MacroVoices #440: Louis-Vincent Gave – What Just Happened?

Date: August 8, 2024
Host: Erik Townsend (with Patrick Ceresna and Nick Galarnik)
Guest: Louis-Vincent Gave (Co-Founder, Gavekal Dragonomics)

Episode Overview

This week’s MacroVoices episode features a candid and timely interview with Louis-Vincent Gave, focusing on the dramatic market turmoil of early August 2024. Erik and Louis dissect the drivers and implications of the selloff, the “yen carry trade unwind,” the state and prospects of the AI/tech bubble, Fed policy, the outlook for inflation, precious and industrial metals, uranium, global energy, and the West vs. China’s strategic competition. This episode is a must-listen for institutional investors, allocators, and traders keen to understand whether we’re seeing a garden-variety correction, the start of a bear market, or the birth of a new macro regime.

Key Themes & Main Takeaways

• Market Mayhem & Bear Market Claims: Was the recent plunge triggered by the BoJ, the US jobs report, or something deeper? Louis believes this is the beginning of a true bear market, rooted in years of capital misallocation—especially in AI, VC, private equity, and real estate.
• The ‘Bezzle’ and Malinvestment: Drawing from John Kenneth Galbraith’s notion of the “bezzle,” Louis argues that fictitious gains and underappreciated losses permeate the recent bull cycle—risks that are being exposed as monetary conditions tighten.
• Assets: Scarcity vs. Efficiency: Louis distinguishes between scarcity assets (gold, collectibles) and efficiency assets (tech, growth stocks), suggesting the macro rotation is from the latter to the former.
• Fed Policy & Rate Cut Expectations: Market hopes for 4-5 Fed cuts this year are, Louis contends, misplaced; even as a cutting cycle is likely, it will likely be much more gradual than markets currently price.
• Inflation & Secular Macro: Both Erik and Louis agree that inflation is a structural problem with no painless solution, but recession could “pause” inflation temporarily.
• Commodities, Gold, & Uranium: The outlook is bullish on gold and uranium for the patient, but short-term pain (especially in equities held by retail) may precede the next leg higher, especially if volatility or liquidity events continue.
• China’s Strategic Long Game: The West is at risk of losing the long-term energy war as China executes a far more coherent industrial, nuclear, and energy policy.
• Cultural Perspectives: Louis and Erik reflect on the deep-rooted differences in national attitudes and how these shape economic destinies—especially with respect to strategic planning and resilience.

Detailed Breakdown & Notable Insights

1. What Caused the Market Turmoil? (05:20–09:07)

• The recent violent move wasn’t just a result of the yen carry trade unwind or the jobs report, but the exposure of overextended valuations and malinvestment.

  Quote:
  “When things get too crazy, too out of whack, every now and then they roll over.“
  — Louis Vincent Gave [05:37]

• AI, tech, and yen positions were “absurdly” stretched. Every bull market eventually ends with a reckoning as unsustainable allocations are forced to correct.

2. Are We in a Bear Market or Just a Correction? (09:07–14:11)

• Louis’s view: Bear market has started.

• Markets are now forced to recognize that anticipated productivity from “efficiency assets” (like AI) won’t be realized as quickly or significantly as hoped.

  Quote:
  “Bear markets are there for a reason — to return capital to its rightful owners... the past winners are seldom the new winners, especially if the past winners drove to really silly valuations.”
  — Louis Vincent Gave [13:53]

• Next big opportunity may be in scarcity assets (e.g., gold, vintage art, collectibles...) rather than a return to beaten-down tech.

3. Fed Rate Cuts: Too Many, Too Soon? (14:11–18:52)

• Erik observes market is now pricing 4–5 cuts in 2024.

• Louis says this is unrealistic: The data are not bad enough; Fed will move gradually, likely just before the US election, and not in such magnitude.

  Quote:
  “If really the market is expecting five cuts, I think the market's going to be disappointed.”
  — Louis Vincent Gave [17:57]

• A rapid cycle of cuts could push the dollar down and drive gold “through the roof,” potentially triggering a global rush from US tech into scarcity assets.

4. Secular Inflation and Recession Risks (18:52–24:24)

• Louis maintains his “inflationista” stance: large, unavoidable welfare state deficits in the West leave inflation as the only politically viable outcome. Demographics and strategies like mass immigration have not offset spiraling costs.

  Quote:
  “When you look at the budgetary situation of pretty much any Western country, there is no exit but inflation.”
  — Louis Vincent Gave [19:44]

• Recession could offer a temporary respite, but structural inflation will resume as deficits swell during downturns.

• Scenario risks: A repeat of early 2000s with EM outperforming the US as US slows and the dollar weakens.

5. Gold as Strategic & Geopolitical Asset (24:24–31:59)

• Bullish on Gold: Structural bull market driven by EM demand and loss of trust in Western institutions.

• Risks: Only a strong, hawkish Fed or a collapse in China/India could significantly derail gold.

• China’s Hidden Hand: Erik and Louis discuss the plausible theory that China could be stockpiling gold not just for reserves, but to undermine the USD’s dominance as a reserve asset.

  Quote:
  “Is this the moment where you start bidding up gold and saying, hey, I've got a, got a bid at 2,500 ... at 3,000? What would you do if you were [Xi Jinping]?”
  — Louis Vincent Gave [28:56]

6. Industrial Metals – Copper & Uranium Outlook (31:59–40:30)

• Copper: Leading indicator; already corrected before equities. If you bet on global recession, steer clear. If you see EM/China stabilizing and a cyclical rebound, this is a dip to buy.

• Uranium: Fundamentals are outstanding, but the sector is retail-dominated. Panics or liquidity squeezes can outsize losses in miners before recovery.

  Quote:
  “For a number of reasons, miners should be making money hand over fist, provided they can get the stuff out of the ground. But getting the stuff out of the ground … is just tougher and tougher and tougher.”
  — Louis Vincent Gave [37:13]

• Irrationality about nuclear (public associates it with disaster; reality = safest energy) means that shocks (even a small nuke detonation) could cause wild swings in sentiment and valuations.

7. Energy Markets: Spare Capacity, China’s Auto Flood, and Long-Term Competition (40:30–46:31)

• OPEC’s claims about spare capacity are dubious; demand from EM, catalyzed by China’s export of cheap ICE cars, could eat up spare supply faster than expected.

  Quote:
  “Are we going to stay at a steady million million and a half growth in demand, or could we conceptually move to two, two and a half million in demand? And if we do, then that spare capacity that you mentioned is going to get absorbed much, much faster than anybody expects.”
  — Louis Vincent Gave [43:07]

• The US is way behind in nuclear energy policy and tech adoption. China’s rapid move into molten salt/thorium reactors is securing future economic and military supremacy.

8. Strategic Competition & Cultural Contrasts: The West vs. China (46:31–57:44)

• The US’s “energy exceptionalism” (courtesy of shale) could be ending; macro winners will be countries with the lowest energy cost. If the next cycle is non-carbon, China is 10–15 years ahead.

• China’s long history: Collapse, humiliation, and resurgence have instilled a national resolve and a focus on planning, resilience, and technology. Unlike the US, which has always taken abundant energy for granted, China innovates out of necessity.

  Quote:
  "Necessity is the mother of all inventions. Given the deep historical trauma that China went through... they have no choice but to plan, but to innovate, but to move forward."
  — Louis Vincent Gave [57:24]

Key Quotes & Memorable Moments

• On Bear Markets:
  “Bear markets are there for a reason ... the past winners are seldom the new winners, especially if the past winners drove to really silly valuations.” — Louis [13:53]

• On Impact of Fed Cuts:
  “If the Fed cut five times ... imagine that you're the Chinese entrepreneur ... so far what you’ve done... is bought Microsoft and Apple and Alphabet... Now the Fed comes out and says, ‘I’m going to trash the dollar.’ ... all of a sudden, it’s like, well... I want to own a gold bar.” — Louis [15:38]

• On Western Deficits:
  “There is no exit but inflation.” — Louis [19:44]

• On Gold:
  “The only thing that goes up in a market crash is correlations... For people who do have capital, [a gold dip] is a great opportunity to buy.” — Louis [25:02]

• On China’s Strategy:
  “If you're Xi Jinping... do I take the US head on? No, I fight a guerrilla warfare against the U.S. ... For me, the most obvious one is you crank up the gold price.” — Louis [31:10]

• On Nuclear Risk Perceptions:
  “There's this thing, this belief, oh, uranium is so dangerous, nuclear is so dangerous, etc. ... The reality is that nuclear is by far the safest... But in the public consciousness ... 99 will tell you nuclear is the most dangerous.” — Louis [38:35]

Post-Interview Market Insights & Technical Discussion

Equities & Volatility (59:16–73:10)

• Patrick and Nick dissect the technicals:

  • S&P 500 “kangaroo market”: huge intraday swings now common, short-term volatility abnormally high.
  • Bear market likely started, but expect rotations and violent mean reversion — August may be a “meat grinder.”
  • Nikkei’s crash was epic, but may have put in a short-term low.

• Quotes:
  “My first observation is I'm concerned that we have a new generation of traders who thought this small correction was a crash.” — Erik Townsend [62:46]
  “The fact that the Nikkei is probably put in its low is going to also generally put in the low in most risk assets, at least on the short term.” — Patrick Ceresna [70:35]

Commodities (74:04–78:08)

• Gold: Structurally bullish, but liquidity-driven fake-outs possible. Buy any major dip.
• Uranium: Devastating drawdown in mining stocks (retail panic), but fundamentals are “a strong buy.” Prefer Sprott Physical Uranium Trust (SPUT) for lower risk; producing miners as next best option.
• US Dollar & Rates: Louis’s potential US dollar bear call, if right, makes commodities the “trade of the decade.” Yield curve steepening is a clear recession signal. Treasuries likely to continue working as safe haven.

Timestamps for Important Segments

• Introduction & Market Recap: 00:34–03:45
• Interview begins — Market turmoil discussion: 03:52
• The ‘Bezzle’ and Bear Market Origin: 05:37–09:07
• Bear Market vs Correction debate: 09:07–14:11
• Fed cuts & rate policy: 14:11–18:52
• Inflation & recession outlook: 18:52–24:24
• Gold, Precious Metals, China strategy: 24:24–31:59
• Copper, Uranium, nuclear risks: 31:59–40:30
• Global energy/China’s energy strategy: 40:30–46:31
• Cultural roots of Western/Chinese strategies: 46:31–57:44
• Closing remarks from Louis: 57:44–58:55
• Post-game chart discussion: 59:16–89:55

Closing Thoughts

This episode stands out as a high-level, big-picture review of what could be a macro inflection point. Listeners are encouraged to remain cautious: the era of “efficient asset” outperformance (AI/US tech) may be over, macro volatility is set to continue, and “scarcity assets” like gold, uranium, and select commodities should be closely watched — especially if the US dollar does finally enter a cyclical bear. Perhaps most importantly, Erik and Louis urge us to look beyond Western myopia and recognize the seismic industrial and strategic advantages being forged in China.

Louis Vincent Gave:

“Bear markets are there for a reason ... the past winners are seldom the new winners, especially if the past winners drove to really silly valuations.” [13:53]

End of Summary

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