MacroVoices #414 Summary

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

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.

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.

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)

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

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.

How to Follow Louis Gave & Gavekal

• Website: gavekal.com
• Twitter: @gavvincent

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.