Fed Cuts Are Coming Next and They Mean Recession — Mike McGlone

[00:00:00] Speaker 1: welcome back up jeremy saffron the united states struck iran again overnight oil flows through hormuz remain disrupted although tanker shuttling is helping more barrels escape yet take a look at this screen i mean it crude lower brent is down more than one and a half percent and then refined products are falling harder still with gasoline down nearly two and a half percent heating oil down a full three now that is not the reaction you'd expect when a middle east conflict is escalating and it's part of a mixed set of signals this morning the economy grew more slowly than expected last quarter but consumers spent more than forecasted inflation cooled month over month and yet the 30-year treasury yield is sitting near a 19-year high also stocks rebounding hard today after getting hammered yesterday and gold also moved back above 4100 on the spot side now my next guest looks at all of that and reaches consensus well outside the wall street consensus he thinks that oil is headed sharply lower war no war he thinks that the federal reserve's next move is down not up and he also thinks that gold's high for this cycle is already behind us he did call the five thousand dollar gold call before it got there then he turned around called the top he was right on timing so obviously it's worth hearing how he gets there now stick with us we'll get into it mike mcglone is senior commodity strategist at bloomberg intelligence uh mike a lot to unpack this morning [00:01:24] Mike McGlone: always good to have you back it's great to be back and thanks for having me back jeremy because you become my go-to when i'm looking for information and stuff i go to you and listen to a lot of your [00:01:33] Speaker 1: interviews and so i appreciate that no i appreciate that and you know a lot of people as we mentioned were you know not happy about your top of the market call on past 5 000 on gold you know we aired it you were correct on that and i kind of wanted to to start with the fed today before we get to the metals because i mean you know it's interesting and right after that fed meeting yesterday you kind of wrote because your view sits well outside that current consensus as i mentioned that the fed held obviously three officials wanted a hike the market's now assigning a greater risk to a september hike and your read was quoting you much ado about nothing now you said that the next move may be a series of 50 basis point cuts and that the fed will be following the stock market on the way down make the case i mean why is the next move lower and why is it you know half point steps well i had to put that out partly [00:02:22] Mike McGlone: because we're both in the media and i like to say as a research strategist i can make the make the write the best research on the planet but if i don't write out provocative headlines and catchy headlines i don't get readers it doesn't matter i'm out of a job so we have to sometimes that's what you do you have to sometimes accentuate things and this whole fed is much to do about nothing there's not going to tighten i think the next move from the fed will be a series of 50 basis point cuts overversion cycle in the stock market which means recession but that's all that matters um otherwise there's no reason for them to do anything i mean they can't really hike rates from mr wars to hike rates would be a complete profile and courage which i think is very unlikely now it could happen particularly as his term moves past mr trump all's we met and care about right now is what happens in the second half of the year it's so profound um but the bottom line from inflation is elevated and the key thing i think the market's going to look back from the future and say that was dumb for the fed to be cutting rates in an environment with stock market running two times gdp now this is the last few years um and inflation above their target and bond yields going up and telling them not to cut rates so just give me a look back from the future said yeah we're not gonna do that again i think wars is saying it but he's not really doing anything and i think the simplest thing for the worse to understand i think him and best and get really they're ex-traders is tis the season for volatility to pick up i mean it's end of july only thing you got when at the end of like may you got to look forward you have to look forward to the summer and the and the you know the moribund season now we're looking forward to the fall which might mean a fall in prices um in certain things like a stock market and we have indications i look at things like the cosby was up 110 percent on the year now it's up 30 percent we've had pumps and dumps and versus all the metals gold silver platinum platinum and bitcoin and they're hovering down um to me this the signals i'm seeing from markets also with volatility in the stock market running their multi-decade lows versus the volatility you see in gold and crude oil and things like that um just a little bit of reversion in that i think is what we have to look forward to i think the fed gets it and i think they understand is all they need is a little back of the stock market poof everything's fine inflation be alleviated all that excessive spending and the wealth effect will be removed and then they can think about easing but right now um to hike good luck that's not going to happen but if inflation stays sticky they might have to and here's the key thing that's changed jeremy this is how the world has changed how the answers have changed and that is in the past for um you know president would pressure the fed to ease rates to boost the economy help them get elected now what that does is create more inflation it's the number one issue in the in the elections midterms are coming up and inflation means incumbents are not [00:04:55] Speaker 1: getting elected yeah yeah and you know you you did connect that kind of the cosby correction gold bitcoin is kind of part of the same unwind and the line that obviously stuck with me was it was you know following the stock market that means the fed is taking well i guess it isn't leading here it's reacting so what kind of has to happen first is it another 10 off equities is it 20 or is it credit [00:05:14] Mike McGlone: rather than the index that forces their hand oh it's always um there's always peripheral things um but right now the bottom line the most significant 10 on a scale on a hundred year basis on a global basis for all post or you know normal post inflation deflation is u.s stock market we've already seen peaks and housing many places i have a good friend in florida real estate for decades and his quote was if i could short florida real estate i would and this is someone who bought a condo on credit in 2020. it's just the way the cycles work um we're seeing it in you know consumer sentiment and inflation and things like go um like this i might like diesel and gasoline prices near multi-decade highs that's hurting consumers but the bottom line is it's all that matters now everything is dependent on the stock market what's consumers what's driving consumer spending um and you know the 20 of the top 20 of you know income producers and income people in this country are doing quite well but the rest of the economy is not doing so well 55 of this of our um citizens are wage earners they're not doing so great and the rich people are doing better um but to me that's the whole cycle and this but the signals from markets are so profound jeremy i mean just sometimes you just can't when you can say that gold is at a four decade high versus a basket u.s treasures look that's kind of consign significant when you can say gold 60-day volatility just reached the highest ever in history of gold trading with the stock market going up that's a bit of a problem and you can say things like gold's volatility annual volatility is trading at a multi-decade high almost a 20-year high versus a stock market that's a bit of a signal and i just looked through the second half of this year stuff that i've been wrong on forever that we're going to have a backup in the stock market might kick in and here's what i look at if we have just a ho-hum year and stock market keeps advancing saying s p 500 is up 10 or so in the year right now and adds another five percent yeah it's nothing it's not a big trade but if it starts dropping for a normal midterm year the last two mid-term years 2018 2022 were the only years since 2008 the s p 500 total return was down and if it drops for a normal cycle like that the dominoes kick in and i and that's the key thing like i i so i'll end with this i was at a panel i was moderating a panel at the global waltz conference in new york i think that was in june and um the guy next to me was quite bullish copper i get everybody's bullish copper i get there's a good reason to be bullish copper but everybody says the same thing and i said well you're bullish the stock market and he looks like right three heads well if you're bullish copper the stock market absolutely has to go up it's history is a guide because if stocks drop 10 coppers drop in 20 to 30 percent um based on just normal correlations a high metals are highly correlated to stocks right [00:07:55] Speaker 1: now now you know we're talking about inflation as well and i kind of want to put both sides of this to you because the genuine the data seems like it's genuinely split i mean your side first the core inflation rose just over a tenth of a percent in june according to the commerce department the mildest month since march of last year and if that one month pace were kind of sustained it would annualize to about 1.6 below the fed's target but then look further back in the same report i mean the six-month pace is running 3.8 and that's worse than it was a year ago the 12 month is 3.3 so the latest month says inflation momentum cooled sharply but the longer trend says that the problem is still there i mean which one is the signal which one is the noise oh there's so much noise and this is where i think i [00:08:39] Mike McGlone: keep further backing off from the market a little bit looking at a a top-down view inflation simplistically has probably peaked i'm going to put that in my headline for my my august outlook for commodities i think inflation's peaked at 4.2 percent that's cpi i think crude oil's peaked at 120 and the key head thing i have in the headline for next year i fully expect cpi can easily get to zero percent and crude oil can get to near 40 on a normal cycle there's one key prerequisite for that just to say a 20 drop down drop in smb 500 that stays down or even a 10 drop from here now that's the way things usually work we're so overdue for a post-inflation deflation cycle and if you could think of what's happened with crude oil and and cpi they both kind of peaked from lower highs lower plateaus since the peak in 2008 now inflation obviously had a little run and to and when russia invaded ukraine and they've made lower lows since has that trend stopped but that's also happened with stock market cap to gdp reaching the highest on a year and basis since 1928 and most significantly stock market cap to public debt reading reaching 2.1x or so that's the highest since 2007 that's part of the reason bond yields are the highest since 2007 which is a major pressure for all non-income producing assets and commodities most notably [00:09:58] Speaker 1: precious metals yeah i want to talk to you about the bond market before we do that can stick on oil there because obviously that call on oil the timing is what stands out i mean as i mentioned overnight obviously the u.s hit dozens of iran military targets iran uh strikes reached jordan in kuwait i think drones also struck uh two natural gas vessels in egyptian port now oil flows through hormuz remain below pre-war levels but tanker shuttling has picked up and bypass pipelines are moving more barrels out of the gulf than ever before i mean you just talked a little bit about brent with west texas in the low 80s you know you're you're talking about the risk into year-end is is kind of energy and deflation just get into that a little bit much more here because i mean much of the market is positioned for an oil or i guess we could call it a supply shock i mean you're calling for that take [00:10:45] Mike McGlone: me through it well this is where i really enjoy learning from many people like you and some of my colleagues in the end of my energy desk who dig into the weeds of the energy market i look in the top down there is a 10 and that one to ten scale in energy market that's one of the most significant tens i've ever seen is what is the motivation of the world's most um of the leader of the world's most significant energy producer and the net exporter not just of energy of corn soybeans wheat grains liquid fuels biofuels um into the midterms the person who actually initiated this war in iran iran is becoming um opec was becoming redundant before this war the western the price making status in energy has shifted over the western hemisphere the u.s in the middle canada to argentina is becoming a bit of a drill at will and they just had the best incentive since the russians invasion ukraine to sell and produce at a profit yes we're in a bit of a nuances right now but there's a reason as we speak right now the price of wt crude oil is 84 a barrel that was first traded in 2007. now we have things like distillates diesel and gasoline running their multi-decade highs that's a big problem mr trump absolutely has to get those down by midterms and if he says he doesn't care you know he cares i just love that nuance having followed politicians for decades um but that's then that's the 10. now how he figures that out i don't know this quagmire of a war that was supposed to be done in two weeks with unconditional surrender which i'm sure is what he was speaking that's his problem he'll figure it out but the bottom line is he needs lower energy prices and the key thing always remember about energy it's one of the most autocorrelated sectors of commodities it's also what i like to point out is the key thing people miss sometimes and they really really um accelerated in 2022 is that process that force of autocorrelation commodities is one of the most significant increase in incremental increase in force in commodities we proved that rapidly advancing technology and demographics when you get a pumping price you incentive my more supply cut the demand prices go back down why is the price of soybeans we see in the screen right now same as first traded in 1973 that's 12 hours and 90 cents because we can produce more with less every day so that's my macro for commodities so i'm and for crude oil i'll put numbers on it right down at 84 a barrel i think the high for the year i called it earlier is 120 we could get near there but imagine if we do but then which is you know it would be its own worst enemy and then we'll just be down later i fully expect crude oil that gravity gravitate towards 70. 70 has been the absolute high value price for 20 years so it's basically the apex of the bell curve and then do a normal rotation back down towards 40. why is that not profound because the average cost of production the world's largest producers 55 a barrel that's the us we can produce more with less we have a major surplus with canada approaching in two years if prices don't go don't go down that's going to approach 10 million barrels a day of crude oil and liquid fuels in 2008 it was a deficit of the opposite see where cycles are going opaque matters but the rest of the world's having a major problem and also and i think the key thing to end with is what's happening in china they're curtailing demand probably why because what do we know almost 60 of sales and automobile sales are evs in 2022 before the russians invasion ukraine that's close closer to 10 [00:13:53] Speaker 1: see the shift yeah yeah and you know we could talk about that i want to kind of we're at 17 minutes but this is why i could talk to you for so many hours mike is because i i'm not even done with the oil story yet because when you say power shifted do you mean opec you know the financial markets can now set the price more than the production quotas do and secondly i mean at 70 oil who's forced to respond first is it u.s shale producers or are these opec members defending their budgets well all [00:14:19] Mike McGlone: the above so that's the key thing it's not one or the other first of all markets are much more financialized let's go there right now if you're bullish crude oil or if you're bullish copper or even broad metals most commodities you have to have the stock market go up unless there's some kind of oil shock it's just the way things are we're so correlated now like i might have you know mentioned earlier the 60-day correlation between the bloomberg all metals index and the sv500 is almost the highest in that index history and it's only been around 30 years so then let's look over supply and demand i'll give you one example price maker status in u.s soy and soybeans has shifted from the u.s to brazil they're almost they're approaching 50 percent more than the u.s production 10 years ago it was the same production that's the incremental supplier price maker status from oil has shifted away from opec towards the western hemisphere to the u.s formerly the largest demand pool and now a major exporter and pushing almost the same amount of exports that china was importing last year before the before the invasion of iran so that's the shift financially and fundamentally and the bottom line is my eb is 12 years old yeah yeah okay well let's talk about refined products because they're [00:15:26] Speaker 1: showing more weakness too i mean gasoline down nearly two and a half percent heating down full three both falling faster than crude itself i mean here's what makes that remarkable russia just extended i saw this this morning just extended its diesel and glass gasoline export bands into 2027 so i mean that's a natural restriction on exactly those products they fell anyway harder than crude so is demand weakness showing up first in in the products consumers actually use no i understand demand weakness it hasn't been showing [00:15:53] Mike McGlone: up too much you're seeing in consumer data um but it will the key thing is that's there's different markets now distillates and underlying crude oil so crude oil are much more bearish on than distillates but the key theme though for distillates and most notably the number one that matters from an election standpoint and there's election in november and we have a very political president is gasoline the u.s gasoline price at four dollars and eleven cents that was my key trigger jeremy in 2008 when it pumped up four dollars to just sell more short the stock market and buy more treasury bonds now so far that hasn't worked this year not we're right about the same price as a peak in 2008 which shows you how you know how blessed we are in this country with you know prices but it's auto correlation that to me is going to be the key one and if the best way to really hurt consumer sentiment has had gasoline go up and stocks go down so far stocks are doing well but that's a key thing that this the cracks are very wide there's major incentive to produce a lot of incentive to export but what's the incentive to get towards elections you got to get prices lower in this country and it's just a question how mr trump's going to figure out how to do that you know to your [00:16:56] Speaker 1: point mike i just saw it come over the your terminal actually and and bp is cutting 700 jobs while warning about oil over supply in the middle of a war disrupting the oil's most important shipping route so is that the clearest kind of corporate evidence yet for your 70 call well add to that bw's cutting um [00:17:14] Mike McGlone: cutting um employees bmw just announced layoffs why because they're facing major headwinds from the significant paradigm shift of rapidly advancing technology from china just the fact that we have a hundred percent tariffs on these awesome evs coming out of china is a good reason there's a problem globally i mean the rest of the world who doesn't you know not like japan or german in the us who doesn't and not major manufacturers of automobiles say thank you very much we'll take those and by the way there's so much more cost effective and just give those 10 years i mean where's that going just i own an ev it's just amazing how much cheaper they are to run there's only 500 moving parts but it's that's the paradigm shift that i think is going to continue and it's not just automobiles it's renewables um and when you get prices spikes like this it just incentivize human invention i think that's what's happening and that's why it's just hard to say bullish broad commodities except for metals the [00:18:05] Speaker 1: problem is metals probably just peak too i gotta ask you before we go to metals i mean there's a piece that most people are skipping here and it's on the demand side i mean china grew 4.3 percent last quarter below bayesian's old target the the paul the polity borough met and passed i guess a major new stimulus their 10-year yield is down towards 1.7 percent so i mean that's the bond marking pricing weakness not recovery is china you know a quiet reason your deflation call works if demand from the world's biggest crude importer was weakening i mean how long can that war premium really hold right [00:18:38] Mike McGlone: so in the full um yes i've been pointing that one out a little too long wrong it hasn't worked yet but that china 10-year note right now about 1.7 percent versus the u.s 10-year note almost 300 basis points higher second largest economy in the world their debt to gdp is running 300 their money supply is running almost two times the u.s yet there's 10 you know it's a severe deflationary force we've seen this before in japan now japan's starting to come out of that but this to me is the number one factor i think since matter by the end year and we just had a great test had this major and you know most significant disruption of energy flows in the world and crude oil is running right about where it was in 2007. why is that what happened we saw what happened in china they were importing 11 million barrels or 11 to 12 million barrels for about four to five years and last year didn't make so much sense to me but now it does clear evidence they were topping off their spr so pediatric petroleum reserves and people like louis vincent gab said it might be 1.8 billion barrels that's like what five times the u.s or maybe more than that and it makes sense but now they're actually it's just accelerating they now they have a better use case so all their massive supply of renewables and evs and accelerate the process of shifting to you know non-petroleum consumption versus what they have a they have a deficit of versus a surplus of [00:19:53] Speaker 1: their technology now i want to talk a little bit about um the bonds obviously that's making headlines today but i don't want it to become you know pure rates conversation we'll land on commodities at the end for the audience but let's get to the part of kind of your work that's being tested i mean your argument has been the treasury bonds are taking the safe haven uh job kind of back from gold right and that the fed a fed serious about inflation could end a six-year run of gold beating on bonds then look what just happened i mean sold off stocks yesterday the fed held risk assets were kind of under pressure across the board investors dumped the 30-year pushing its yield back to that 19 high inflation expectations went up not down you're talking about the market here but i mean it is the most since november of 2024 the long bond didn't behave like a safe haven on the day that it should have tested your thesis what [00:20:38] Mike McGlone: has to change for that call to work um the number one thing for my call that has been wrong for almost three years now and bond yields to be the next big trade that's my main call for this year is the stock market has to go down so i look at that long bond as we speak speak 5.21 percent that's a huge hand win for any non-income producing asset starting from bitcoin to gold there's no reason i mean you got to have some major inflationary forces to make those uh viable versus a five percent long bond it's in a you know u.s treasuries but the bottom line is the number one source for inflation is u.s stock market it's still up almost 10 percent in the year that's if it drops 10 that's 25 the gdp the most on a year basis since 2008 so i look at treasury bonds right now as a basically a put on the stock market with positive carry and no time decay puts as you know in my experience trading puts i oftentimes will be right on the market my puts will expire before i get a chance to be right because they'll be wrong first but to me that's the way they are right now and the bottom line is this second half of the year will be the major determinant i'm looking at it it's going to be a ho-hum year stocks going up which means you're probably not going to make much more in treasury bonds if the stocks drop that 5.2 i think it's going to drop towards four percent in a heartbeat and if stocks stay down it's just a it's a major cycle kicking in very similar to what we had in 2007 um as correlations crazy huh yeah so that's the key thing i want to point out to is when people i love when people point out as the um unstoppable deficit spending it's not just in us you see it picking up in the rest of the world and most certainly we have it very high in china it's picking up in germany and europe because of defense spending but i like to point out total u.s debt in this country is between 39 and 40 trillion now sure that's unstoppable i get it but u.s stock market cap is over 80 trillion that's two times it's the highest since 2007. u.s debt in this country that liability is minuscule versus that top asset that's real time the stock market at two times that that's the last time we had bond yields at these levels so i'm still very comfortable with that call it's on the back of selling gold and selling bitcoin at really stupid levels and just got too expensive and hiding on treasury so that's still my main theme for this year that part's been wrong you haven't lost a lot but that's where i think this next second half is going to matter jeremy if we start trickling down in the stock market particularly later in the year you do it um that'll accelerate the trend for it could be certainly for a couple years but certainly next year and that's where i'm thinking you look at you always look at iterations okay if this and that so if stocks stay strong okay fine fed might have to tighten or kind of it's a ho-hum boring market but if we start ticking down the stock market what's normal in this type of cycle that's a big trade and treasury is the place to be the place to start and that's what i think we're seeing warnings from things like bitcoin going down and gold failing and even the cost be rolling over is um it's only july and we even got through august yet just wait till we get through closer to the midterms this is going to be a fun quarter i and it's a bottom line i'll end with this i think it's going to be a trading year of a lifetime um maybe some in the 2008 it's just getting started and some of the key themes have already happened bitcoin's broken down uh silver's broken down gold's broken down after key rallies and then two main things i've gotten wrong so far is copper i didn't think it stayed much above six hours a pound and i didn't think that think that bond yield will stay much above five dollars um five percent so far we'll see how this works out towards [00:24:03] Speaker 1: the end of the year you know i was going to ask you i mean take it back to the commodity complex for me because if the long end stays up here what does that actually do i mean producers obviously borrowed a drill and to build mines so financing gets more expensive but which commodity kind of [00:24:15] Mike McGlone: fills a five percent thirty year first oh you start with the gold um because gold is the most sensitive to its alternative treasuries and that's why i like to compare there's another measure on the terminal we have a bond a long treasury bond index we go back to 1973 with that if you divide that by gold bonds are the cheapest versus gold since about 1985 that's price like okay well look at that and also we hear everybody knows the fundamentals central bank spine the world gold council just had the report today i get it we all know stuff we wrote about five years ago when i was really bullish gold to break above 2000 which took about three years and so i was wrong on that one that was the pain we got the gain but then we got to such extreme levels gold in q1 reached its highest ever versus the bloomberg commodity index now that data we go back to clearly since 1975 when futures started trading gold futures that was a bit of extreme it got to um silver and silver got to its highest ever versus copper and crude oil okay that was a bit extreme and now we're in the hangover and the key question is typically when you get this stretch and versus your own moving averages but the king also last year's rally in gold jeremy's was so profound i got lucky in that one but so scary to me because we have never rallied at such high velocity the best year since 1979 in a disinflationary environment ppi cpi peaked there what was it 15 13 or so in 1980 and gold ran and now it's running 3.5 percent to me this is that was gold warning us and there's one game left in the stock market it's the only game left in town and when that rolls over eventually if if it happens by the end of the year that's a big trade kicking in i think gold's winning and that's the problem now though gold's 60-day correlation to the s&p 500 is the highest ever in up market for s&p 500 it's telling you if stocks go down everything's falling because gold might drop a little less the problem is it trades currently two times the volatility s&p 500 that's an annual basis and typically a store value trading two times the value of beta is an oxymoron what do you think i mean when [00:26:11] Speaker 1: you see a day like yesterday i mean you know we started the day before the fed down ended the day up it was a little bit iffy there but that you know i mean look at the tape today gold's reclaimed that 4100 traded as high as 4122 silver's up two percent platinum approaching three percent palladium up roughly four i mean that is a broad strength across the precious metals complex what would gold need to do from here to kind of convince you this is more than a temporary rebound i don't know but we have to be [00:26:38] Mike McGlone: very careful about day trading in quiet markets in july even august and making much out of much ado about nothing this is the next trader i just remember sometimes you have to step back yeah let the traders knock it around i used to be one of those i used to have hair but maybe gold can get lucky enough to stay above its 200-day moving average around four hours of four thousand four hundred four thousand five hundred and mate mike but it looks to me very much the whole industrial precious metals complex looks very much like cryptos did last year and i really enjoyed jumping on the gold force and getting off cryptos yeah i was early but pointing out gold precious metals are basically about a couple doves there's really four gold silver platinum platinum and gold is beta for the whole metal sector which is only really 10 that matter and then there's bitcoin and cryptos there's millions of those and bitcoin's beta but there's an unlimited supply they're like a bunch of pigeons but they're all rolling over they all were alternatives and they all face one key thing first of all um competition from five percent in long bond and and treasuries and the fed potentially you know and four percent in the two you know and they just went up too much so to me those are enduring bear markets are getting started gold's 200-day mover this is just starting rollover cryptos are clearing a bear market but the most significant rallies happen in bear markets they have to rip your face off and um that's why i like to just sit back and say you know i right now i'm still bearish gold i'll probably put out a really bearish comment if we get to near the 200-day move and everything give us a bounce but here's the way i look at the way these markets usually work typically almost always when you rally at this velocity particularly in silver it shifts what we're demanding deficits into surpluses people always forget that remember supply demand and price it's all the same model price just moved exponentially and you put in peaks that last for decades i think that's already happened in cryptos i think it's already happened in precious metals and the next key one is copper that's where everything for me and q if copper goes down that's the domino's tumbling because copper is the most highly correlated commodity [00:28:34] Speaker 1: to the s p 500 has anything what surprised you the most here i mean you know obviously during wednesday's sell-off just yesterday i mean gold silver kind of rallied while equities were falling apart i mean that was like kind of like gold acting like a safe haven did that surprise you no um gold has been hovering at [00:28:51] Mike McGlone: four thousand dollars an ounce for how long couple months now 4100 is nothing like i said it's got to get at least about 4500 just to show potential it's not a bear market and then what's that going to do it's going to bring in more sellers the most the thing that surprised me the most was the spike in bond yields obviously because that's my bias that yields are eventually gonna go down wrong so far but that's the key thing lesson you learn about markets sometimes you have to take the most pain for the most gain gold was my great example i mean i was bullish gold in the year 2020 21 22 and 23 and finally at the beginning of 24 i quoted roger babson who from 1929 i would call to the opposite what he says i will tell you what i told you last year and the year before the stock market's going down so i just quoted him i will tell you what i told you for the last few years gold's going up got that trade and got right but it did it it's done you have that's the hardest thing to mark this point out is when you move exponentially like this and people say you're technical i'm like no supply demand price when price moves that much it shifts supply and demand with a lag and that's where i think we'd be lucky so i think what i fully expect those goals should make it difficult shouldn't make it easy i mean if it goes back to three thousand dollars an ounce before it goes to five thousand that would be ideal might give you a good chance to buy it if something shifts exponentially that gives me a chance to signal to be bullish gold the problem is right now at four decade um high versus treasuries that would be i can't get really bullish unless somebody gives a you know something like a backup but if it goes about to five thousand first i might have to put out a short signal like i did and i did some of that in silver and i did some of that in bitcoin gold it's just hard to signal short because it used to be a store value but right now its status is a highly volatile speculative risk asset trading at two times the volatility the stock market let's let's do the rest of your world [00:30:30] Speaker 1: just for a second here mike i mean because you cover the whole complex and most interviews never leave gold but weed is up more than two percent you talked about corn a little bit about soybeans cotton up um while the energy group is is red and and i'm curious you know where is kind of the most mispriced thing on your board today not the biggest story but the most mispriced [00:30:48] Mike McGlone: natural gas mispriced as far as one commodity i think is worthy of of exploring purchases january natural gas peaked at 565 when um in in uh in march after the uh the u.s um invade attack on and iran and after the coldest winter in two years right or 10 years but the second coldest winter right now it just got to near four so i look at this okay that's an opportunity and markets have to swing them have to make it difficult so as a trader you look to be response okay five was a bit expensive four in january natural gas and jan matters because it's the apex of the bell curve it's the highest price ever that's when heating demands the most it's back down to near four four it's been a major pivot forever i fully expect that to pop up near five to stay below four needs you basically need another a warmer than normal winter warmer than pricing and you need no weather scare so to me that's a bit mispriced there the main thing i think is mid prices long bonds at 5.2 i think by then the other be much lower obviously the biggest issues is stock market but in terms of commodities i'm glad you went to grains because this week i had the honor of attending the agri next conference put on by noble in st louis missouri it was 95 degrees in midday there in in in miami it's only 90 it was pretty steamy up there but one sense i i really love presenting point out the price of this soybean you see on the screen i know so wheat's pumped up for for more political reasons we had first of all we had a bit of a drought for winter wheat in this you know harvest in the spring in this country but you know we see missiles knocking at some of the wheat supply in in the out of um out of russia in and ukraine that's a bit of a pump thing for wheat sub 30 but that's going to bring up more supply the number one one that matters right now soybeans soybeans are about 30 40 of the bloomberg agriculture index because you have soybean meal soybean oil and um and soybeans actual soybeans and they're running around 12 bucks why is 12 bucks important that was first traded in 1993. so i enjoyed pointing that out at the conference that was a great grain robbery if you look at crude oil which popped up remember we had back then we had the first arab oil embargo popped up to 10. it's up about it got 120 this year it's up about 10 times since then but soybeans just stuck there why is that it's a highly autocorrelated commodity yes we need food it's used for everything um but there's massive supply coming out of brazil and the average cost of production in brazil and the us is lower than current prices now that means just keep planting until prices go down unless there's a bad weather event which should be a north short-term thing prices going to go down so that's one of my main calls right now is natural gas at four is probably going to go up and soybeans that just got near 12 is probably going to go down you basically need for soybeans to go up now you basically need crude oil has to probably stay above 100 and you probably need a really bad flash drought in august in the corn belt all right i got to talk currencies just for a [00:33:30] Speaker 1: second because there's something on the screen this morning i think it's worth putting to you because it may reframe the whole conversation i mean gold is up better than one percent in u.s dollars but price of japanese yen it's it's down more than one and a half percent in euros and pounds up a fraction so for american gold's rallying but for a saver in tokyo it's falling i mean it is what we're calling [00:33:50] Mike McGlone: you know a gold rally actually just a dollar decline well certainly in japan right now the thing i get from my colleague and it's one thing i've been advantage at bloomberg you have all my colleagues who cover like currencies audrey chill freeman covers currencies out of london she's been pointed out yeah japanese yen is great but the the the speculator positions long the dollar short the yen are very extreme you got to get a flush out of that and that's what i think we're doing right now but the the fundamentals i still look at are just what's so great about the fundamentals for japan declining economy they're they're a major export economy and whether they're still exporting mostly internal combustion engines and by the way you look over china and their engine their vehicles are much better and cheaper i mean the overall demographics of japan are just horrible in the macro big picture everybody gets it they're trying to think that maybe they're getting a little recovery inflation i'm like good luck with that when the stock market goes down you're going to see what's going to happen in japan to me that's why we have to get through this big test um so i'm tilting over to some quasi currencies like cryptos cryptos have already flunked that test and the test is how will markets react when we have the first 10 to 20 correction in the u.s stock market that stays down for a year or so it just stays down a while stuff that used to happen that's way overdue all the signals are there and bitcoin's already flunked the test and it hasn't even come now some of the currencies i don't know but the key thing i'm also concerned about the macro the dollar that among my former colleagues gina martin adams taught me is the dollar has basically been tracking um dollar versus the basket currencies the u.s stock market versus the rest of the world for since 2009 straight up so what happens if stocks go down um so that's why i'm kind of concerned but the bottom line is it hasn't really mattered i look at the dixie it's like near 100 same price as what a decade ago but i have to ask you on japan because [00:35:30] Speaker 1: this morning there was some interesting obviously you know because it goes to your bond call too i mean the yen just jumped about two percent against the dollar biggest move since the spring there's there's speculation japanese officials stepped in again um you know that that currency had slid into its weakest in four decades and when japan intervened this spring it spent a record amount north of 70 billion dollars and reporting suggested funded part of that by selling foreign secretary securities obviously t-bills u.s treasuries uh so if that's happening again one of the largest foreign holders of treasuries would be selling them to defend its own currency at the same time 30 year is it you know that 19 year high is that part of why the long end won't rally and does your bond call get harder if japan is again selling those treasuries to defend the yen oh it's one of my favorite reasons to [00:36:15] Mike McGlone: buy treasury since i started in the business in 1988 jeremy i just i've heard it so much so many times i've heard oh foreigners are going to sell the treasuries yields are going to go up or there's too much supply years are going to go up and every time i hear that they've basically been wrong um and it's just the way it works is okay so what are you going to buy you can in japan you get 2.79 in the 10 year note in the u.s you get 4.7 your 10 you know it's just there and and how deep is their market versus the u.s there's not anything any even close um but the bottom line also for all this the 10 for all yields on a global basis you know we've seen the pickup a little bit but in china you know 1.7 is what the u.s is the next move for the u.s stock market so i think yields will go down in the u.s when the u.s stock market goes down and yields will stay sticky if the stock market stays sticky guess who gets that two key people i know i know besson gets it um because he's an ex-trader very much understand that this can't say it but you know as a trader as an extra i look at things they say i'm like yeah okay i still think long bonds will be probably the best trade for this second half of the year and guess what i've been wrong on that one for a couple years yeah yeah i [00:37:25] Speaker 1: mean but you know they're sitting here pretty high today and we can kind of look at gold the way you actually look at it too relative to other things not in dollars i mean you've written that gold faces normalization again against broader commodities you kind of talked about it here mike i mean put that plainly for people though is the argument that gold isn't expensive against a dollar it's expensive against copper against gold against the rest of the complex it is expensive against its major [00:37:50] Mike McGlone: competitors that's u.s treasuries like i said at least a four decade high i can use a basket of treasuries i can use just a measure of the u.s long bond so that's the key thing it was expensive in q1 it was the most expensive ever versus the bloomberg commodity index now i go back 50 years on the data and typically if you start with like a base of one in um 100 in 1975 it's hovered around 100 forever and it's popped up to 2.5 now it's just markets front run the merit narrative and i love getting on your program and i love seeing going to metals conferences and for the first time in 10 years this year i've started getting i was pointing out bearish inklings i've been wrong on copper but bearish inklings most notably gold and gold is beta for the space and people look like it might have three heads like well markets moved did you not see what happened you have to adjust the facts of change now the fundamentals are the same but prices will dictate and it's just a key thing is i knew people that i hadn't spoke to for a decade back in q1 i had spoke to and it's it was so hard for them to disgorge the gold themselves the gold because it got such you know such a part of a moral portfolio for people who are kind of concerned about stock market but you're supposed to sell the question is what happens now um and that's why i'm worried that we might get a lot more of these false rallies if we've been getting in cryptos for a year um and this sucker some people and i don't think there'll be a time to buy gold until it gets relatively fair value versus at least the stock market and fair value versus the basket u.s treasures and we're way too stretched right now [00:39:15] Speaker 1: all right mike uh i gotta ask you about the other metals quickly while i have you because all we usually talk about is gold but i mean silver's up what two percent platinum approaching three palladium up roughly four um which which of the four is most vulnerable from here the devil's medal will live up to its [00:39:34] Mike McGlone: reputation i enjoyed jeremy saying that on national tv a couple yeah years ago i was breaking out and the anchor hadn't heard that term but when you trade silver you'll learn that one real early um so i fully expect silver is going to get stupid cheap as stupid expensive as it got 50 is kind of the key first level to kind of knock around that's an old old lows it's probably should bounce from there 80 or so is pretty good resistance i think it's going to knock around in a range for decades like it has in the past fundamentals we all get it get it but it's shifted prices just moved exponentially we moved like the highest versus the greatest velocity versus a 60-month movement average since that peak in 1980. so to me that's part of the problem um and then we look at broad metals the key thing is so here's one thing i want to point out is the bloomberg all metals total return index i asked our index team to create that index a decade ago why because the metals typically the best place to invest in commodities from a total return standpoint low low um autocorrelation and uh low storage costs you typically want to hold the metals particularly gold that's been one of the best performance the only major sector that made a new high this year was precious metals and metals and they put pretty much put in a peak unfortunately the whole space so that's why i narrowed down looks like gold silver platinum platinum they're pumped and they dumped all of them iron ore has pumped then dumped on the year the number one thing for making them potentially recover is the stock market probably has to go up but what's next the number one thing on the list that i'm watching with like a hawk is copper now today as we speak copper is around six dollars and fifty cents a pound that's wonderful but if you overlay copper which i've watched versus sb500 forever versus the s&p 500 total return it's a complete dud and it started breaking down in 2023 so i think what copper stuck is between inflation in the us inflation and risk assets in stock market and deflation in china as measured by that 10-year rate at 1.71 which one wins let's see the test so i think the way i look at copper is yeah great it made a new high but because the stock market led the way if the stock market drops 10 to 20 percent and copper can show me some divergent strength maybe i can get bullish but i fully expect it to be more likely to head towards five then stay much above these levels particularly if you get a normal correction to stock market that's a problem my headline for last month's uh commodity outlook for industrial metals and metals were their sock puppets the u.s stock market yeah yeah hey i gotta [00:41:50] Speaker 1: ask you something different before i let you go because people forget there's a person behind these calls i mean you've spent a good chunk of your career making you know the argument that makes you the least popular man in those rooms you're bearish gold in front of gold audiences you're you know cautious on bitcoin while it climbed for years and i imagine the replies were a delight uh what's that actually like and how do you avoid the two traps digging in out of stubbornness and caving because [00:42:14] Mike McGlone: everyone's shouting at you oh you got to embrace it it's a lesson i learned in the trading pits i remember i would my job was to cover clients and say if you had seven clients and you come up with a great idea and you call them all up and they all agreed you get the trade and then you raise almost always you're wrong when everybody called you an idiot sitting and maybe one guy did the trade and did it like in a small amount like a hundred lot when he usually does thousand lots um you're usually right it's just a lesson you really learn right away but it's also the most significant thing is cryptos are the best for this because they're so emotional um and the signals i got from them when i was calling for bitcoin to drop um a zero from a hundred thousand just last year were just delightful i mean to be called mick retard i was like thank you you emboldened me um and i and when i was talking how bullish i was in gold a year ago the nickname i got was mick gloom because i was bullish for other reasons but it worked but no that has to move as a strategist as a trader as a position as someone who's investing when you sense this the herd's leaning too much to the side of the boat you got a position on and you've made money here's one lesson i'll i'll point out that i've learned in markets is you always have to give something a little bit back to the market gods if the market gods give you profits and you taunt them you will learn the hard way michael sailor made a great example that in 2024 he's the head of strategy he double-dogged their um the the bitcoin market by doubling down on the 10x and he made fun of warren buffett for not investing and his his stock micro strategy was about 400 at [00:43:43] Speaker 1: the time right now it's 96. 96 huh um give the audience i guess you know a little bit of a watch this because a lot of people are going to be watching this over the weekend at least later this week two or three things to watch what level on each and and you know if they only kind of remember one number from this whole conversation what should it be uh 70 in crude oil first of all [00:44:05] Mike McGlone: that's the normal high buying price for 20 years i think it's going to gravitate towards there if it stays above 80 that's a bit of an issue that means um republicans are probably getting hammered in elections mr trump has to do that so to match the key levels in crude oil i think it's going to be mostly lower so that's the one that matters in gold 4 000 is a lock-in as far as key levels can it stay above 4500 which is around the 200-day movement average it may bounce there that might be see some responsive selling key supports around 3500 remember that lock-in last year it's like the best signal i ever saw between like april and august and it finally broke out higher so those are the key levels there and then to me the bottom line for all markets so what really matters in in and i'm just keeping an eye on copper copper if it can stay above six and 650 that's wonderful but a normal version copper with managed money net positions almost 25 26 7 net long of open interest to see me which is you know like five times the normal um is just we get a little reversion of copper towards five that um or just breaking down below six that's i think can be a sign of a problem in all markets yeah and then of course the [00:45:09] Speaker 1: long bond can the long bond stable five percent hey my favorite thing to ask anybody with a big call i mean what are you watching that could change your mind something in the next few months that says [00:45:18] Mike McGlone: has you saying okay i need to rethink this number one thing for everything is u.s stock market has to stay resilient if that happens um it's it's um it'll shift a lot of my views but what happens if that does happen fed will have to be most likely focused more on tightening um but that's the number one thing that that's going to matter that's the number one determinant if it stays resilient yeah it's so hum if it drops trade of a trade of a lifetime might be just getting started so that's what i look at as an option x option trader yeah it's great yes you know just inching higher is like nothing to say [00:45:55] Speaker 1: but if it breaks down i've got a lot to write about good advice all right mike mcglone senior commodity strategist at bloomberg intelligence obviously appreciate you coming on laying out the case many in our audience may see differently and that's exactly the conversation worth having here so appreciate your time thanks for having me all right now i want to hear from you three calls 70 oil in the middle of a war rate cuts instead of hikes and gold's high is already behind us which one holds up which one breaks first tell me in the comments we do read them subscribe hit the bell we do this every day i'm jeremy saffron for all of us over here at kitco news thanks for watching [00:46:48] Speaker ?: so so so so so so so so so so so so so you