MacroVoices #414 Louis Vincent Gave: Party Like it’s 1999

Summary

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MacroVoices #414 Summary

Guest: Louis Vincent Gave, Co-Founder, Gavekal
Host: Erik Townsend
Date: February 8, 2024
Episode Title: Party Like it’s 1999

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Overview

This episode of MacroVoices features an in-depth conversation between Erik Townsend and acclaimed macro strategist Louis Vincent Gave. The central theme is the current state of global markets and economies, with the provocative question: Are we repeating the excess and narrowness of the 1999 tech bubble? Townsend and Gave critically examine parallels between today’s market concentration, policy-driven asset inflation, the future of commodities, the implosion of the electric vehicle (EV) narrative, and the global race for nuclear energy supremacy—particularly China’s lead in nuclear technology. The discussion is global in scope, balancing U.S., European, and Asian perspectives on risk, growth, and transformation.

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Key Discussion Points & Insights

1. Parallels to 1999: Market Concentration and Policy Tailwinds

• Market Breadth & Narrow Leadership:
  Gave draws a strong analogy to 1999, when market gains were almost exclusively generated by a handful of large-cap tech and telecom names. Today, the S&P 500 has been similarly driven by the so-called “Mag 7” or “Max 7”—but now even further concentrated in just three stocks.
  • “In 1999...30 names were making up most of the gains...If you owned anything but tech...you were actually having a pretty dismal year. Similar thing last year.” (Louis Vincent Gave, 05:27)
• Fed and Global Policy Accommodation:
  Fiscal and monetary policy globally is tilting towards easing, especially ahead of critical elections in the U.S., Europe, and India. Central banks and governments are incentivized to goose growth and markets, but with potential consequences for longer-term health.
• Narrowing Leadership Getting Worse:
  While the “Max 7” dominated in 2023, market leadership is now shrinking to just Meta, Microsoft, and Nvidia.
  • “If you look at the names that are actually making new all-time highs...Meta, Microsoft, Nvidia. Apple isn’t; Alphabet isn’t; Amazon isn’t—Tesla definitely is not.” (Gave, 09:10)
• Health of the Rally:
  Market rallies driven by fewer and fewer stocks are “not a great sign” for market sustainability.

2. Electric Vehicle Implosion & China’s Dominance in ESG Supply Chains

• Chinese Policy Pivot & Supply Chain Takeover:
  China redirected lending from real estate into EVs, green tech, and battery metals, rapidly conquering the global EV supply chain—now dominating battery production, key mineral extraction, and vehicle exports.
  • “So you see a surge in loans to EVs, and...China is now the biggest car exporter in the world. Three or four years ago, that would have seemed laughable.” (Gave, 12:25)
• Policy Dilemma for Western Governments:
  Western pro-EV policies now risk handing their entire auto industry to China. Politically, this is untenable, so a retreat from aggressive EV mandates is likely.
  • “If you say every car should be electric, you’re basically saying every car should be Chinese. That can’t happen.” (Gave, 14:35)
• Practical & Economic Woes for EV Adoption:
  EVs still face issues: high repair costs, poor performance in cold climates, weak resale values, and looming price wars due to overcapacity.
  • “If you want to sell [an EV], the second-hand market is really poor...the battery starts deteriorating, and changing the battery costs as much as the car.” (Gave, 15:58)

3. Commodities Outlook: Bullish, Driven by Emerging Markets

• Legacy of Copper/Metals Hype Unwinding:
  The earlier thesis was that EV adoption would drive a commodity supercycle; with that narrative faltering, attention shifts to structural factors.
• EM Growth as the Secular Driver:
  Gave sees secular demand growth for metals, especially copper, coming from rapidly urbanizing and industrializing nations—ex-China emerging markets, population corridors from Istanbul to Jakarta.
  • “You draw a line from Istanbul to Jakarta; you’ve got 3.6 billion people...all starting to buy refrigerators, motorcycles, automobiles, microwaves—all things that require commodities.” (Gave, 18:00)
• Supply Underinvestment:
  Chronic under-investment in commodity supply suggests upward price pressure will resume, even as the ESG/EV hype fades.
• Broad vs. Focused Thesis:
  Bullishness is shifting from a narrow “EV/ESG” theme to a broader, global EM-driven infrastructure and consumption boom.

4. China: Why The Reopening Flopped & What Matters in Chinese Markets

• Common Misconceptions:
  Most Western investors assume Chinese economic growth should be reflected in equities, misunderstanding that Chinese policy aims to support bondholders and currency stability, not equity values.
  • “The PBOC is the new Bundesbank...manages its economy not for the benefit of the equity holder, but...for the bondholder.” (Gave, 20:13)
• Why Reopening Didn’t Deliver:
  After COVID, millions returned to cities from the countryside, depressing wages and spending. Unlike the West, which faced labor shortages and wage inflation, China’s reopening saw suppressed consumption.
• Divergence of Stock Market and Real Economy:
  Chinese stocks look terrible, but real activity—auto sales, box office sales, domestic tourism—is often near record highs.
  • “In the Western world, we tend to have a view of stock market equals economy, which is...absolutely not true in China.” (Gave, 24:48)
  • Only 15% of Chinese own stocks, so equity woes don’t drag the broad economy as in the U.S.

5. Nuclear Renaissance: Why China is Racing Ahead

• Nuclear Tech Leapfrogging:
  Townsend shares his surprise at China’s rapid advances in next-gen nuclear—molten salt, thorium reactors, modular shipboard reactors—where the West lags due to regulatory inertia and lack of ambition.
  • “Every single idea that I’ve had...China is not just on the same page with me, they’re steps ahead of me, and they’re doing it.” (Townsend, 31:57)
• Strategic Sovereignty through Energy:
  If China achieves energy independence through nuclear, it gains a game-changing economic and geopolitical edge: lowest-energy-cost industrial capacity, strategic leverage over client states needing energy (think “OPEC of nuclear”).
• Global Power Shifts and the Potential for Coercion:
  China could leverage exportable nuclear capacity for barter, favor, and influence, potentially demanding agricultural or mineral resources in exchange for cheap energy, and embedding command and control features in exported infrastructure to ensure compliance.
  • “Our policy is very simple...We provide you energy on the cheap and you’re our bitch. Those are the terms.” (Townsend, 42:19)
• Western Missed Opportunity:
  Gave laments the West's abandonment of nuclear (France in particular) and worries about a future where the U.S. loses its energy cost advantage.

6. Implications for U.S. Dominance and Global Market Cap

• U.S. Market Cap vs. GDP Mismatch:
  The U.S. is just 18% of global GDP but 70% of the world’s equity market cap—an imbalance that’s only sustainable with an overwhelming comparative advantage, chiefly in energy and tech.
  • “If the U.S. loses its comparative advantage in energy...the U.S. cannot stay at 70% of global market cap.” (Gave, 48:11)
• Rebalancing Ahead:
  Should China (or others) leapfrog the U.S. on energy cost/innovation, a massive global capital shift could occur, reversing the last two decades’ U.S. market dominance.

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Notable Quotes & Memorable Moments

• On Market Concentration:
  “You have a market, to me that looks like it’s getting narrower and narrower, which is usually not a great sign of health for a market.”
  (Louis Vincent Gave, 09:43)
• On Western Policymaking Dilemma:
  “If you say we need to make every car electric, you’re in essence saying we need to make every car Chinese.”
  (Gave, 14:40)
• On China’s Focus:
  “The PBoC... manages its economy not for the benefit of the equity holder, but... for the bondholders.”
  (Gave, 20:25)
• Townsend’s Nuclear Frustration:
  “Every vision I have for how the West could lead on nuclear, they’ve already done. Their office can’t be bugged—they’re just faster.”
  (Townsend, 33:33)
• On Energy as Power:
  “Whoever has the cheapest cost of energy doesn’t mean they win the economic game, but they sure start ahead on the race.”
  (Gave, 38:15)
• On Future Global Order:
  “We provide you energy on the cheap and you’re our bitch. Those are the terms.”
  (Townsend, 42:21, on China’s potential strategy for international energy leverage)

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Timestamps for Key Segments

• 00:35 – S&P 500 & Macro Scoreboard Update
• 05:27 – Parallels to 1999–2000 tech bubble & market concentration
• 11:56 – The Great EV Implosion, China’s supply chain ascendance
• 17:06 – Commodity markets outlook, EM consumption as major driver
• 20:13 – Why China’s reopening flopped and the importance of understanding Chinese capital markets
• 27:00 – The coming nuclear renaissance & China’s lead (Townsend’s nuclear epiphany)
• 35:08 – Broader implications: western abandonment of nuclear, China’s leverage
• 44:09 – The future of energy sovereignty, barter, and global power structures
• 47:18 – U.S. market cap, energy advantage, and coming rebalancing
• 49:54 – Gave’s writings, how to follow his work

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Postgame Market Technicals & Breadth

(Selected highlights, see episode for detailed chart discussion)

• SPX at 5,000:
  Big media level, but breadth weak; S&P 500 equal weight, Russell 2000, and high-yield bonds all lagging badly. (55:20-57:00)
• Market Breadth Metrics:
  Only 41% of Nasdaq stocks above 50-day MA, just 52% for NYSE overall.
• Volatility & Implied Moves:
  VIX at 12–13; volatility extremely low but could expand post options expiration. (60:11)
• Dollar at Key Levels:
  Watching 104/104.5 on DXY for next leg higher or risk-off catalyst. (61:04)
• Gold & Uranium:
  Gold consolidating but structurally bullish, uranium is the standout outperformer. (62:34)
• High Yield Divergence:
  Junk bonds stalling, could indicate brewing risk-off move.

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How to Follow Louis Gave & Gavekal

• Website: gavekal.com
• Twitter: @gavvincent

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Closing Thoughts

This episode provides a sobering, borderless perspective on market risks, the challenge to U.S. hegemony, the real drivers of demand for commodities, and the strategic ramifications of the nuclear innovation race. The hosts argue that while U.S. equities and assets remain dominant for now, seismic shifts in global energy economics, policy, and market structure may soon reshape the macro landscape.

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Transcript

[Patrick Ceresna]

Foreign.

[Macro Voices Announcer]

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 Serezn.

[Eric Townsend]

Macro voices Episode 414 was produced on February 8th, 2024. I'm Eric Townsend. Gavcal Co founder Louis Vincent Gav returns as this week's feature interview guest. We'll discuss China, the electric vehicle implosion and why Louis says this feels like 1999 all over again. I'm going to be doing an X Spaces interview hosted by our friend Dr. Ana Salhaji at 2pm Eastern Time on Sunday, February 11. The is the Nuclear Renaissance and where it's headed. I'll be a panelist alongside Uranium Insider newsletter publisher Justin Hune and Copenhagen Atomics founder Thomas Jam Paterson. Follow Anas Alhaji that's Nasal H A J J I on X to be notified when this Spaces session begins. We'll do our best to get a link in the Research Roundup email as well, but please understand if that doesn't happen due to production deadlines and I'm.

[Patrick Ceresna]

Patrick Ceresna with the Macro Scoreboard Week over Week as of the close of Wednesday, February 7, 2024, the S P 500 March futures were up 298 basis points, trading at 5015. The breakout of the 5000 level will lead to the attention of much of the media. 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 52 basis points, trading at 104.05. The March WTI crude oil 262 basis points trading down to 7,386. We'll take a look at that chart in the Post game and Eric will have the EIA inventory data. The March R Bob gasoline contract up 135 basis points to 226. The April gold contract, down 77 basis points to 2051, continues to remain in a sluggish consolidation. Copper down 436 basis points, trading at 373. A distinct breakdown of its very strong January uranium up 163 basis points, trading at 102.90. The US 10 year treasury yield up 21 basis points trading at 412. A definitive trend reversal on last week's jobs numbers. The key news to watch next week is the CPI and PPI inflation numbers, Empire State Manufacturing, retail sales and the University of Michigan consumer sentiment. This week's feature interview guest is Gav Cal co founder Louis Vincent Gav Eric, why did we invite Louis back on as a guest this week?

[Eric Townsend]

Well, Patrick, Louis is one of my all time favorite guests to start with and because he has such an international perspective. Having grown up in Europe and then moving to Hong Kong and lived there and lived in Canada. This is a guy with a very international perspective and a particularly strong understanding of China, which I think is very important to what's happening in the macro economy right now. So it seemed like a perfect time to get him back for another update.

[Patrick Ceresna]

Well, Eric's interview with Louis Vinson Gav is coming up as Macro Voices continues right [e-mail].

[Macro Voices Announcer]

And now with this week's special guest, here's your host, Eric Townsend.

[Eric Townsend]

Joining me now is Gavcal co founder Louis Vincent Gav Louis, it's great to get you back on. I really enjoy our conversations, particularly just because you live outside the US you have the non US perspective, which I think balances a lot of the other guests that we have. So I really want to talk to you about where we are in the overall big macro picture cycle. I lifted my S and P hedges this morning with a lot of trepidation as to whether I was making the right decision. You know, it seems to me like it's just really hard to argue with. We have clearly a breakout to new all time highs on the major stock indices in a year when the Fed, which we all know is more political than it admits to being, has an incentive to kind of goose the markets into the election. There's headwinds on all fronts. It seems like there's a perfect setup for markets to just melt higher and to be hedged with the put spreads that I was holding. Didn't make sense when I got your preview of a post you have coming up called party like it's 1999. When I read that title, I knew what was on your mind with without even having to read the first paragraph, I knew exactly what you were thinking. So for anybody, it might not be completely intuitive to what's up with 1999? Why does this feel like that to both of us? And what should we make about it in terms of risk management?

[Louis Vincent Gav]

Well, good luck on lifting your hedges. I hope it works out. Thanks so much for having me. Look, I always get so much out of these conversations and it's a great pleasure to catch up once Again, look, I think in 1999, for those who lived through it, we had a deeply, deeply concentrated market. You had a market where in essence 30 names were making up most of the gains in the S&P 500. It was all about tech, it was all about communication services. And if you owned value stocks, if you owned energy, if you own anything but tech. And that wasn't just in the U.S. by the way, it was also true. You needed to own France Telecom, you needed to own Nokia, Ericsson, and people who didn't own those stocks by the end of 1999 were fired more often than not. And the money went to the guys who did own own these names. And that promoted further concentration. Now, the good news for you, and given the fact that you lifted your hedges, the market continued to absolutely melt up in the first three months and the first quarter of 2000. And that market melt up continued to be concentrated. So yeah, the piece I sent you on party like it's 1999. I think if you look at the past year, we have had a fairly concentrated, very concentrated, not fairly very concentrated market. You know, up until November 12th of last year, which is really, what, I guess 10 weeks ago or so, the S and P equal weighted was actually down for the year. And of course, you know, Treasuries were down for the year. So last year, you know, up until basically early November, if you weren't in the max seven, if you own, let's say, some bonds and if you own some, some equities that weren't max 7, you were actually having a pretty disma year. Now what happened right at the end of October? If you remember, at the end of October, bond yields were reaching 5% and there were some failed auctions and people were talking about term premium for bonds. And the whole environment looked pretty dicey. And regional banks looked like they were going to take out their lows of Silicon Valley bank. The Fed basically goosed the BTFP program. It didn't say, look, I'm going to turn around and buy a bunch of Treasuries. But what it did do is tell all the commercial banks, hey guys, here's a bunch of free money. We're giving you a free arbitrage of 75 basis points between the money you can borrow from us and then turn around and buy us Treasuries in doing so. And so it turns out, lo and behold, that banks really, really like making free money. So, you know, bank shares, regional bank shares ripped higher and bonds rallied and the equity market broadened out from the seven names that we all know into something much broader. And then you get to the start of this year. And I take your point that the Fed does want to goose things up to make sure Trump doesn't get reelected. And by the way, it's not just the Fed. If you look in Europe, I think today in Europe we have, in June and early June, we have the European Parliamentary elections. I think most governments in Europe are petrified at the rise of the populist right in Germany, in Holland, in France and Sweden, you name it, and very afraid that the populist right is going to absolutely crush it at the coming European parliamentary elections. You also have important elections in, in India. And in India, you know, you have an emoji today that is basically, you know, really cranking up all the infrastructure spending, making sure that all the boys have jobs. And so you have a lot of very, very strong growth in India. And then finally you look at China and China's got a very different dynamic going on. But the one thing you do know about China is that right now you're seeing easing of fiscal and easing of monetary policy. So you look all around the world, us, Europe, India, China, basically everyone is easing fiscal and easing monetary policy. Except. So to your point, it's like, well, in an environment where everybody's trying to goose up their economy and goose up their markets, why have hedges, right? And here this brings us to, you know, what's happened in the past few weeks. In the past few weeks the Fed has actually pulled the plug on the btfp. Now the BTFP program was always going to end that sort of free money to the regional banks I just described, that was always going to end in March. But basically the Fed said, you know what, I'm actually raising the interest rates a couple weeks ago at which I lend to the banks. So I'm taking the arbitrage opportunity away. And lo and behold, since then, what have you seen? You start to see bond yields creep back up and you've gone right back to a market that is getting narrower and narrower. Except, except that this time it's no longer Max 7, it's now Max 3. If you look at the names that are actually making new all time highs amongst the mega cap tech stocks, Meta is making new all time highs and Microsoft's making new all time highs and obviously Nvidia is making new all time highs. But Apple isn't, Alphabet isn't, Amazon isn't yet, Amazon may still and Tesla definitely is not. And maybe we can come back to that in a Little bit. So you have a market, to me that looks like it's getting narrower and narrower, which is usually not a great sign of health for a market.

[Eric Townsend]

Well, Louis, one of the Mag 7 stocks that's perhaps not shining at the moment is Tesla. You wrote another piece which I really enjoyed, called the EV listeners. You'll find that linked in your research Roundup email. Give us some perspective. What's going on with electric vehicles? What is it going to mean? And let's try to broaden this not just to electric vehicles, but you know, energy transition and everything. Generally. We've, we've seen this big push for esg and then there was kind of a backlash against ESG for a while. There was crazy irrational speculation and battery metals because everybody thought that, you know, all the EVs to completely electrify the entire planet we're going to get built in the next six months or something that's come out the other way to where copper is actually plumbing new lows. Now where are we in this cycle and where is it headed with respect to not just the vehicles, but the whole broader ESG and climate driven movement that we see in the economy?

[Louis Vincent Gav]

Look, I think it's a super important question, obviously, and here I might have a very biased answer. If to a hammer everything looks like a nail. To a guy who spends most of his time looking at what's happening in China, he'll tend to identify the causes of a lot of things linked to China. So again, my answer may be biased, but here it is anyway. Make of it what you wish. I think if you go back five years ago, the Chinese leadership decided, you know what, we got to put the kibosh on this real estate bubble that's forming. And so they told the banks, no more loans to real estate, period. Instead, if you want to lend money, why don't you lend money to electric vehicles? Why don't you lend money to solar panel manufacturers? Why don't you lend money to basically whatever, to your point, esg, green technology, whatever you want to call it. And at the same time they push that message down to the provincial governments, the municipal governments, so much so that every, basically Tom, Dick and Harry in China decides, okay, I've got to be doing EVs. This is, this is the, this is the thing now. And so you see a surge in loans to EVs, and lo and behold, fast forward a few years and China is basically now completely dominating the entire EV supply chain, from the production of batteries to the extraction of nickel in, in Indonesia, you know, 90% of the nickel mines are now owned by Chinese in Indonesia. And so they own, they own basically the entire supply chain. And they're now able to undercut price wise any Western producer or any Japanese or Korean producer. And you and I have talked about this before, from out of nowhere, all of a sudden, China is now the biggest car exporter in the world. Three years ago, four years ago, the idea that China would be a car exporter would have seemed laughable. And now nobody's laughing. In fact, you might have seen that 10 years ago Elon Musk was asked about Chinese EVs and laughed on an ABC interview. And now fast forward today and he's asking for tariffs to be implemented against Chinese cars. So I highlight this because this now creates a real quandary for Western policymakers. Western policymakers have spent the past 10 years telling everyone, stop buying internal combustion engine cars. Buy electric cars. Electric cars are the future. Electric cars are, are good. Electric cars are healthy. Electric cars are the salvation. Now if you're a Western policymaker and you say this, in essence what you're saying is buy a Chinese car because that's what it will increasingly come down to. So now, if you're France, if you're Germany, if you're Britain, if you're the U.S. do you want to live in a future where the entire auto industry is controlled by China? I think for most policymakers that's a nightmare. That can't happen. So de facto I think you have no choice but to pull back on the whole idea of oh, we need to make every car electric. Because if you say we need to make every car electric, you're in essence saying we need to make every car Chinese, which again is just not possible. Now add on to this sort of very political reality the simple truth that if you're buying an electric car and you've got a problem with it, you get in an accident, the repair costs are massive, that if you live in a cold country they don't work very well, that if you, if you want to sell it, the second hand market is really pretty poor and the write offs on it are terrible. Because nobody wants to buy a three or four year electric car because they know that then the battery starts, start deteriorating pretty fast and changing the battery cost as much as the car, you add all of these things up and I think that the demand for electric cars is basically going to under undercut for years to come. What the projections were at the same time as you've got all this capacity coming, so what does this mean, this means price wars. This means margins getting destroyed. And this is already starting partly because all the Chinese producers are massively cashed up. They're cashed up not because they've been generating terrific cash flows. They're cashed up because they've been able to tap massive amounts of bank credits. And by the way, the same is true for solar panels, for a lot of things. And so the whole, you know, let's push esg, let's push environmental solutions to the extent that now China's captured these industries puts a whole question mark on, on policymakers as to whether they want to pursue down this track or actually back off. And you've already seen the UK back off. And I think most of the European Union is starting to think, okay, hold on. This makes absolutely no, no economic sense whatsoever. We need to be less, you know, less crazy about this.

[Eric Townsend]

Louis, let's reframe this around commodity markets and what we should expect. You know, for a while there was a big investing trend around battery metals for EVs, copper also for the energy transition and EV revolution and so forth. Based on your analysis of what's going on with the EV market and how it's changing, what does that say in, say, a mid to long term forecast for these various different commodities?

[Louis Vincent Gav]

I am actually still very bullish commodities and I'm still very bullish copper and nickel and tin and pretty much any metal you care to think of. Not so much because of the EV transition or ESG constraints, et cetera, because I do think these are becoming politically untenable. But I'm bullish for a very different reason. And you and I have discussed this in the past, but my core belief is that the big growth story of the next five to 10 years is basically the growth in infrastructure spending and consumption in the broader EMX China space. I think you and I have discussed before how if you draw a line from Istanbul to Jakarta, you've got 3.6 billion people, excluding China, with population growing by 1% a year and incomes growing by 5% a year. And these are all people that are starting to buy refrigerators, motorbikes, automobiles, microwaves, you name it, all things that require, you know, commodities to be built, all things that are increasingly built in China or in Japan or in Korea, two countries that benefit from very, very low exchange rates today and thus are able to remain competitive with China's big excess capacity of industrial goods production. But, you know, the simple story is this, is that China now exports cars to Indonesia, to Chile, to Colombia, and these cars are sub $10,000 cars. And I know you travel a lot, Eric, I'm sure you've noticed when you go to Chile or you go to Indonesia or India, the number of Chinese cars that are now on the road. And the reason they're there is because they're cheap and people couldn't have bought them before. But these cars still need some copper in them and they still need gasoline to run on. And as you create consumers out of all these markets, these 3.6 billion people from Indonesia to Turkey, I think the demand for commodity will surpr people as to how strong it is. The demand for commodity will no longer be just. You know, it used to be just Western world, then when it became Western world plus China commodities massively re rated. Well, now it's demand from Western world, from China, and then an additional 4 or 5 billion people, which is absolutely gargantuan. So meanwhile, we've completely underinvested in our entire commodity supply. So no, I remain very optimistic on commodities.

[Eric Townsend]

Louis, let's come back to China. You know, it seems just so important to me that so many people basically got this wrong. There was so much speculation that, boy, as soon as they get the COVID under control, China reopening is going to be the economic powerhouse that's going to drive the entire global economy for the next 10 years. Well, guess what? That didn't happen. Kind of the opposite. So why did everybody get it wrong? What's really happening? And I guess, you know, what's the secret? I don't know if I want to call it secret sauce. What's the key thing? That once you understand X it all comes together and you realize why the narrative never made sense and why we're going in a different direction.

[Louis Vincent Gav]

You know, when I started in this business, my very first client, a gentleman called Beat Notz of Nachtuki, who unfortunately has since passed away. But Beat told me, look, Louis, it's an easy business. You have to remember that when things go badly, when you don't understand the world, when things look upside down, the Fed will always manage the economy for the benefit of the shareholders. And the Bundesbank, I guess I'm showing my age because the Bundesbank still existed back then. It was pre CB days. The Bundesbank will always manage the economy for the benefit of the bondholders. And the reason is because everybody in the US owns stocks and everybody in Germany owns bonds. And so Beat Notch told me, look, when you don't know what to do, you buy bonds in Germany, you buy stocks in the US and things work out over time. And to be honest, probably if I'd followed that advice, I'd be a lot wealthier today. Now, here's where I think people, and I've written books about this, and this has been my big argument for the past 10 years, is that when most people look at China, they've always looked at it through the prism of the equity market. They look at it through the prism of the equity market because they're like, oh, here's China. It's an exciting growth story. And if I want to participate in the growth, I'm going to buy the equities. The reality is that the PBOC is the new Bundesbank in the system. The Bundesbank is long gone and buried, swallowed up by the ECB and spat out again. The new Bundes bank in the system is the PBoC, the People's bank of China, which manages its economy not for the benefit of the equity holder, but which has historically managed its economy for the benefit of the bondholders. So to put things in another perspective, I think if you're the Fed, you care first about where the stock market trades, then where the bond market trades. And the US Dollar can be the variable of adjustment. As Treasury Secretary Connally famously told the Europeans, the US Dollar is our currency. And your problem, that is it's a variable of adjustment. We don't care. In China, the order is reversed. First they care about the currency, then they care about the bond market. And the equities will settle where they settle. And it really doesn't matter because only 15% of Chinese people own equities, because most Chinese companies don't fund their growth through the equity market. They fund it through the banking system. And so what you find is that you look at the past 10 years, five years, three years, one year, pick whatever time frame you want. Chinese government bonds have outperformed US Treasuries. It's been a surefire bet. At the same time, US equities have outperformed Chinese equities over 10 years, five years, three years, one year, because that's what corresponds to what policymakers were looking for. So that's the first point I'd make. And I think it's very important to conceptualize this as you do. You look at Chinese capital markets, where do you want to sit on the capital market? Where are you getting the support from the policymakers? And that's why the renminbi is very stable, and that's why the Chinese government bond market is very stable. TABLE. Now to your question. Why didn't China do better after its reopening? And on this, you know, I think we, we discussed this in the past as well. And I'll put my hand up for having completely missed that one. I think, like me, like a lot of people, I like a lot of people, was, was a bit lazy when China reopened. You know, I think all of us felt, oh, I've seen this movie before, saw it in the us saw it in Europe, saw it in Brazil, saw it in Australia. You're going to have all this pent up demand and consumption is going to be strong and everything's going to be awesome and, and we're gonna have a big rebound in growth because that's what you had everywhere else. And again, you didn't have it in China. And I think the reason is pretty simple. In China, when they basically shut down, they sent tens of millions of people back away from the cities, back into the countryside. And so when they reopened and said, okay, it's safe, you can come back to work now, you literally had tens of millions of people that came back out of the countryside into the cities. And in so massively, the doing massively depressed wages. This was pretty much the opposite of what we had everywhere else in the world. Everywhere else in the world we told people, stay at home. And when we told people, okay, you can come back now, you had, I don't know, 5, 10% of people that said, you know what, I don't really feel like coming back. I like, you know, sitting in my mother's basement smoking weed and playing Nintendo. And so all of a sudden we missed sort of that bottom rung of workers, the guys who work at McDonald's, at Walmart, who clean hotel rooms and whatever else. And as we missed those workers, the price of workers went up in China, the price of workers went down. And now the reality is people who don't earn a lot of money tend to spend every dime they make. So as all of a sudden they earned more, they also spent more. And that created the boom that I think is still going on in China. It was precisely the opposite. It was wages were depressed by all these tens of millions of people that came back out of the countryside to get jobs. And as wages were depressed, people tighten their belt. And that is the cycle that we're still on in China. Throw on top of that, of course, a real estate consolidation that's been going on for five years and you've got both the low end that's been tightening its belt because of Depressed wages and the middle and high end that have been tightening their belts because of, you know, they've got a lot of their wealth tied up in real estate and they see the real estate go down. And so that's made for a much more challenging backdrop of weaker growth and of course, terrible stock market returns. Now having said all this, I don't think we should over dramatize either because the stock market paints a very dire picture. But you know, you look at things like car sales are at record highs in China today. Box office sales are at record highs in China today. China is one of the few places where people still pay to go to the movie movies. Internal tourism is basically back at record highs. Macau visits are back to the levels of 2019 and so on. So we in the Western world tend to have a view of stock market equals economy, which is definitely not true in most emerging markets and absolutely not true in China. Of course, China's had 20 year very strong economic growth and 20 year terrible stock market returns. So today if you look at the stock market you'd think, oh my God, this economy is imploding, et cetera. But you'd go to Beijing, you go to Shanghai, restaurants are full, people are buying cars, people are going to the movies. It's not that dire. If in the US you had a stock market that bad things would be bad again because 70% of Americans own stock. Remember that in China only 15% of people own stocks.

[Eric Townsend]

Louis, I've been spending most of my time recently thinking about the coming nuclear renaissance, where it's headed. And, and I'll tell you, I've had quite an experience because I do kind of fancy myself as a pretty darn good strategic long term vision developer. That's what I was always good at in the software business, was seeing the major trends years ahead of other people. And as I go through this, most of the people I talk to in the west, even people that are in the nuclear power industry who ought to know much more than I do about any of this stuff, usually don't even know what I'm talking about. When I explain the reasons that I think we can dramatically and completely change the shape of nuclear energy by embracing advanced generation 4 technologies, using molten salt coolants, using liquid fueled rather than solid fueled reactors, burning waste with burner reactor designs, all of these technology things that I know are possible and I know that due to US government malfeasance, the industry is not developing. And I'm kind of the guy who's saying, look, I can see this vision for how technologies we already know about, if we would just put them to work, can come together and create this just amazing super economic independence picture where we could make The United States 100% energy independent, completely supported by nuclear, have, you know, unlimited in. And I'm not just talking about electricity, but also producing synthetic, clean burning green fuels, liquid fuels that are produced from nuclear energy. I've got this whole master plan in my mind. Most of the nuclear experts that I talk to in the west don't even understand everything that I'm talking about because a lot of it's kind of leading edge stuff. And I think, oh, I must be like a real smart guy. And then I go and I look at, at every single idea that I've had. It's not that China has the same idea, it's that China had, past tense, the same idea five years ago. And they are hauling ass. You know, I've been saying we really, really need to resurrect the molten salt cooled reactor experiment from the 1960s at the Oak Ridge National Laboratory. The advances that were made in safety but were never commercialized were so significant that there was something really big that was wasted there. Well, as I'm babbling about this on podcasts quietly, The Chinese in 2018 built a thorium fueled molten salt reactor in the middle of the Gobi Desert just to prove that it's possible to build nuclear reactors when there's no natural cooling water source. That's exactly one of the first things I would have done if I was in charge is proving out that technology. And I thought, but you know, someday, mark my words, China is going to get my idea that I've already had my best idea, which is building small modular reactors which are molten salt cooled and thorium fueled and using them to fuel ships at sea so that we can solve this whole ocean pollution problem, which is a major, major problem in terms of climate. Three friggin days later, Louis, we, I'm not kidding. Three days later I see the tweet and it's like, China announces molten salt cooled thorium fueled nuclear powered container ships to be built. And I'm like, okay, my office is bugged. You know, they're listening. But the thing is, they've been working on this. They get it, they know about it for longer than I do. And I thought, oh my God, they're going to see everything that I can see. Not they can see it as early as I can, but they're already way ahead of me. And I thought, you know what the next shoe to drop is going to be in the next few years is I bet they're going to go to a full either sodium or gas cooled super high temperature pebble bed reactor. And the reason that's important is in energy transition there are new processes that are just orders of magnitude more efficient for seawater desalination and particularly for hydrogen production where you need much higher temperature reactors. And I've been thinking a lot about the hydrogen economy, solving the liquid fuels problem with hydrogen, how nuclear energy with high temperature reactors that are dedicated to that, you know, could solve the whole thing. And I've got this idea in my head that I think I'm the only guy who's, you know, ever been smart enough to think up these ideas because, you know, I'm so smart. And then the next tweet the next day from, from the Chinese government shows an aerial photo of a facility where they just built an ultra high temperature gas cooled reactor with a hydrogen manufacturing plant next door. And I'm like, okay, every vision, have.

[Louis Vincent Gav]

You thought that maybe they're just trolling you at this point?

[Eric Townsend]

And I appreciate the humor, but on this, this part I'm not kidding because I think this is really important. I really fancy myself is thinking that I knew how to, how to make the west totally energy independent, fossil fuel independent, etc. Nobody's listening to me. So, you know, I'm not going to change the world in the West. But where I used to think I really had some, some, you know, cutting edge, maybe I was the smartest guy, at least in a couple of specific ideas. Now China's like a bunch of steps ahead of me. And what I've realized is they're working hard on this. And my prediction is, I mean obviously you never know what's going to happen. Maybe China and Russia and the US all blow themselves up in a nuclear war. But if it doesn't go that way, I think where we're headed is in 10 to 15 years it will become the first major industrialized nation to be 100% energy independent, not dependent on any other nation which has just profound geopolitical implications. But also I predict that they will have the lowest cost of energy of any industrialized nation on earth because they're going to do nuclear, they're going to do it in scale and they're going to do it right. Every idea that I've had about how to embrace economies of scale, they're not just on the same page with me, they're steps ahead of me and they're doing it. So let's imagine that we get to a world where China doesn't have to import oil from anybody because they don't need that anymore. China is an exporter of more expensive than oil, but still liquid fuels that can be used to run diesel engines and so forth that are completely green and don't pollute the environment and are produced from nuclear energy. So you know, OPEC now has a competitor of synthetic hydrocarbon export countries and China is the first one of them. Them, they don't depend on anyone else for anything. They continue to build out their blue water navy which is already very much, you know, destroy the world nuclear capable. And they get to the point where they are not just the economic powerhouse that they've been until now, but they almost get an immunity status where because their cost of energy is so much lower than everybody else's, their competitive advantage is so extreme that just nobody can touch it in a situation like that. The only time I can think of that's similar to that is there have been times when the United States enjoyed so much right after World War II, the US never had any fight on its own soil. Europe is lying in ruin. You know, US just had massive, massive advantage over everybody else. Now American listeners, I'm sure we've never heard this before, but I know that you, you're from Europe, Louis. So there are actually a few people in the world who didn't appreciate the way that the US took advantage of having enough power to be able to push everybody else around and tell them what they had to do. When China has that same power and has more of it than the US ever had, should we assume that the Chinese will just be humble because that's the Asian way and not make a fuss for anybody else or what could happen?

[Louis Vincent Gav]

Look, everything you've just described is absolutely fascinating and both fascinating and frustrating. As you mentioned, I come from France. In the 1970s, in France we used to say we don't have oil, but we have ideas. And the idea was, you know what? We've gone past oil. We're going to invest in our nuclear infrastructure and move to a post oil age. And friends, now, in fairness, we almost got there. We made big investments, it was big capital spending. We almost got there. We got to the point where almost 90% of our electricity was produced through nuclear, which as oil prices started to go up, we did it for geopolitical reasons incidentally. But as oil prices started to go up in the 2000s, all of a sudden this was a big comparative advantage for France. And then we've spent the past really sort of 15 years walking away from it. We spent the past 15 years turning our backs, saying that nuclear was no longer the future and telling young people, don't go into nuclear. The future is going to be wind, the future is going to be solar. Even though it's a lot less efficient and you get a lot less energy per dollar spent, this is going to be the path forward. And I think this matters. And to your point, how is China progressing so far in this? Well, the simple truth, you know, I firmly believe there was a humanist French philosopher in the 16th century called Jean Baudin saying the only wealth is man. And you know, if you start off with the premise that the only wealth is man, the reality today is that China produces more science graduates every year than there are existing science graduates in the US. Now, you could say, yeah, but Chinese universities aren't as good as US universities, etc. But you know, just the sheer law of large numbers implies a situation where you just have the odds of having some smart guys in there that can crack codes, can crack ideas. You know, you throw enough people at this, you're probably going to get something. Now, when you compare the situation to the west, not only in the west are we no longer producing science graduates, but the few science graduates that we do produce go into one of two paths. Either they go down the path of optimizing puppy videos on the Internet, because that's where the money is, and go work for Facebook, YouTube, or whatever else. Option one or option two, let's go work for SAC, for SAC does, for 0.72, or for Goldman Sachs or for whoever, and join a quantesk because, you know, those are the obvious path to riches. You have to be mad in the US to go work in the nuclear field. Like, who does that when you have a government at the top that tells you this is not the future, this isn't the way we want to go. It makes very little sense. Look, like you, I firmly believe that the future of power, the future of electricity is a nuclear one. I mean, this much has been obvious for the past 50 years. You know, the whole history of humanity, the whole history of progress. For 50,000 years, we really basically have no increase in life expectancy, we have no increase in gdp. We're basically living very Malthusian lifestyles, barely scratching the surface. And all of a sudden we discover instead of burning wood, we discover coal and then we discover oil, and then we discover gas. And each time we get better and better and more and more efficient and Nuclear was the final frontier and most Western countries decided to walk away. And Western countries did this. Emerging markets did not. You know, today most of the world's nuclear engineers either work in India or in China. So yes, the solutions will come out of this. You mentioned thorium based plants. India has done some very interesting things there. And yes, you've also mentioned that at the end of the day, economic activity as energy transforms and whoever has the cheapest cost of energy doesn't mean they win the economic game, but they sure start ahead on the race. Now for the past 10 years, everybody wonders, oh, the US is so great. The US dominates everybody thanks to the tech boom, et cetera. What nobody ever talks about is the biggest macro development for me of the past 15 years or so was the Permian revolution. The fact that all of a sudden the US added 8 and a half, 9 million barrels a day or 8 million barrels a day to its production. Massive increase in natural gas, collapse in the price of natural gas. All this gave the US a tremendous, tremendous comparative advantage. Well, what you're describing is a world where the US will suddenly lose this comparative advantage and this comparative advantage will go to the very country with whom the US has been frankly, rather unfriendly now for the past six, seven years and making no bones about its desire to see regime change and making no bones about its desire to see it stumble economically. So to your question, you know, if, if all of a sudden China has this power, how will the west respond? Well, I'd hope that before that the west would respond and say, hold on, you know, we have to catch up with China on nuclear. We have to, to make serious investments here. We have to stop treating the sector as if it's a pariah and as if it's, you know, if, as if it's dirty, et cetera, when really it is the solution for, you know, much greater happiness all around the world. Now, to answer your question, I'm sorry, this is a long winded answer. But to answer your question more directly, how will China respond today? China wants to, you could say, pretend or act like or whatever that it, you know, that it wants to be a friend to other emerging markets. And so what I would imagine is China would go around to places like Indonesia, like Saudi Arabia, like India, and say, hey, we can be an energy solution for you. But whether they'll offer the same solutions to the United States, well, I think there you'll get into discussions where, okay, we will sell you our nuclear processes and our ability to produce power plants at a Tenth of the price of what you have in the US today. But then you have to sell us your semiconductors. Otherwise if you won't let us have your semiconductors, then maybe we don't let you have our nuclear plants.

[Eric Townsend]

Well, and I can take that a step farther for you because if I was in China's shoes, and believe me, I've thought a lot about this business model, the way that they could structure it is they could say, look for our strategic partners, people we want, we've already built out our own national infrastructure. We've got a fully energy independent nuclear economy in China. All of our manufacturing, industrial services are all supported by that. And for our trading partner, the way we manage our foreign policy is we kind of tell our trading, trading partners, look, if you want to play ball with us, what we'll do is not sell you anything. We'll come and build and install for you nuclear plants that we will own. And we will sell you electricity at very attractive prices wholesale into your grid. You can distribute it to the people of your country. By the way, we're not worried about nationalization risk because we use very high tech encrypted data, communication, command and control and so forth. And if you piss us off for any reason, we turn the power off for your whole country, we'll walk out. Yeah, and we walk out. And if you want to be an asshole about it, you can seize physical control of our reactors that we left in your country. There's no way you'll ever get them to operate again because we designed them that once we poisoned them from, you know, the mothership, they'll never run again. So you won't be able to get any advantage of it. So you will be beholden to us. We'll give you cheap energy which allows your economy to compete in a way that it couldn't possibly compete. But basically, the policy is very simple. One page term sheet. We provide you energy on the cheap and you're our bitch. Those are the terms. And you do what we tell you to do. Geopolitically, we're in charge. China, Guangzhou, the central nation, who's in charge of everybody else? Take the British Empire or the American Empire of the entitled attitude of telling the rest of the world what to do. I can see China very easily through energy, providing other countries with energy that China can hold as a string over their neck and say, look, you do exactly what we tell you. We turn the lights on, off.

[Louis Vincent Gav]

And to be honest, I don't disagree. And it's insanely frustrating because we had the options to do this. Like, you know, if we didn't go off course 30 years ago or 20 years ago, that would be us.

[Eric Townsend]

Today we have the option to do it right now. I'm working on trying to get the, I mean in the US it's just a waste of my breath. But my argument here is the Arab nations that are going, you know, the UAE particularly, which already has a very well respected nuclear regulator and has gained the respect of the global nuclear industry, they need to stay in the energy business beyond the age of oil. They can afford the billions of dollars that it would cost to really build out power plants all around the world for other people. I've got a pitch deck for that business model that nobody at the UAE of import has been willing to give me the time to listen to yet. But it's very possible right now for the west to still get our shit together and catch up with this. But time's running out. The way I think this goes down, Louis, I think we have a late 2020s global oil and gas energy crisis. Doesn't happen now, probably 26, 27, 28. In that timeframe, we're going to get to the point where underinvestment finally comes back to really bite us. And we've got hot $250 oil prices and major geopolitical upsets over it. China will be adversely affected by that a little bit, but by then they'll have built out enough of their nuclear and over a period of years we'll get to the point where everybody who's still oil dependent has a massive, massive disadvantage. China is ahead of everybody else on nuclear and you know, they're not going to. I don't predict that they would ever go into the business of selling nuclear energy for a price to other people in dollars and cents. They'll sell energy for consideration and those will be political considerations, geopolitical commitments, treaties. China will get its way with everybody by having cheap energy that they can afford to give out to who they want to share it with.

[Louis Vincent Gav]

Or it'll be barter. It's okay. Argentina will build you your nuclear. You guarantee us so many tons of wheat, so many tons of beef, and it'll move to be X dollars. We provide you electricity, you provide us wheat, copper, whatever else and just move everything off the dollar system.

[Eric Townsend]

Well, and I think that they could very easily be in a position where they say to those countries around them like, look, this is an offer you can't refuse. You're going to do what we tell you, the choice here is you either commit all of your agricultural exports, your meat, your soybeans, whatever, send it to us because we need those imports, and make a strategic deal with us that we're going to do that on a long term contractual basis for decades at a time, or don't, in which case we'll be pissed off. And you don't want to see what that looks like in terms of what your energy picture is going to look like in your country when we're done with it. You, they can very easily intimidate the rest of the world to do whatever they want.

[Louis Vincent Gav]

I think you and I firmly believe that economic activity is energy transformed and that whoever has the cheapest cost of energy starts off with a huge comparative advantage. Now, today, the major economy in the world that does have the cheapest cost of energy is the United States. And that is, you know, they've got cheap natural gas, plentiful natural gas. The US has gone from producing 5 million barrels of oil a day to 13 million barrels a day in 15 years. Massive energy renaissance. Great story. With that strong dollar improving trade balances, the high stock market, et cetera. Now, today you look at the US stock market. So right now the US is roughly 4.5% of global population. It's roughly 18% of global GDP, and it's 70% of global market cap. For equity markets, 77,0 for 18% of global GDP. So we have to think that a US economy that's roughly a fifth of global GDP will continue to provide 70% of its profits. Now, the maths are really hard to make work, but it definitely only works if the US has an enormous comparative advantage on the energy front. Now, what I'm hearing from you, Eric, is that comparative advantage that the US Holds today is perhaps much more threatened than the market currently anticipates. It's much more at risk. Now here's the thing is if the world you describe occurs, let's say in the next five years where the US loses its comparative advantage in energy, then the US cannot stay at 70% of global market cap. Then what's the right number? You know, 18 years ago, back in 2002, 2003, following the big tech bust, that number was roughly 43, 44% of global market cap. So we've gone from 43, 44% of global market Cap in a couple decades to 70% on the back of the tech boom and on the back of the Permian energy boom in the U.S. now, if you're right, if China's going to be the next economy that basically benefits from the cheapest energy around then, you know, China today is roughly 15% of global GDP and I think it's about 6% of global market cap. So that number will also need to shift. If China's got the cheapest energy around then, you know, 6% of global GDP 6% of global market cap doesn't work.

[Eric Townsend]

Well Louis, I can't thank you enough for a terrific interview. As always. Before I let you go though, tell our listeners a little bit more about We've got a couple of your writings, the EV implosion and a personal note on the Hong Kong and China equity meltdown. Those two notes will definitely be in the research roundup this week. So listeners look for those download links. We'll try to get the other piece, the party like it's 1999 piece. We'll have to see if we can get that out of Gavkal's edit team and time to get it into this week's research roundup. If not, just look forward at the Gavkal website folks. Besides that, tell people how they can follow your work. Gavcal.com I know you're not really a Twitter X guy. Anything else people should know about how to follow you?

[Louis Vincent Gav]

I am actually on Twitter. I don't post that much, but if people want to follow me I am at Gavvanson. My middle name Gav Vincent. So yeah, the best way to keep tabs with us really is to go to the Gafkal website. G A V E K A L. And yeah, you can sign up for research. What we produce is mostly for institutional investors, but come and check out our website anyway and leave us any feedback there. Always happy to engage in conversation with anybody who wants to take the time to talk to us.

[Eric Townsend]

Patrick Seresna, Nick Kolarnik and I will be back as Macro Voices continues right here [e-mail].

[Macro Voices Announcer]

Now back to your hosts, Eric Townsend and Patrick Ceresna.

[Patrick Ceresna]

Eric, what a great interview with Louis. Now joining us again in the Post Game segment is Nick Galarnik. Now let's get to that Chart deck. Now listeners, you're going to find the download link for the postgame Chart deck in your Research Roundup email. If you don't have a Research Roundup email, it means you have not yet [e-mail] just go to our homepage macrovoice.com and click on the red button over Louis picture saying looking for the downloads now. Eric, let's talk crude oil starting with the EIA inventory data.

[Eric Townsend]

EIA posted a massive build of five and a half million barrels of crude oil this week. The thing is, that was offset by an even bigger drawdown in finished products with gasoline drawing down 3.1 million barrels and distillates drawing down 3.2 million barrels. So net petroleum production was actually a drawdown of 0.8 million barrels. Unfortunately, I don't have any Data for Cushing, Oklahoma. This week US production bounced all the way back up to 13.3 million barrels. That's an increase of 300,000 barrels over last week and it's also a return to the previous all time high. So we're right back up at highs in US production. The concern that I had last week that it might take a few weeks to get back there, turned out to be unfounded. After failing at the 100 day moving average and retesting all the way down to the 200 week lows, the market is trying to recover once again. We need to see a move back above the 77 spot 33200 day moving average on the continuation chart for WTI before we can say that the rally is really back on. And that's still well above the market. But things are heating up in the Red Sea and elsewhere and it wouldn't take that much news to move this market back into a rally.

[Patrick Ceresna]

Yeah, it was a heavy sell week last week, Eric, but to me there's a couple interesting dynamics I'm watching. First of all, when we look at gasoline futures which tend to correlate with oil, they've now fully recovered that drop. And the question I have in my mind is, is that an indication that this was an overshoot on the downside on crude oil and we'll get back above that 50 day moving average. There's two levels, a little zone between 75 and $76 where the 50 day moving average and the Fibonacci retrace zones lie. To me, this is the make it or break it pivot level. If crude oil can't beat 7,576 and it may very well just trade to the bottom end of the trade range down around $70 and just consolidate sideways for a while. But, but if we see the bulls crack above that 75, 76 level again and consolidate up there, then the bullishness we were looking for could still be there and we're going to find out right at this level. I don't think it's going to take more than two or three trading sessions to find out. Nonetheless, let's move on to equities. I want to get Nick involved in this conversation. Let's just start off, Nick, with what levels are you watching on the SPX?

[Nick Galarnik]

Yeah, Patrick, so we smashed that 5,000 level yesterday, which is very, very interesting. That's a key level right now with the call WA as well. There's a put wall right now at 4500. So well out of the money on SPX. Spot price right now as we speak is 5000 approximately. The implied move for the February 16th OPEX, which is next Friday's OPEX, is plus minus 66 points. Therefore the upper implied move is 5066 and the lower implied move is 49.34 Q. Resistance right now is right at 5000. Very important level. If we smash above it, it's possible we push another 50, 100 points perhaps key support below is at 4900 or so. I'm inclined to think we perhaps see a little bit of an overshoot of 5,000 followed by a nice correction down to that 4,800 level, roughly.

[Patrick Ceresna]

You know Nick, it's interesting you say that like obviously this is a huge psychological thing for the S and P to clear this 5000 hurdle and it certainly creates the media hype. It's going to make great headline news. The interesting part though to me is that the market, the S and P is not telling the real story of what's happening in US equities. And so I put together on page four and five just a couple charts to look at. Obviously S and P making new highs. But let's talk about a couple of interesting little observations. When you go to the s and P500 equal weight index, which is just market cap balancing the 500 stocks, that index has not not beat its December highs even though it does resemble a bit of a an ascending triangle pattern. The other observation is the Russell 2000 is actually trading near 2 month lows. Not only did we put in that high in late December, but the bounce that happened in January was barely a 50% retracement of the sell off. And it's now trading right back down along there.

[Eric Townsend]

Nice.

[Patrick Ceresna]

Not participating at all. And so what is an interesting way to look at that is if you observe the percentage of stocks above their 50 day moving average that I put on page five I overlaid three different versions. One is looking at the S&P 500 percentage of stocks versus the NASDAQ. In pink and in light blue we have the New York Stock Exchange market breadth. And what you can see is that the breadth of the broader Nasdaq is down to 41. That means six out of 10 stocks are down trending on the NASDAQ index. I find that fascinating considering those Mag 7 stocks are really the biggest ones, are the ones driving all the flows. But you look at it when you the broader New York Stock Exchange, which includes many of those small caps cap stocks, was down to 52% on the breath reading, which means that literally half of the stocks are already in a downtrend implies to me that when you look under the hood, under the surface of this index that's rising, the breath deteriorating means that the foundation of the market is kind of breaking up, which makes me incredibly suspect of this rally. Now. Can this s and P500 still put on an extra 50 points? 100 points? Could we see 5100? You can't rule it out. And the pattern of higher highs, higher lows and accumulation is still very distinctly there, Nick. But this just to me spells that once the those big leadership stocks that had these huge gaps higher have finished their upside moves and run out of momentum, then it really creates an environment that unless the breath magically widens that the recipe for that 300-500s and P peak point correction will be here. There's very little asymmetry in being long. This market here, while it certainly can still plug a little bit higher in the coming days.

[Nick Galarnik]

I totally agree, Patrick. You know, watching these mag 7 names keep pushing higher while the rest of the market kind of lags or declines is very, very interesting. I've been tracking these sector ETFs each and every day and, and noticing how XLK is consistently the top gainer while everything else lags is pretty, pretty interesting Overall. For example, XBI was down about 1 1/2% and everything else was was up yesterday. Right. So looking at these Mag seven names, you know, we've seen Nvidia run astronomically over the last few weeks. It's gone from 500 to 700 on no actual news. And fundamentally speaking, you know, a company now worth almost approaching $2 trillion with revenues of about 48 billion and profits of sub 20 billion. It's insane. It's just absolute insanity to me. Even if they grow their revenues by 50 every year for the next 10 years, they still wouldn't justify the current valuation. So right now back to the Q's again. The key levels right now are the call wall at 440, we have a put wall at 400. Spot price right now is 432. The implied move for next Friday is February 16th. OPEX is plus minus 8 points. Therefore the upper implied move is 440 and the lower implied move is 424. Key resistance right now is at 440 as well. Where the call wall resides and key support is at previous all time highs of 410.

[Patrick Ceresna]

Yeah, and what's interesting as well Nick, is is that the Nasdaq just even though it's the mag sevens that are actually the leadership that's driving the S and P, NASDAQ itself has actually not got the same momentum as the S P. I find that divergence really interesting. Anyway, let's talk volatility. On page seven, the Vix is back to a 12 handle. We're back into the trade range that we've been in for several months now. What's your take and what's the implied moves?

[Nick Galarnik]

So right now with the Vix at approximately 13 we can expect top to bottom moves intraday of about 0.75% roughly over the last few weeks. The actual implied move average is about 0.62%. So what I've noticed is that we kind of push outside that range intraday. So for example, in the morning if we extend to, you know, 0.9% up or down, what happens is by end of day we usually pull back within that 0.75 or 0.62 range, which is the average of the past few weeks. I'm still seeing a lot of volatility selling on the call side, especially as we approach that 5,000 level. We're seeing a lot of call selling above as well as put selling out of the money below. So multi suppression can be expected here. But again, I'm not really inclined to see much activity until we see that February OPEX pass, after which I see an expansion in volatility and some more abrupt moves perhaps in the other direction. Now moving to page eight, we have the US Dollar Index. What are your thoughts here?

[Eric Townsend]

104 is an important technical level on the Dixie chart and a breakout above it could signal a move much higher in the works. We had two daily closes above that level earlier this week and now we're back below it. If we stay below 104 for a few more days, we can write that off as a fake breakout. But if the Dixie moves back above 104.5, that could signal another leg higher.

[Patrick Ceresna]

Eric, I'm watching the exact same levels as you. The 104 was where a lot of those previous highs were through January, but the 104.5 is a key fib zone to me. But what I find fascinating is what the underpinning levels on the cross currencies themselves, particularly today, was a significant breakout in the US dollar yen and at the same time the Euro is trading at a very critical 107 level which is also in my mind make it or break it level. Now, while the dollar is trading above its 50 day moving averages and has actually been trending higher all year for the least the first month of January of the year, it's a scenario where we're going to get the pivot right now. If the dollar strengthens above these levels, it could very well be the catalyst for a lot of risk off, particularly in many of the commodity spaces and maybe even the equity markets will start resp if that break happens. So it's certainly something that's on my mind and on my watch list now.

[Nick Galarnik]

On page nine we have the gold futures chart. Eric, what are your thoughts here?

[Eric Townsend]

As I've said so many times before, I think 2024 is the year that gold will break out to new all time highs and the cup and handle pattern that's been forming since 2011 would target a move higher to over 2,700 after that breakout occurs. But it's all about the dollar and the timing of the Fed cuts. And frankly I think it's impossible for anyone other than Jay Powell to know whether the Fed is serious when they say that they're probably not going to be a rate cut in March or May, or if they're just trying to contain animal spirits before moving ahead with a first cut in March. That's going to be what decides whether gold's move higher happens in early 2024 or in late 2024.

[Patrick Ceresna]

Eric, I'm also super bullish. Gold in the bigger picture, especially once we have a rate cut cycle, will get underway. But on the short term the price action remains very choppy and in consolidation. I wouldn't be shocked here if gold had a trip back to 2000 just to retest some of the previous lows that were and highs and lows that were established throughout the last six months during that kind of consolidation. I would view it all as buying opportunities. But right now, clearly gold is just not trending yet in terms of a new new breakout. But I think inevitably it'll play out. The just on page 10 though, I have wanted to talk about this uranium chart and the uranium was a perfect buy on dip. It's holding up along the highs and I don't see any reason why this trend can't continue. This is the one commodity that seems to really be marching to the beat of its own drum. A lot of the other commodities tend to be correlated here and are stuck in the mud and uranium continues to be hot. But I wouldn't be shocked if the Sprott Physical Uranium ETF in the U. UN was trading at 35 $36 in the week to come. And finally I wanted to just touch on page 11 just the Bloomberg High Yield Bond ETF. And one of the interesting things that we've seen was that junk bonds were incredibly strong off of that October were low and we had a big rip. But junk bonds have really stopped participating on the upside. They tend to correlate well with equities and that correlation seems to now be kind of diverging, making high yield bonds behaving far more like the Russell and the broader market than it is like the S and P. What will be interesting to me is whether or not this ETF starts breaking below the $94 level accompanied by widening of the credit spreads. We haven't seen a signal from high yield bonds about, you know, a potential correction in quite a while and so we'll see whether or not the price action starts to deteriorate here, folks.

[Eric Townsend]

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.

[Patrick Ceresna]

On this week's Research Roundup, you're going to find the transcript for today's interview, as well as the links to the articles from Louis Vinson, Gav, and the chartbook we just discussed here in the post game, including a number of links to articles we found really interesting. So you're going to find this and so much more in this week's Research Roundup.

[Nick Galarnik]

Well, that does it for this week's episode. We appreciate all the feedback and support we get from our listeners and are always looking for suggestions on how we can make this 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 [e-mail] and you will consider it for our weekly distributions. If you have not already, follow our main Twitter account acrovoices for all the most recent updates and releases. You can also follow Eric on Twitter ericsstownsend that is Eric spelled with a K and follow Patrick Patrick Ceresna on behalf of Eric Townsend, Patrick Ceresna and myself, thanks for listening and see you all next week.

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