroleum reserve. Effectively, more ships means more SPR oil coming from one stock that's not accessible to the market to a broader stock that's accessible to the market, essentially commercial inventories. Now, on top of that, the question of the amount of oil that's been shut in, that is something where we're talking about. This is the 13 to 15 million barrels of oil, depending on if we're counting Iran at this stage of production that has been shut in for lack of any export capacity to get it anywhere else. Wells, people that watch the industry, I mean, this is very familiar in Western Canada when we ran out of pipeline capacity. You can't just spill it on, you know, onto the lawn. So if you don't have anywhere to put it, you got to shut those wells in that 13 to 15 million barrel a day is the core supply crisis, or production crisis really, that is currently still gripping the oil market. And crossings out of the straight are not going to ameliorate that issue. The only thing that will do this, and I just published a piece yesterday at this Dispatch where I published a monthly column on this stuff, talking about the process by which we can normalize the strait. If I have no idea when they're going to sign an mou, we'll talk about that in a second. But what. Whenever they do that, there will be a process that will need to be started of clearing long stranded ships out of the Gulf and then getting new ships into the Gulf Gulf. And that process is going to take weeks and more likely months before you can even start the months long process of restarting oil production that's been shut in. So in terms of the actual flow, we're probably draining down the stockpile of trapped oil and water in the Gulf by between 1 and 3 million barrels a day, as that keeps kind of drawing down. Again, we're talking, you know, a handful, a half dozen ships on average transiting every day. And that includes dark transits that we're watching as well. So that's the current situation of what the flow out of Hormuz is right now, and that is the core supply shock to the market.
- [50:30]
B
Now, I did an interesting experiment because you and I are very like minded in this, and you know, our job as investors is to take a step back and say, wait a minute, but who disagrees with us? And who's the smart guy who's got a different viewpoint? So I challenge Claude, my AI assistant, turned it up to maximum research mode, maximum effort, opus 4.8, the highest settings I could get. And I said, scour the Internet. I want to know. Not macro tourists, but oil guys, veterans of the physical oil market. Who are the guys that are saying that we're wrong, that it's not as big of a deal as we think it is? And tell me. And it was really interesting, Rory. What I got back is it said, yes, there are guys who say it's not that big of a deal deal. Including our good friend Ola Hanson, who says he doesn't think it's going much over 200. I'm like, okay, that's not big deal, only over two.
- [51:25]
E
Well, you know, I'm glad there's a ceiling somewhere.
- [51:29]
B
And a couple of other people saying, yes, there will be a spike, but the fears of a long term spike, probably not. It's up to 200 maybe, and it freaks everybody out and comes back down. There are several people saying that. The one place where I was able to find someone who doesn't think we're going all the way to 200 was our good friend Dr. Anas Alhaji. And what Anas told me in a weekend phone call is he said, look, the basic analysis everybody's doing is right, but what they're missing is there was so much commercial inventory, there was so much stock, there were so many things that people were able to do to turn up the screws in other places that there have been mitigation. So although yes, the 13 million barrels per day that's shut in did get shut in, there were other things that got freed up and turned on. And really it's only about 3 or 4 million barrels, not 13, that are a deficit in the net that have, you know, just there's no replacement for at the moment. So yes, it's a problem. Yes, Annas thinks that there's plenty of room for oil prices to rise between now and the end of the year, but he thinks it'll be over before the beginning of 27. He thinks oil prices below 100 in 27, but maybe they're not done going up in 27. So that I thought was the most bullish take that I can get is it's only going to go up to 150 or so and it'll come back down before the year is over. That's the most, the least fearful perspective I can get from anyone who's really qualified with knowledge of the oil market. Is that consistent with what you found? I mean, have you found any veteran oil guys who disagree with us and think, nah, it's no big deal, it's know whales are short here?
- [53:22]
E
No, I think there, I think at this stage we're so deep into the confusing market reaction that everyone's second guessing themselves. I don't think anyone that is a self aware analyst at this stage can look at the data and say, okay, my model of the how the world works has not come under fire here. And I so let's talk about those things because I think there's a couple things going on here. There's two main things that are happening and I should say that I would put myself probably in that second category of analysts you mentioned, which is I don't think if we got to $200, I don't think that would be like a new normal. I think that the world would rapidly evolve, you know, offsets and new ways of handling things in that, in that scenario, 200 is essentially what I see as if we do not open Hormuz, that is the level that price would need to rise to temporarily ration demand until those other things got sorted out. But I think that that's still bullish relative to what we're seeing. So why aren't we seeing that yet? I think there's two things that have happened. One is that undeniably prices are not reacting as aggressively, as assertively as in such a panicked manner as they would have historically. In any other moment even, because it's, you know, Anas is right that we did build up a lot of, of commercial inventories. Again, if you had had me on, I can't remember if you had me on in, in December or January, but I was pretty bearish. And I think that was because of that, you know, large inventory that had been built up. That said, even with that inventory cushion, we are now drawing that down at the fastest pace of any crisis on record. If that was happening in any other moment in the market, the market would be way more panicked than it is right now. So I think part of this comes to the fact that this is weirdly be viewed as a transitory shock in a way that I don't think any other Russia wasn't, you know, any of the other prior big surprises or concerns in the market were never viewed as as sharply theoretically temporary as this one is. So I think that's part of it. But I think also the way that the White House and the president, President Trump has injected volatility in this jawboning effort has to come under scrutiny here as the prime culprit for why we're not having markets that are reacting more to the upside risk we're facing. That said, I think we did also miss we, I mean as, as oil analysts, me particularly that we have seen a remarkable retrenchment on the consumer and importer side. But 90% of the that or more is happening in China. And I think it's important that we sit and talk for one second about what's happening in China because I was just tweeting before jumping on this, on this podcast, Chinese crude oil imports have fallen by roughly 50% relative to pre war levels. Prior to that, in terms of seaborne imports, they were importing ballpark's 12 million barrels a day of crude. Now that, you know, as of the latest, you know, four week average, we're looking at 6 million barrels a day of crude. And that's heading even lower in the latest unsmooth weekly numbers. That is really huge. That's half of the entire supply shock from Hormuz. That's more than the collective injections of SPR A strategic reserve injections from every other country on earth. So there's two options as to what's happening here, either Chinese or, you know, Beijing. The Chinese government is silently and massively at a massive scale influencing oil supply in the market. And we'll talk about what that could look like. Or you're seeing massive, you know, Covid zero and then some Demand contraction, demand destruction in China. Now let's count that one out quickly first because the mobility data we see is not showing a collapse in trucking traffic, a collapse in road congestion, a collapse, a collapse in flights. All the normal things you would associate or assume would be happening, not happening. Then you're like, okay, so where's the oil going? We have also seen a collapse in refining runs in China, but not enough to account for the collapse in crude oil imports. So they're probably drawing some inventory that we can't see because the other weird thing here is that we do have up until recent crises, a pretty unprecedented degree of visibility into global, at least inventors of crude oil. Well, and that's because of companies like, you know, data providers like Kepler and others that, that use satellite inferred estimates of what's sitting in these kind of floating roof storage tanks. So we know that China has well over a billion barrels of crude oil across the country and we know that it actually kept rising through most of most of the Hormuz shock thus far. You've seen a little bit of a drawback over the last week or two, but nothing hugely material and definitely nothing that would supplement a collapse of 50% in imports. So that means that, you know, the only way to square this is either all the data we're seeing just fundamentally is wrong across the board, which seems unlikely from multiple different providers, or you are seeing injections of up until now invisible inventories or non visible statistically inventories. Now what would that look like? Well, we're talking about, about estimates based on satellite based technology. Underground inventories can't be seen. So that is one of the kind of leading contending theories as to what's happening there on the crude oil side. But then also you've seen the collapse in refining runs which normally would imply a collapse in domestic consumption of fuels. But again, going back to the fact that we have not seen that in the data again implies that we're seeing injections of refined product, product into the market. Now back all the way back in 2023, I'd written a piece called Chinese Demand Debts that Chinese impairment oil demand data was rocking through 2023 and again at the beginning of this crisis. Now one of the theories at the time was that it wasn't real demand at all. It was, it was strategic stockpiling of refined products potentially in anticipation of a war or invasion of, of Taiwan. But that thankfully never happened. Now we're at the stage of, oh maybe actually it was for exactly this kind of moment knowing the precarity they face. But I think the consequence of this is twofold, and I think it's like, really important. One, that means that China is likely, as an emergency backstop now, a more effective participant and policy player here than even is OPEC in terms of rapidly swinging the global ballot. And second, it likely also means that the surplus we had prior to the war was larger than we had appreciated, given that some of the strong Chinese demand we were seeing likely wasn't real demand at all, but was rather stockpiling. So I think it's still going to take time to sort all this out. And I think, you know, you were saying about, like, you know, have. Do I know of anyone that knows oil that, you know, thinks this is all happening exactly as it should be? No. And I think there's been, this has been like the ultimate crisis for people being right for the wrong reasons. Clearly, I have been wrong thus far on price. I think I'm still trying to understand what it is that has allowed prices to remain discontinued. They are. I mean, again, I'm looking at my screen right now, we're at 98 Brent high, but not three months of Hormuz close time. So I think it's, again, those two things. One, China has balanced the market more than anyone expected it could, certainly more than I expected it could. And second, the historical relationship between inventory draws and panic in financial markets and futures markets is just much diminished and neutered relative to what it would have been if this crisis had happened in any other year, likely under any other president.
- [61:23]
B
Rory, I'm absolutely fascinated by the collapse in Chinese refinery runs. That doesn't make any sense to me because it seems to me if I put myself in China's shoes, one thing you might believe is, okay, this, we could be headed into a global war situation. If that was the case, I would expect China to be producing every bit of diesel fuel that they possibly could, jet fuel and so forth, to get ready for the war. Or you could say China is going to come to the rescue here and at a considerable profit, take advantage of its very large crude oil inventory and sell finished products to the rest of Asia for a pretty penny. That would be certainly an opportunistic thing for China to do if you wanted to do that. They would increase their refinery runs to the absolute maximum to have the maximum amount of finished product on hand somehow. At least the data that we think we have are telling us that China's economy has not slowed down. They have dramatically slowed down their crude oil imports. But they're not drawing down their spr, at least according to what they're reporting. So they're not taking anything out of storage in order to refine that. They're reducing their refinery runs, they're reducing their imports, they're not slowing their economy. They're not stockpiling finished products for a war or to sell. What's the angle?
- [62:55]
E
Yeah, so I think I, I think there's one other piece of information that I forgot to mention which I think is important from the commercial consideration, which is part of the reason that refined, because I agree with you, if you view the entirety of China as one strategic state entity, which it can be at times, but in, at least in practice, it still is. You know, producers and companies trying to optimize profits, at least where they're allowed to. One important policy that has happened here is that Chinese basically fuel cap, fuel price caps on pump prices for retail consumers have dramatically shielded China, Chinese consumers, from the explosion in global prices. Like, you've seen a rise in, I think, Beijing's retail prices for gasoline of like maybe 30% versus a global doubling. That helps explain why, why activity hasn't collapsed. It also helps explain why refinery runs have collapsed. Because you essentially have, you had reasonably strong margins, refining margins before the war, and all of a sudden the cost of your feedstock has exploded while the cost of the product you sell has been capped. So your margins have imploded to deeply negative levels. That also helps explain why at the beginning of this, China banned the export, or at least severely limited the export of refined products. Because if you have this massive divergence between local product prices and global prices, well, obviously incentive is, would be to export all of that product, which would go against China's desire to, to try and insulate consumers. I think the final piece of this is this question of, like, what could China be up to here? Because I think at the beginning, my resting theory was that we could see that they weren't drawing down in inventories. That we could see that's still the case largely, essentially the argument at the beginning was they didn't want to help the Trump administration essentially take some of the heat off because they wanted Trump to feel the pressure and be forced to figure out a way to wrap up the Iran war and get things flowing again. But now, clearly that's not in the entire story, at least as far as we can see. So one question is that if this is a long game thing, and if this is seen as a moment of particular, at least for much of the world, a particular fumble on the part of the Trump administration. The classic refrain of, like, don't interrupt your opponent when they're making a mistake. Let Trump keep doing this and in fact, help save the rest of Asia. Now, you know, within your broadening and tightening sphere of influence, you can shield them from some of the big consequences of the exposure to SeaWorld markets by dramatically slackening up. Like I was just checking the data just before this call, and the degree to which basically imports of, of Korean, Japanese, Australian, you know, you know, all these major importers, there was a big fallback in April and then big back in May, largely facilitated by China's pullback. There was no competition from Chinese purchasers. Now, anyone that knows anything about Chinese importers, they are ruthless if they want the stuff that they're after. So there's clearly no longer interested. Now, I think, again, part of that could be explained by this domestic policy and the kind of deeply negative margins. But again, I think Beijing's smart enough to also know that. So they also have to have a reason for trying to do this. I think part of that is that they could be trying to step into a bit more of a multilateral governance, good guy role in a part of the world that now sees Trump as someone who left them for slaughter.
- [66:28]
B
I want to come back to something you said earlier, Rory, which is you said that you were kind of pondering why is it that oil prices didn't move up much more sharply as you had estimated or anticipated that they would. I have a hypothesis about that. If you think about how commodity markets have to balance supply and demand in real time, they don't work like the stock market where they're forward looking, at least until you consider the impact of speculators, that is they have to balance supply and demand in real time. I think back to the COVID pandemic, when by the end of January, I was just loading up, up backing up the leverage truck to shorts on crude oil, because I could see what was coming. And I was shocked that the market went the other way for about a month. And the reason is it wasn't until they actually canceled all the flights and really shut down the entire planet that that real time supply and demand balancing effect happened. And then the crash was dramatic. I think what's going on here is you had initially a rush of speculators into this market saying, we can see what's gonna happen. Oil prices are going to the moon as a result of supply, demand balancing. That's not gonna happen until the buffers are used up. And so forth, which will take a few months, but we can see it coming. So we're gonna pile in. And then they learned the power of the Truth Social post, which is Trump can knock 20, $20 plus out of the price of crude oil in 10 minutes. Some people speculate right after he tells his friends he's about to do so. And I think that the speculators got knocked out of this market just saying, okay, look, we can't anticipate what the President's gonna do next, what the next tweet is going to say. As tempting as it was, it seems like it's not happening. We're going to just stand down. Well, if the speculators stand down, there's really no reason to expect crude oil prices to go shooting to the moon until the buffers are in fact used up. And as we know, we've been burning through them, we can see what's coming, but they're not used up yet. So I think it's still coming and I think when it comes, it will be unstoppable. It doesn't matter who posts what on Truth Social because the effect of those Truth Social tweets was to scare the speculators out of trying to bet against what the White House wanted. When it's not speculators anymore, but it's a rebalancing of physical markets, all the Truth Social posts in the world won't make a bit of difference. What do you think of that hypothesis?
- [69:11]
E
I think that's right. I think that I wrote a piece called the Sanguine Straight Stoppage over a month ago now, which again feels like yesterday. But it made a similar argument that basically I potentially my greatest error was I always argue that commodity markets are not forward looking and then I was shocked locked when they weren't forward looking. And that I think that might be my, my greatest sin through this era is expecting them to look forward and say, oh my gosh, this obviously is coming again. I think the one complicating factor here is this China stuff. Just that it we are still drawing down those buffer stocks at the fastest rate on record. The implication is that we are also drawing stocks at record paces in China. We just can't see it to verify. But that makes me nervous. Right. Anytime we have a very, very large piece of the model kind of unobservable that you kind of just don't know what's going to happen with. Because there's this question of how long can China keep crude imports at 5 or 6 million barrels a day less than half of where they were in February. And the simple answer is we don't know. No one really knows how long China can keep these imports low because we don't know the full status of these stockpiles that we can't see that they seem to be drawing from. But I think that's this question. I think you are right and I think that what will end up needing to happen is that we will need all the high frequency, transparent, trustable data, eia, weekly inventory, et cetera, to show that we are ripping below the bottom of our trailing averages and kind of trailing seasonal levels. And that process, I think is being slowed by China's retrenchment. I think the first, the number one thing now to watch if something happened, what is that a sign that things are getting better or worse? If Hormuz is still closed and we see Chinese imports begin to pick back up again when the delta and the impulse shifts from loosening back to tightening, I think that's probably when we do that next rip higher. Because I think, because I agree, I think that the people that are like barrel counting and speculating on barrel counting, I would agree they seem mostly shaken out of the market at this stage. Now it's physical traders trying to balance the next month or two, which is not a very long time in, in the scheme of, of looking forward in the market. So now we're going to see those stocks draw down. And I, and I think that we will likely see those happen around the same time when those inventories do draw down to concerning levels through the end of June into July. Now, can't believe we're talking about this, but that's what we're looking at. And then around that time will probably be when China stops reducing imports at the very least and starts ticking them higher again. I think that combination of a tighter realized balance condition evidenced by those lower inventories, mixed with a, you know, a surge back of Chinese buying to kind of make up for the fact that they're no longer doing this temporary SPR releasing. I think that will probably be what the trigger is, is. But again, it'll be interesting to see because so far the market has remained otherworldly patient through this, more than I ever expected the oil market could ever be.
- [72:21]
B
Now, something that I thought was absolutely fascinating you just said a second ago, the end of June, maybe into July, like, wow, that's a really big deal, Rory. Yesterday Tuesday, the President tweeted on Truth Social and said, look, everybody calm down. We're gonna get this all under control, we can probably have the blockade lifted by Labor Day. I know and immediate. Tracy Shucart posted Labor Day the one that doesn't happen till September that Labor Day.
- [72:49]
D
Yeah.
- [72:50]
B
What? So if the strait remains substantially closed, the blockade is in place and I think the president is absolutely convinced and I say this because he said so. Time is on our side. We're going to, we're going to wait him out. I don't know why he thinks that time is on our side, but he does. If the strategy is we're going to keep the blockade in place and keep the strait substantially closed, other than apparently it feels to me like somebody made a behind the closed doors deal with China to say we're going to let a few Chinese ships through. Aside from that, we're going to keep the strait closed and kind of smoke them out all the way until Labor Day. Do you think that the physical market can go that long based on the flows that you see? And the buffers will last and we'll make it till Labor Day before this really blows up to that $200 scenario.
- [73:43]
E
Look, if could we make it to Labor Day, assuming China maintains the same level of support for the market without reaching 200 possibly. Could we maintain the straight closed through Labor Day without seeing prices much higher than $97 a barrel? It's actually dropped a buck since the last time I, I looked at the screen. Since from 97. No. At that stage, you know, we will have drawn hundreds of millions billion plus more barrels of inventory drawdown across the system. Even with China massively drawing down this black hole spr, they apparently have stalked away for a rough moment like now. It can't be that big. So yeah, I think at that stage, if this is truly still going through the end of summer, then yeah, I, I, I don't see a way to avoid substantially higher prices. 150 kind of would be my updated assumption around what that would be like on that timeline. But and again, if not, if it remains to close to September and we're still having this conversation at less than 100 bucks a barrel, well, I will probably, you know, need to just completely rip up the entire way I thought I understood the market and or move to China so I can have on the ground insight a little bit more into what is apparently now the single most important country in the oil market.
- [75:08]
B
Well, Rory, I can't thank you enough for another terrific update. We're looking forward to bringing you back for a feature interview soon. Meanwhile, give our listeners a quick take on what you do at Commodity Context and what they can expect to find@commoditycontext.com
- [75:23]
E
thanks again for having me Eric. Always a pleasure to chat and it's been a nice change of pace to be on the same disbelieving side of the market under reacting something like this relative to some of our prior disagreements. So it's nice to be on the same side of the disbelief this time. Overall, you can follow my work at Rory Underscore Johnston and all of my work professionally@commoditycontext.com we've got a weekly every Friday we've got three monthlies and we've been doing an endless volume of work on Iran and this largest supply shock ever. And the next piece I'm hoping to look at is trying to dig deeper into these inventory questions to get a better kind of guide stick to measuring how close we are coming to those truly precarious tank bombs levels.
- [76:02]
B
Patrick Seresna and I will be back with the post game chart deck and Patrick's Trade of the Week as Macro Voices continues right here@macrovoices.com.
- [76:16]
A
Now back to your hosts, Eric Townsend and Patrick Ceresna.
- [76:21]
C
Eric, it was great to have that update from Rory. Now listeners, you're going to find the download link for this week's Trade of the Week week in your Research Roundup email. If you don't have a Research Roundup email, it means you have not yet registered@macrovoices.com just go to our homepage and look for the red button over Michael Every's picture saying Looking for the downloads
- [76:42]
B
Patrick for this week's Trade of the Week, Michael Every argued that policy may be shifting away from broad support for financial assets and toward the physical economy. Patrick for investors who subscribe to that view, what's the most practical way to express that industrial rebuild theme in the market?
- [77:00]
C
Michael Every's argument was that we may be entering a very different policy regime where the focus shifts from simply supporting financial markets to rebuilding the physical capacity required for economic statecraft. That means infrastructure, supply chains, ports, transportation, industrial production, energy systems and strategic manufacturing all to become more important. So rather than trying to trade the next headline around Iran oil and Fed policy, this week's Trade Trade of the Week is about positioning for a broader industrial rebuild theme through the PAVE etf, which gives diversified exposure to US Infrastructure and physical economy investments. From a trade construction standpoint, I want to keep this one simple by taking the outright exposure to the PAVE etf, which is symbol P A V E. The ETF is trading around $57.24 at the time of recording. The objective is to own the shares as a long term tied to the industrial rebuild theme. The tactical concern is that the broader market has already rallied aggressively with the S&P 500 moving almost 20% from trough to peak in roughly two months. That kind of move can leave the market short term overbought and vulnerable for consolidation, backfilling or a summer correction. So rather than ignoring that risk, I want to build some short term protection while still establishing a longer term position. To manage the short term risk, I'm pairing that long pave share position with a near term protective put. Specifically, I'm looking at the July 17, 2020 $655 put which has roughly 43 days to expiration, which is trading around $1.25. That strike sits almost directly on the 50 day moving average hedge currently at 5506, making it a logical short term technical support level to define the hedge around. If the market keeps rallying, we stay invested in the shares and the put simply acts as an insurance. But if we do get a short term correction, that put provides downside protection and gives us flexibility to either repair the position, roll the hedge or improve the average cost base into weakening. From a payoff perspective, the effective cost of the stock plus put position is about 58.49 including the options premium. The protective put defines the short term floor at $55, limiting the risk through the expiration to roughly $3.49 per share or about 6% from the combined entry cost. The result is a way to establish a long term exposure to the industrial rebuild them, retaining tactical flexibility if the broader market finally decides to exhale after a nearly vertical rally.
- [80:06]
B
Patrick Every Monday at Big Picture Trading, your webinar explains how retail investors can put on our most recent trade of the week. For those listeners that want to explore how to put on these trades in greater detail, don't miss out on a 14 day free trial@bigpicturetrading.com now let's dive into the post game chart.
- [80:25]
C
All right Eric, let's dive into these equity markets.
- [80:28]
B
Well Patrick, the rally continues to astound me. Eight days up, one day down. That's a great pattern when you can get it. But this can't last forever, and experienced investors know the longer that the unsustainable sustains, the less likely it is to continue sustaining. I'm still convinced that President Trump is wrong to assume that time is on our side in the Iran crisis. I think the opposite is true and I think A big oil price spike could still pose a serious risk. But one thing's clear, equity markets just plain aren't concerned about that risk, at least not for now.
- [81:03]
C
Eric, you're absolutely right about it being an astounding move. Going back almost 20 years, there's only four times we've seen a rally of this magnitude. And certainly, you know, the market is stretched on almost every metric. When we put on something like a relative strength index, you can observe the incredibly overbought conditions of these markets on the short term. So at this stage, that usually implies that the stock market will have a ceiling, which is essentially it's going to be very difficult for it to make further progress. It's just overextended. But the bigger question is, is there going to be a bigger, deeper market correction here and what would be the trigger? Well, first of all, we're still quite a ways away from systematic trading strategies kicking in. They're selling and so there. It's not at the edge of a cliff here, but on the short term, the markets could start to wobble here and we start seeing failed rallies and some more active distribution. Certainly a catalyst such as oil breaking north of a hundred causing disruptions in the bond markets could certainly act as a catalyst to create some nervousness that could spur profit taking. We'll certainly see how it plays out at this stage. The wicked I would very simply summarize it is it's a very poor asymmetry at this moment for pressing the market higher. And certainly hedging up and or reducing exposure is a very logical thing to happen in these kind of market conditions. All right, Eric, let's talk about this dollar.
- [82:40]
B
Patrick, we're holding steady around 99 and a half on the Dixie. It hasn't turned down, but it's not breaking out to the upside either. Then again, the war action was mostly muted and it appears to me that President Trump and his administration are going to lim their actions, at least for now, to what they can describe as self defense strikes, apparently trying to hedge congressional oversight challenges. Of course they can't pass a law like that. President Trump would just veto it. But there's some political headwind that he's facing there. So I think there's still room for an upside breakout here. If we return to a full scale military conflict in the Iran theater, I have a feeling we're going to eventually. But it seems like President Trump, Trump is trying to hold off on that for as long as he can. So I'm not sure when it happens. If we do get that escalation. I think it probably takes the dollar back up again.
- [83:34]
C
Well, Eric, the dollar is attempting to break out of a one month trade range through the month of May here in early June. On the upside, and that's really on the back of the euro at this 116 level. And the way I look at it is that we now have the ECB coming up next week. And if we see that the situation in Europe is in any way deteriorating, we may see the euro being the outlet for, for a weakening or deteriorating European condition, which would by default allow the US Dollar to rally. And so I'm watching Europe very closely here to see whether that's where potential strength merges. All right, Eric, let's talk about this oil chart.
- [84:17]
B
Well, what's clear to me is no deal is in sight with Iran. Total disagreement on the nuclear file, which has been the key issue through this. When President Trump tweeted this week, iran has agreed to no nuclear weapon. That's not news. It's a red herring. Iran agreed to no nuclear weapon years ago. That hasn't changed. It's been a consistent part of Iran's position ever since this conflict began. What they've said consistently is they do not have nor do they intend to develop a nuclear weapon. However, they are not willing to give up their enriched uranium, which is the key ingredient needed if they should ever change their mind. They're trying to maintain what's known as a nuclear threshold state condition, which means they've got the material they need that they could develop a nuclear weapon if they ever decided to. But they have not made that decision yet. So Iran's position has not changed. There is no news. The President is just retweeting old replayed tapes, I think in an intentional effort to just jawbound the oil market lower. Maybe he's confused on that point, but he's done that so many times now. I don't think he's confused. I think he understands what's going on. I think he's just trying to jawbone the oil market lower. One way or another. The market seems to finally be very slowly waking up to what should be obvious, which is there is no deal. There is no hours away from a deal. That's all a bunch of baloney. I thought the Labor Day tweet that I discussed with Rory Johnston was the biggest tell of the week, where President Trump said that the US Embargo on Iran could be lifted as soon as Labor Day. Labor Day is not soon. We're talking about American Labor Day. The One that happens in September. So, you know, if we're going to be Strait of Hormuz substantially closed or only at the very, very muted limited flows, less than 10% of normal that we have now, if that's going to continue for the next three months until American Labor Day, it's going to have an absolutely crippling effect, I'm convinced, on energy. And it's going to eventually force a move much higher in oil prices. How much higher is anyone's guess? The thing to watch here, the big curveball that could really accelerate that quickly would be a closure of the Strait of Bab El Mandeb. That's, that's the bottom of the Red Sea, the other side of Saudi Arabia. Right now, the oil that can't get out through the Strait of Hormuz, a lot of it is getting pipelined over to the Red Sea and it's coming out through the Strait of Bab El Mandeb. So if that gets closed too, and it is well within the possibility of the Houthis and Iran's proxies, that could definitely escalate things and escalate them very quickly. I think whether or not the Israel Lebanon conflict re escalates will probably play a role in that. So I don't know what is happening or what to predict or when it might happen. But a closure of that strait would really add fuel to this fire and add it quickly.
- [87:34]
C
Eric, I'm keeping it simple. Clearly there's going to be a floor under oil. You can't deplete hundreds of millions of barrels of oil inventory and then make a bet that oil's returning back to the pre war levels. Even if there was a peace deal deal, a new higher elevated level of oil will keep a structural floor underneath crude, which to me makes it an asymmetric trade because even if the oil doesn't rally, you have a definable and manageable downside risk. But if the, the story about depleting inventories catches up with the markets and we do need to see some form of demand destruction from higher prices, to me it's an incredible asymmetric trade. I'm continuing to look to see whether or and how I can play the oil upside here in this kind of a macro backdrop. So moving on here on page six, Eric, I have that gold chart. How do you size up the gold markets here?
- [88:31]
B
Patrick, so far the 200 day moving average has held. When we saw that test right around 4400, that's where the 200 day was. Now it's up to about 4415 now. 4415 so far that's holding at least as of recording time. I won't be surprised though if the Iran situation continues to persist if that does not hold. So let's see what happens. But unless there's a rapid resolution to the Iran situation, I won't be surprised if we take out 4415 to the downside. If that happens, we could see an acceleration of the move lower. So anything's possible here.
- [89:10]
C
Well, Eric, I still look back and say, well we had a parabolic blow off at the start of the year on gold and we've basically been in a four month consolidation. The price action remains distributive in nature. Every rally fails. Basically there is active selling of gold here remains below its moving averages. The trend is clearly lower and it's got macro headwinds such as the fact that the dollar is attempting to strengthen, rates are rising and so all of these things are generally going to be like a wet blanket thrown on top of gold. While I'm not necessarily bearish outright, I don't see any reason at this moment for the gold bull market to begin. I think at this stage we should really anticipate the remainder of the second quarter of the year to be a lot more of the same and we can see whether or not the third quarter brings around a much more bullish scenario. All right, Eric, let's touch on uranium here.
- [90:11]
B
Patrick, I couldn't possibly be more bullish long term, but it's a little bit concerning to see broader market really at these extraordinary levels and uranium just hasn't participated. Now we did see a very encouraging pop higher on Tuesday that came on the back of the nuclear fuels conference, but it pretty much completely retraced lower on Wednesday at the same time that the broader market moved lower. Now the broader market only moved a little bit lower. If we saw a full retracement of this big rally in the broader market, I think that could take uranium shares substantially lower. So correction here is entirely possible. It doesn't change my long term view at all. I'm a long term investor and I am committed very much long term to uranium. But I think we could see a soft patch here seasonally. This is a weak period until late August or so. Maybe we'll hold steady, but I don't think we should expect a big rally or all time highs or any of that until we get into the seasonal buying period which normally starts right around the WNA conference, which I think is the 7th through 11th of September this year.
- [91:22]
C
Well, uranium as a commodity has been incredibly quiet and stable and even the uranium stocks have seen a lot of failed rallies and a lot of trade range consolidations. I'll agree with you that the bull story is quite intact in that inevitably there's lots more room for the uranium stocks to have more bullish upside. But as of this moment this remains an inactive market and we're going to see when the Uran finally genuinely wakes up and gets things really going. So Eric, I just wanted to very quickly just touch on the copper markets which continued to trade at 52 week highs. It's actually probably the most bullish chart in the commodity space in that it's trading along its highs, old dips continue to be bought and and it has very clear momentum at this stage will be interesting to see whether or not copper can break down to that fresh new high and make a gun for the seven level on the upside.
- [92:27]
B
Patrick, before we wrap up this week's podcast, let's hit that 10 year treasury note chart.
- [92:32]
C
We obviously had a several week pullback here off of that 470 level on the upside, but that came on the back of some oil weakness. Now that we're seeing the potential for oil to once again be turning higher, the big question is will we see the correlation remain where as oil oil goes higher, inflation expectations rise and yields rise along with it? That's certainly been the story for the last two, three months and it's going to be really interesting to see whether that correlation continues to demonstrate itself here as we go. The bigger question to ask is can we see a 5% handle on the 10 year yield? It's certainly at this point the path of least resistance. The way these charts look at this stage. I'm not seeing the bond buying opportunity just yet folks.
- [93:26]
B
If you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of big picture trading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com Patrick, tell them what they can expect to find in this week's Research roundup.
- [93:40]
C
Well, in this week's research roundup you're going to find the transcript for today's interview as well as the trade of the week chart book we just discussed here in the post game, including a number of links to articles that we found interesting. Interesting. You're going to find this link and so much more in this week's research roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners, and we're always looking for suggestions on how we can make the program even better. For those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email@researchroundupoices.com and we will connect. Consider it for our weekly distributions. If you have not already, follow our main account on X at Macro Voices for all the most recent updates and releases. You can also follow Eric on xericstownsen. That's Eric Spelt with a K and you can also follow me at Patrick Ceresna on behalf of Eric Townsend and myself. Thank you for listening and we'll see you all next week.
- [94:50]
A
That concludes this edition of Macro Voices. Be sure to tune in each week to hear feature interviews with the brightest minds in finance and macroeconomics. Macro Voices is made possible by sponsorship from BigPicture Trading.com the Internet's premier source of online education for traders. Please visit bigpicturetrading.com for more information. Please register your free account@macrovoices.com Once registered, you'll receive our free weekly Research Roundup email containing links to supporting documents from our featured guests and the very best free financial content our volunteer research team could find on the Internet each week. You'll also gain access to our free listener discussion forums and research library. And the more registered users we have, the more we'll be able to recruit high profile feature interview guests for future programs. So please register your free account today@macrovoices.com if you haven't already. You can subscribe to Macro Voices on itunes to have Macro Voices automatically delivered to your mobile device each week free of charge. You can email questions for the program to mailbagrov and we'll answer your questions on the air from time to time in our Mailbag segment. Macro Voices is presented for informational and entertainment purposes only. The information presented on Macro Voices should not be construed as investment advice. Always consult a licensed investment professional before making investment decisions. The views and opinions expressed on macrovoices are those of the participants participants and do not necessarily reflect those of the show's hosts or sponsors. Macro Voices, its producers, sponsors and hosts Eric Townsend and Patrick Ceresna, shall not be liable for losses resulting from investment decisions based on information or viewpoints presented on Macro Voices. Macro Voices is made possible by sponsorship from BigPicture Trading.com and by funding from Fourth Turning Capital Management, LLC. For more information, visit macrovoices.com.