MacroVoices #464 Michael Every: Lines on Maps vs Lines on Screens
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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 Ceresna.

Macro Voices episode 464 was produced on January 23rd, 2025. I'm Eric Tenzend. Robobank chief market strategist Michael Every joins me as a first-time feature interview guest. Michael says volatility will be the name of the game in the Trump 2.0 presidency and that when global leaders start moving lines on maps, we should expect some big moves in the lines on our financial charts as well.

And I'm Patrick Ceresna with the Macro Scoreboard. Week over week, as of the close of Wednesday, January 22nd, 2025, the S&P 500 index up 230 basis points trading at 6086. The breadth of the market has been widening as the market returns back to its all-time highs.

We'll take a closer look at that chart and the key technical levels to watch during the postgame segment. The U.S. dollar index down 75 basis points, trading to 108.27. The dollar put in a short-term high the other week and continues to mean revert some of last month's rise. The March WTI crude oil contract down 575 basis points to 75.44. Oil pulling back, but will it be bought on dip?

The March Arbob Gasoline down 502 basis points to 208 and the February Gold Contract up 195 basis points to 2770, trading above its December highs, begging the question if new all-time highs are next.

Copper down 205 basis points, trading to 430. Uranium down 47 basis points, trading to 7340. And the U.S. 10-year Treasury yield down 5 basis points, trading to 460. The key news to watch this Friday is the European and American Manufacturing Services PMI's

And next week, we have the Bank of Canada and ECB monetary policy statements, the FOMC press conference, and the core PCE price index.

This week's feature interview guest is Rabobank Chief Market Strategist, Michael Evry. Eric and Michael discuss market volatility, economic statecraft, and geopolitical implications. Eric's interview with Michael Evry is coming up as Macro Voices continues right here at MacroVoices.com. And now with this week's special guest, here's your host, Eric Townsend.

Joining me now is Michael Every, Global Strategist for Economy and Markets at Rabobank. Michael, it's great to get you on the show as a first-time guest. I'd say normally, you know, if I was talking to somebody after the first year or so of a presidential administration, let's review all of those big moves that happened in the first year. We're recording this early Tuesday morning. Trump's only been in office one day. I think we've got a year's worth of stuff to talk about already.

So let's start with the big picture of where are we? Obviously, this is the return of President Trump for his second term. How should investors be thinking about this? What is the big picture? What's the significance? What should we be looking for, et cetera? OK, let's start with a really easy thing that I think everyone listening can understand straight away. Volatility.

Welcome to a world of volatility. And we've had that already underlined just within the first 24 hours where prior to actually assuming office, we started to have the flood of insider news releases saying, well, don't worry, Trump's not going to bring in tariffs.

on day one. And you've got this flood of relief from the market, which as we will discuss later, I hope is very wrongly placed. And yet within hours already, then we had Trump just off the cuff while signing some executive orders saying he's thinking of putting 25% tariffs on Canada and Mexico starting February 1st, and also offhand suggesting 100% tariffs on BRICS countries if they do certain things involving a BRICS currency, etc, etc. So

It's been a wild swing just on that front already, and we've really just started to get warmed up. Michael, I want to focus on what you just said about volatility, because this is something I don't really understand yet about this. So many analysts are anticipating, what's Trump going to do the first day, the second day, the third day, whatever. What I want to get a sense of is, when is the first significant wave of Trump's opponents making their move? Because I think that's what...

is going to affect the market is when everybody says, oh, wait, this is a two sided fight. We got to see, you know, what Trump's going to do, what his opponents are going to do, who's going to have the most power. I'm kind of waiting to see not so much Trump's first move or second move or third move, which everyone's analyzing. But when does the first move of significance come from his opponents? And what's that move likely to be?

Brilliant question. And that's exactly why you need global strategy in this, because we live in an interconnected world now more than ever, even if it's currently pivoting around, you know, Donald Trump. But other people will respond to what he's planning to do. And that will create massive volatility. Let me take just one point here. Obviously, the big issue at the back of markets' minds is when do we see tariffs on China?

And how high are those tariffs going to be? Because the US-China trade relationship is that important. And therefore, the follow-on question is not just about how high is that tariff level, it's what does China do about it? And there are a number of different things it can do. And immediately we're in the global strategy or

you know, geopolitical space. But one of them is to say, right, let's let the renminbi depreciate. I mean, this is not an unusual conversation in pockets of the market. But were that to happen, then of course, you have a tidal wave of competitive devaluations or depreciations in FX markets around the world. The dollar goes absolutely through the roof. Commodity prices go through the floor on the back of that metric alone. Massive disruption. And that's just in terms of one

particular move that China could make in response? Because then we go back and say, well, could they act in a completely different dimension? Could they, for example, start to do an even more aggressive maneuver around Taiwan? Could they start bumping into more Philippines ships again in areas that they claim is their territory and the Philippines say belongs to them, which would immediately test Trump's reaction

in terms of what he would do for defense guarantees vis-a-vis the Philippines, or not vis-a-vis Taiwan, given that there is no U.S. defense guarantee for Taiwan, but just in terms of the general stance towards that particular territory. So either of them, with throw markets, are complete,

curveball. One of them is largely predictable to a degree, even if the market is very bad at quantifying the second, third, fourth order effects, etc. The other one immediately takes you towards very, very worrying scenarios where no one, certainly nobody with an economic model, can tell you what the outcome is going to be.

Michael, you recently published a piece called Grand Macro Strategy, where you introduced a distinction between economic policy and economic statecraft. What do you mean by economic statecraft and what do investors need to understand about this distinction in order to navigate what lies ahead in terms of the Trump presidency?

Okay, so economic policy, I don't think I have to explain because everyone gets what that is. That's using economic tools, and we're familiar with what they are, to try and achieve economic targets. For example, let's say you want to get inflation at 2%. So you use interest rates, or you might occasionally use fiscal policy instead to try and achieve that, etc, etc. Economic statecraft is a much older concept that predates economic policy and has been used vastly longer in vastly more territories.

where you use the economy and the toolkit within the economy to try and achieve foreign policy or national security goals. And you do that alongside politics, and you do that alongside the military. So it's one of three legs of a stool, if you will, on which you sit to try and achieve certain things internationally. And that's a very, very different kettle of fish. For example,

If you were using monetary policy, hypothetically, to try and crush the currency of another country that was presenting a threat to you, you might raise interest rates aggressively to pull capital out of that country and see it suddenly unable to afford to buy key commodity inputs, which are still dollar priced, creating an inflationary spiral so that they couldn't do something internationally that you don't want them to do. Has that got anything to do with fighting inflation?

Is that how we think central banks operate? No, because we still think in a world of economic policy where it's all about the yada, yada, yada, and frankly, it is yada, yada, yada that we get from central banks on a continual drip feed basis. But while monetary policy might be the most extreme example, and I started there, and we can, of course, talk about lots of others, almost everything you have in the toolkit that you think of as a policy toolkit for the economy actually can be used in a completely different way

in a combination that we don't normally think of, to try and, as I said, achieve national security and or foreign policy goals. And that, I believe, is the world we are in now. And Donald Trump, I think, certainly understands that. And so tariffs, I'm assuming, are an example of something that's obviously not central bank policy, but it's a political tool in order to achieve an economic outcome. Is that what you mean? Are there other examples that we should understand?

Well, there are so many. Let's take trade because that's a very, very topical point because we've already discussed the threat of tariffs from Trump. So what has been the US strategy up until now? And when we say strategy, the term that's normally used is grand strategy. And grand strategy is basically statesmanship where the president, the prime minister, the king, the queen, whoever is running the political entity thinks, what are the national interests I want to achieve over the longer term?

Another way to put it is what is GDP for? Not what is GDP going to be 2.93? What am I trying to do with it? What do I want my GDP to look like? So within that particular conception, the grand strategy of the US post-World War II and very, very much post-Cold War, which I remember, I'm old enough to remember the Cold War, was let's have as much free trade as possible with as many people as possible. And by doing that, we'll have peace and prosperity forever. And it's the end of history.

Well, that hasn't really worked out, has it? So the grand strategy of always negotiating lower tariffs with everybody, which really began seriously under President Kennedy, has just seen rising inequality, deindustrialization in America, and a geopolitical tipping point being reached where a combination of other countries can now outproduce the US and everything you need to actually be a major or the global power. So therefore...

If you think in terms of economic policy, almost every single economist you talk to, and certainly every market strategist, will tell you they're a bad idea, they're inflationary, they're stupid, only idiots would ever think about tariffs. And if you talk about economic statecraft, almost everybody is willing to use them. And historically, everybody has used them. And historically, they've used them extremely successfully, including...

pre-World War II America, which was, and Trump is right in this, he's very accurate on that point, an extremely tariff-driven economy and extremely effectively so for a very long time. Okay, let's talk about what you think Donald Trump's intentions are, because frankly, I don't even know how to read when he really goes off on tariffs are my favorite word in the language. Tariffs, tariffs, tariffs, China, heavy tariffs. Is he just...

flexing his muscles to remind foreign leaders of how much power he has in order to set the stage for a negotiation, Mr. Art of the Deal? Or is he really serious about the level or degree of tariffs that he's been alluding to? I think both can be true. And I think, as I often say to people when we're discussing Trump, take him very seriously, but not always literally.

And I think that's true here. What you say about the art of the deal, threatening tariffs, etc., that is statecraft. For example, let's go to the Mexican and Canadian threatened tariffs. He's already said that's not to do with trade per se. That's to do with fentanyl and the border. So you're using an economic tool or the threat of a tariff to get them to change their domestic policy or their foreign policy somehow. So that's a case in point that I just raised. Now, vis-a-vis China, when you're listening to Trump, yeah, it is pretty much a random walk.

But you have to then think, what is the grand strategy? And that depends what you want to project onto Trump. If you want to project onto him a certain political view, you know, and I'm sure almost half of Americans maybe have that view, you'd say, okay, it's ego self-aggrandizement. I just want to make a deal, et cetera, et cetera. There's no real plan here. You know, absolutely. I think half of Americans feel like that. And I don't know what the ratio is in other countries.

But the other half are probably much more sympathetic to the view that if you read the work of the people around him, because it's never one person running the US, it's always a coterie of ideas and ideas, men and women. There is a very serious strategy there, which recognizes that the US post-Cold War grand strategy of free trade with everybody and the US being hegemon and everyone being at peace has collapsed dramatically.

very badly on every front that it could do in exactly the same way. And this was work I was writing years and years ago, by the way, that the UK hegemony in Europe, and in fact, globally collapsed when Germany came along as this massive economic and military power, which threatened it completely. And we ended up with World War I.

Now, I'm not calling for world war. I want to be abundantly clear there, although we do have several wars going on. And in a worst case scenario, we could certainly have more. But if Trump understands that, and if the people around him understand it, then he's deadly serious in what he said in his inauguration speech, which is America needs to stop being a financialized economy where people just consume. And it needs to go back to being the economy it was pre-World War II.

where it is to produce things, make things to the point where actually it could maintain the world's most powerful military machine in times of peace and in war. And that military strength will prop up the entire global system, albeit in a very, very different form to the one we have now.

Michael, in the context of this grand macro strategy paradigm, help me understand why President Trump would be so aggressive so quickly with respect to Canada, to Greenland and Mexico.

I do understand why those things would all be part of statecraft. But, you know, look at Trump's new presidency. He's got so many people that are against him. You'd think he's already got plenty of controversial policy to introduce on the first day. But it's not enough. Before his first day, he actually publicly made statements that, you know, military action is not off the table in terms of getting control of the Panama Canal or Greenland.

Why would he it seems like he's smart enough to not say something like that recklessly. He must be intentionally sending some kind of signal saying, hey, everybody, get ready for this. What's the agenda? What's the strategy? I don't understand what he's trying to accomplish.

Okay, well, I'm not trying to be a Trump whisperer here. But let's let's answer that question in the best way we can. But first of all, Machiavelli, who knows a thing or two about statecraft, was asked the key question, is it better to be feared or loved as a leader? And he said, obviously, ideally, both at the same time. But if you have to choose between the two, be feared, not loved.

So that's Machiavelli. And I think we can all go to that particular, you know, well source of inspiration for statecraft, whether we like it or not. But more importantly, if we rewind just a couple of months, if you read, for example, Foreign Affairs Magazine, Foreign Policy, geostrategy stuff, just as much as one does like market reports, and I have a foot in both camps, you will see that people on the ground have been saying for a long time,

that Greenland is of extreme and rising importance to the US in terms of its location, the mineral wealth, and the fact that both China and Russia, in terms of its naval presence there, have been starting to look towards it more and more, whereas Europe can't defend it. So that's Greenland. And the US actually, all the way back to the 1950s, did consider trying to purchase it under Truman. If you talk about the Panama Canal, the country of Panama only exists because America recognized it breaking away from Colombia

after being the ones who paid for the canal to be built after the French failed to do so. And it is absolutely written in the treaty that America must always be treated very fairly there. And of course, it was only given away for a dollar in 1977. And subsequently, there has been a large influx of Chinese capital and a Hong Kong company does own the port at either end of the canal. I'm not making any aspersions to what they are or aren't doing. But if you're paranoid and you're American, you look at that, you think, okay, this isn't the way things used to be.

Mexico, of course, we know that America runs a large trade deficit with and is a conduit for lots of Chinese investment, which is both pushing out Mexican production, and even the Mexican government itself is talking about tariffing China, but of course can then be used as a backdoor by the USMCA to get into the American market. And so can Canada.

which while being a long run US ally, at least for the past nine years, has been very much, as we say, like a wet dishcloth. It's not been any use really geopolitically or geostrategically. And it's like another backdoor into the US in trade terms, for example, even though it has, of course, itself done a little bit of tariffing of China. So if you put those all on the table, where are we now today?

without Trump having done anything other than being very rude. Well, Greenland is now talking about leaving Denmark and becoming independent and establishing a large US military base and a healthy economic relationship with the US, which I think will be the final resting point. But the US has achieved that without pulling a trigger or spending $1. Canada, I think, obviously they have an election coming up.

I think they will listen to what Trump is saying and they will take action at the border. And I would imagine that whoever is the next prime minister will be spending vastly more on NATO and on their fleet to patrol those northern reaches against Chinese and Russian vessels that may be there in the future. Mexico, again, will be making sure it isn't a backdoor for Chinese goods coming into the US. And obviously the drugs issue is another one that's national security

which is related to that with Trump now dubbing the cartels as terrorists so he can actually use troops against them. And the Panama Canal, well, again, not one shot has been fired, not one dollar has been spent, but they're already today, if you look in the Financial Times, doing an audit of the activities of Chinese companies at either end of the canal or Hong Kong companies at either end of the canal. So I don't want to dwell on it too much, but he's already shifted the entire geopolitical equation using that Machiavelli metric.

Okay, so Trump is employing the statecraft that you're talking about to...

to achieve some outcomes already in other countries, which, as you said, don't take him literally, but take him seriously. He's serious. He's trying to make things happen, but it may not be the exact thing that he's saying. Let's go back to Greenland because I'm frankly a little confused about this. I've been doing a little bit of research. Some pundits are saying, look, it's all about the mineral wealth. It's about the minerals, what you can mine for there.

Other people are saying, no, no, no, it's about the oil exploration. It's about the polar oil exploration. That's the reason. Then other people say, no, it has nothing to do with any natural resource. It's all about the shipping routes, the northern shipping routes and particularly the militarily strategic shipping routes of, you know, where submarines and battleships and so forth can sneak across those northern routes in order to attack another country or something.

There's a smorgasbord to choose from there. Is it all of those things? Is it some of those things? What's your take? Well, it's all of them, I think. Full disclosure, I've never been to Greenland. I've been nearby, but I've never been there. But from everything that I read and the people I talk to, it is, yes, all those factors and all of them are important.

at the same time. And there's one other one to add on top as like a cap to what we were just discussing, which is the US under Trump, very obviously going back to what was long run US grand strategy, which was the Monroe Doctrine. And Greenland technically, yes, it's on the cusp of Europe, but it's also kind of North America-y when you look at the world map from the North Pole down.

This is an extension of the Monroe Doctrine too. And if America is going to remain at a prime position globally, if it's going to remain primus inter pares, if not in the position it used to hold, but still similar to that, it has to have its own hemisphere, you know, very much in order before it can project power

anywhere else. And so from a grand strategy perspective, again, I'm not taking any moral stance here. I'm just describing rather than, you know, applauding or criticizing. It makes perfect sense to get the Americas in the broadest sense under control, quote unquote, before thinking about what you're going to be doing in other territory, which I'm sure we'll come up to.

Well, let's go ahead and move on to that because the other territory that's probably most consequential is China. Since we've established now that we should take Trump seriously but not literally, let's do that. I definitely take this seriously. But if we're not taking it literally, let's go back to what do you think Donald Trump's

goal is, not what he's going to say or what he's going to threaten, but what is the outcome that he ultimately wants to achieve with China? Is it a high tariff trade environment or is it just using the threat of that in order to achieve some other outcome? What's he trying to accomplish? It's a great question again. Okay, so let's go back to what he said in the inauguration and what I think other power players in the U.S.,

For example, the Pentagon, you know, who, well, of course, Trump now controls them because the civilian arm of government controls the military, but they are still a power base in their own right.

those two forces together, the presidency and the Pentagon, are both pretty united in understanding that American primacy is what they would like to maintain. America isn't ready to be number two to anyone. I haven't really met many Americans who are happy at the concept of that ever being the case. And so you have to start from that as your presumption of what Trump would like to achieve. Now, what that means in terms of being number one, you know, you can argue left and right, but I think most of us grasp

what it means in terms of a Pentagon perspective and in terms of a GDP and market perspective. And so if that's the case, Trump and tariffs are a means to an end. They're a tool to achieve, again, that foreign policy national security goal, which is an America which has re-industrialized, which has upstream to downstream control of supply chains, and which has a more equitable economy

socioeconomic structure so that you don't see the polarization, the terrible, painful polarization that you've seen taking place over the past couple of decades that's really ripped the country apart, as it is also doing in many, many democracies, by the way. So it solves an internal conflict

and from an american perspective american hegemony prevents global conflict because were america to stumble further from here were america to go off the dais even more than something it already has do not

Please, listeners, presume that would mean world peace. No, quite the opposite. When you don't have a top dog, all the other dogs start biting each other to see who's going to be top dog. It's deeply unpleasant to accept that. I don't like it individually. I don't like it personally. I don't like it professionally. History shows it's true. So in terms of China, I think Trump just wants to make sure they understand they're in their place relative to the US. The big question then is, what does that mean? In what geography?

With what influence over Asia, given America regards itself as an Asian power, as well as a Pacific power, as well as an Atlantic power. And what will China accept within that particular paradigm? Because this is another enormously important country with a huge power base, with a leader who absolutely understands grand strategy and has one and is employing it.

And it may well be that his runs counter to Trump. And that's where we're going to have serious friction.

Speaking of serious friction, you mentioned earlier that the Pentagon is now accountable to Trump. I'm not sure everybody at the Pentagon necessarily got that memo or took it to heart. So there was a very strong sentiment, I think, in the Pentagon that it's only a matter of time. The war with China is coming. We have to prepare for it. And they're talking about a shooting war with, frankly, a

a nuclear superpower, which to my understanding is from a nuclear weapons standpoint, superior in its capabilities to the United States at this point, especially with respect to their submarine launched missile capabilities, hypersonic delivery systems and so forth. It seems like the other side of that is a lot of Trump's campaign was pledging to end forever wars and to get us out of the business of getting into war with

Do you see a shooting war outcome or do you think that Trump just wants to flex his muscles and avoid that conflict with China? And if he wants to avoid the conflict with China, do you think he can get his Pentagon under control?

Well, the good news is I'm not forecasting a shooting war between the US and China and certainly not a nuclear one. And if I were, with the greatest respect, I wouldn't be on this podcast. I'd be digging myself a bunker somewhere in a remote island and prepping with duct tape and canned food and flashlights. So of course there are a risk of these things. I think the US military position is vastly stronger than the relative ratio you were just suggesting, but that's by the by.

But I think what Trump is aiming to do is very, very clear, which is restructure the US economy and the global economy, as I said, to maintain relative economic strength. And he's openly saying it, peace through strength. And he's not the first American president to say that, very far from it. But I think he's certainly going to try and stick to that. And just to repeat a point I made earlier in a slightly different way, it's not as if we've had peace during a period in which really,

In historical terms, America spent vastly less on its military as a share of GDP than at any point in the recent couple of decades. It's only around 3.5% of GDP now. It used to regularly be 5, 6, 7. Western Europe and the rest of NATO, Canada in particular, they spend nothing, absolutely nothing. So for a world that thought that would bring peace, it's a rude shock that instead we've had two wars going on.

Two major wars. And they're not accidents. They're both, of course, linked to what the Pentagon openly sees as an axis between Russia and China, Iran and North Korea. That's something that I could have colored in on a map years ago for them, and I did. But they now recognize that they are helping each other with different technologies in different dimensions.

And so if America and the West sit there and do nothing, they can try and start conflicts like the Houthis blocking the Suez Canal, for example, to disrupt the normal functioning of the global economy at relatively low cost. I mean, the technology the Houthis are using, for example, is vastly, vastly cheaper than what America and Western Europe is having to use to try and shoot their projectiles down. So the economics do not make sense as we're currently doing it. We're repeating what was happening with the Taliban and the Soviet Union, but in reverse.

They can try and undermine us. So Trump now needs to get himself, America and the West into a position where it's made very clear to others. If you do that, you're going to find out. Like we don't want that to happen anymore. What grand deal can we come up with? What bargain can be made to make sure that this all stops? And I hope there can be one.

You know, you've had editorials in the Wall Street Journal and the Financial Times of late, last couple of days, as we're recording this, echoing thoughts I've been, you know, fleshing out for nearly a decade now, saying that in the worst case scenario, whoever was president, you'd end up with spheres of interest, which, by the way, was the norm prior to World War II. This is your zone of interest. That's my sphere of interest. I trade with these countries. You guys can't come in.

that's your zone you trade with those guys i can't go in which is a complete breakdown of the current global order and that could still be on the cards that's far more of a risk i think than an actual shooting war and in fact just to conclude this point where i think we are actually is a game of chess and people who play chess will understand what i mean where you can spend a long time moving the pieces around with no one actually taking anything maybe just a small pawn

And then eventually you get to a tipping point where either you say, you know, I don't want to play anymore or you have to actually start the exchange of pieces. And I think we're moving towards that. You mentioned earlier that when there's no longer a top dog, all the other dogs start to bite each other. It seems to me like before you even get to that point, based on everything you're saying, clearly the Russians and the Chinese and the North Koreans and the Iranians are

are smart enough to understand these things. I would think they would be talking to one another and saying, look, Trump is really showing his muscle here. The time for us to ally with one another and show a stronger force is right now. We better get our act together. Let's buddy up and let's get ready to take this on. Is that what we should be expecting? And if so, you know, where's it headed? Well, I don't think they could have done that much more than they did

under the Biden presidency, where you openly had Iran sending weaponry and technology to Russia. Now, of course, Iran is already being sanctioned by the US, but you didn't get a furious, outraged response from Europe, which is closest to the action in terms of the Ukraine war. You've got North Korean troops fighting again alongside Russian

in Ukraine. Now you can't sanction North Korea because obviously it's a hermit kingdom already, but you can't get much more involved than that. And China, you keep seeing these reports going around saying, well, we suspect they're doing X or they're worrying it close to doing Y. Have we seen any serious Western sanctions? And the answer is no. And again, in a policy paper we put out even before Russia invaded Ukraine, which using the very simple methodology of saying,

Russia putting hundreds of thousands of men and tanks on the border of a country that they claim shouldn't exist and they want to be their own and saying we're going to invade it tells me they're going to invade it. That was my methodology in predicting they would invade, by the way, when no one else in the market was. It's not rocket science, even though rockets were involved. When you look at that, you have to say, why are we not sanctioning China? And in that report, I said, because if we do, if you put primary sanctions on Russia,

everybody will just break them and then you have to put secondary sanctions on China and we sat down and you try and quantify what that means when you've got integrated supply chains and China itself still provides a great number of components used in the pentagon do you think that's a realistic strategy and the answer was no so therefore people will find excuses not to do it but that either means you therefore don't have a grand strategy other than slow decline and surrender because you simply can't do the things you think you can do because of physical goods you're using for example I'm exaggerating here but

conceptually the bullets in the gun you want to point at someone to stop them doing something come from that person or their brother-in-law either you accept that or you start making your own bullets and the American tradition is very very much of making your own bullets

You mentioned the potential of backlash from Europe. Let's go a little deeper on that because there's certainly been a very strong anti-Trump sentiment among European bureaucrats. Is that going to kind of settle down and be forgotten now that there's been a changing of the guard in the U.S. presidency? Or are they going to stick to their guns? And if so, what does that pretend for U.S. and European relations?

Well, Europe is a very diverse place. So it's difficult to talk about Europe as Europe and that's part of the problem of it. The countries think differently.

I think for an American audience in particular, the easiest way to conceive of it is that the middle class in a lot of European countries still largely lean Democrat. They see themselves as Democrats or blue abroad. And increasingly the working class in European countries, when there isn't a nationalistic element like in France, which is traditionally anti-American, are kind of leaning more Trump and more red. That's a broad, broad exaggeration, you know, because again, there are exceptions where you have strong working class Democrats

leftist parties as well in Europe, which you don't have in America anymore the way you used to. But Europe, as I said, is therefore split. It's split in terms of how they would like to respond. And it's also split between a centralizing component based in Brussels and national governments. And so I don't think you're going to get one European response. But what they do recognize, left to right, top to bottom, is that they're in trouble.

And again, to refer to some past work, in late 2023, on the back of the energy crisis that Europe had had after Russia invaded Ukraine, I sat down with my economics team and I said, look, let's try and model a future for Europe using technology.

grand macro strategy as a thought framework rather than a neoclassical economic model because in a neoclassical model they're always mean reverting i'm sure you understand that that gdp always goes back to what the model assumes gdp should be the different component parts shift around to get you there but you always end up there one way or another so for example your currency will go down so your exports go up so your growth goes back to the presumed level of x i said look

If we predict the kind of nasty world I can see coming, you can have a Europe where all your input costs go up. For example, energy prices are set by Russia and or America, and they're going to be too high for you. And at the same time, you're not going to be able to just let your currency go down and export to China because they won't buy your stuff and Russia won't buy your stuff and America won't buy your stuff. They'll put tariffs on you. So you just end up with a weaker currency,

higher input costs, less industry, higher unemployment, and a weaker currency. Can we model that by forcing the model not to revert? And we did. And yeah, you ended up with Europe looking like Greece.

So we published that at the end of 2023 and we said, this is obviously bad. And we said, Europe needs to get its act together to avoid this. And then in September last year, the Draghi report, obviously written by the former ECB president and former prime minister of Italy on European competitiveness, echoed

to a large degree, what we said, that it was going to require a massive shift in European investment. The only difference being is we thought the government would have to do it or they'll have to print the money and Draghi thinks somehow the private sector will do it, which I think may be fantasy. But both of them, ourselves and Draghi, were saying about 5% of GDP or more needs to be spent by Europe every year

to get more muscular in this geopolitical world. That's another example of grand macro strategy. And if Trump insists on NATO spending 5% of GDP just on NATO, then Europe's talking about spending 6% or 7% extra a year from the government, likely, when the government already has very large fiscal deficits of around 5%. So you're talking about a world war level fiscal deficit in peacetime.

Michael, now I'm going to ask the impossible of you because you've just painted a very complex geopolitical picture that involves all kinds of intricate working parts. Translate that for me and tell me what's going to go up and what's going to go down in financial markets and how to make a buck on it.

I love that question because it does all come down to that at the end of the day. That's what I'm paid to do. So I think the key pivot point here is still the US dollar because the post-World War II system that I was describing, and I'm saying Trump really wants to change post-World War II, post-Cold War, is that the entire world thinks in dollars, prices in dollars, still trades in dollars, almost exclusively.

Because dollars flow from the US via the trade deficit into the global economy. You might think you lend dollars to people, but net net, everything comes from trade. So if Trump then turns around and says, right, on a glide path that's either short or long with this tariff mechanism or that tariff mechanism, we are going to start making stuff in America again. Whatever it costs, using automation, whatever trick we have to use to make it work, we're going to do it.

then the flow of dollars into the global economy, the euro-dollar market, dries up. And you've still got all the outstanding trillions and trillions of euro-dollar debt to pay. And dollars internationally used for trade between other countries become like gold.

Everybody will need to start running a trade surplus to guarantee they can get access to sufficient liquidity. And you start going down that particular road and you get chaos. The dollar goes through the roof. Commodity prices come crashing down. Equities in the US, I don't give investment recommendation, but logically they would do pretty well. You would think particularly with Trump always going rah, rah, rah about stocks. But equities in lots of other countries would absolutely collapse.

And you don't have one market trend anymore. Is it good for this or good for that? You have to be far, far more finite in terms of the country you're looking at, the sector you're looking at, and even the firm. Because while this is playing out at the macro level,

At the micro level, you have the issue of, okay, where is money going to be spent by countries who are trying to do this economic statecraft? And is it going to mean big profits for companies who are doing it? Or actually, are their profits already too high? And it's much better for the national economy if profits come down in that sector. That's what China does. They don't have big corporate profits. They just produce a lot.

And that may need to be a model that the West follows. And then in the middle between that, between the dollar and between individual stocks, you've got interest rates. Because, for example, if this is going to cost an awful lot of money and it's very inflationary, what are central banks going to do?

The ECB in Europe, they've alluded to the fact they may have to work with national governments to actually look at fiscal deficits and make sure there's money available to become more and more sustainable. And I don't mean green, I mean geopolitically sustainable. And in wars, central banks always finance the military.

Does that mean higher inflation? Does that mean you keep interest rates on hold even though you have high inflation? Does that mean you just print money? Or does that mean you raise interest rates to try and suck capital out of other parts of the world? There are all different permutations, but it means that you have a very, very wide range of macro outcomes and market outcomes built on stacked geopolitical scenarios, which are actually quite binary at the end of the day.

I'm still stuck on the very first part of that, which is Trump is talking about how we need to build things in the United States, reshore that manufacturing capacity and so forth. Now,

And first of all, I have some skepticism about the ability of the United States to do that because I think that unfortunately we've lost a lot of those skills and talents and we just we don't have the resources that we used to. We don't have vocational school. Education is not nearly as prevalent as it used to be. We don't have the people to do that manufacturing. But even if you did that.

I think the premise here is basically let's stop buying cheap stuff from countries where they use near slave labor at impossibly low prices. Let's instead have high standard of living Americans build that stuff. And then in the afternoon, I'm going to wipe out inflation. Wait a minute.

How is it going to not be incredibly inflationary to start building our own stuff that we have to pay American wages in order to have built? Well, okay, let's consider the long run history of the US. How did the US industrialize and go from being a large farm owned by the British to then fighting the British off, becoming an independent nation that expanded and expanded and became the world power that won World War II? It didn't do it with free trade.

as I was alluding to at the beginning. It didn't worry about the fact that American workers were too expensive and try and bring them in from abroad or, well, of course there was immigration, but it didn't rely solely on that. And it didn't try an offshore production. And none of the classical economists from Adam Smith and David Ricardo actually thought anyone would do that either. They all thought that you would basically be trying to build up your own capital stock and build your own productivity. It's only this post-Cold War model

where everyone just thinks, well, I've got a right to open a factory in any other country and bring the stuff in. Why?

if it destroys American society, destroys American national security, why? And that seems to be the question that's being asked and the policies will start to shift. Now how to then deal with the inflation? I'm not denying that there'll be some inflation involved, but this is where the economic statecraft starts coming in. For example, if you say we're going to put high tariffs on everybody, not just those with slave labor, but anyone who isn't buying enough, because there are lots of countries in Europe, for example, where demand has collapsed.

relative to what they produce, like Germany, and they don't do anything about it. They just refuse to consume and just think everyone else will buy their stuff. Well, that's parasitic. You need to buy as well as sell. So anyway, let's say you want to deal with all of them. You can raise tariffs to a high level and you can say those tariffs will actually kick in in two years.

That's what I call the tariff T plus one scheme. If you do that and people believe you because you've been nasty enough and tough enough that you have credibility and because you're a very large market, companies will invest. Of course they will. They can see two years from now or a year from now, I'm going to be paying 50% to bring this product in and I lose my market.

Therefore, I'll open a factory in America. Therefore, it may have to be automated. Fine. I might have to use AI. Okay, use AI. I might have to use whatever technology is available. The Americans, I mean, you're lucky because you have the dollar for the moment operating the way it is. You can just talk about $100 billion and it's nothing. You can talk about a trillion dollars. The Fed balance sheet can go up a trillion dollars. People wouldn't even notice.

Why can't you subsidize firms to actually start doing that short term? Why can't there be any number of acronyms, which the Fed loves to use, as a transition fund to make sure the industry comes back? That's how things were done in the past. Why can't you improve your education system, you know, using all the startup skills you've got in America, so that within one or two presidential terms, you actually have the next generation who are currently aged 10 years old now at 18 with technical skills needed?

All of these things are doable, provided you start thinking in terms of statecraft. What is GDP for? And that will tell you what structure needs to be seen, how the policies need to join up. And that will give you your outcome rather than I hope GDP next year is 2.1 rather than 2.0.

And I suspect, I could be very wrong, that with the Pentagon being involved in this, there will be more and more pressure to start achieving these things. And people will be surprised that it can be done, but it was done for the longest time and very successfully. It's only in recent decades America lost the wherewithal to do it, which happened to coincide with some people getting very, very rich.

Michael, any closing thoughts before we wrap this up? Just this, because I understand people can disagree with what I'm saying. And I fully, fully understand the radicalness of what I'm proposing. But look, we live in very radical times. And to summarize that, we have a US president who echoing long run US history is talking about maintaining American primacy and literally moving lines on maps.

If you have a US president talking about moving lines on maps, along with other presidents doing the same thing, why do you think lines on screens aren't going to move a very great deal? So I think they will. And keep your eye on that volatility. And the best way to do that, as I said, is via not looking at macro strategy, but grand macro strategy.

Well, Michael, I can't thank you enough for a grand macro interview. Before I let you go, though, please tell us a little bit more about what you do at Rabobank or Rabobank in Dutch, if you prefer. What is on offer there and how can our listeners follow your work? So Rabobank is an extremely important bank in the Netherlands and in Europe. And we're also the world's leading food provider.

an agribank. So we are trying to grow a better world together. And obviously we're involved everywhere along the supply chain from, from farm to fork. And that's part of what gives me my global view because I talk to people who are physically there, you know, growing food,

processing it, trading it, et cetera, around the world and see how the global system actually works. If you want to keep in touch with Rabobank, obviously go to rabobank.com. Our research is available at Rabobank Knowledge, if you have a look for Rabobank Knowledge. And myself, you can look for me on LinkedIn. Also, please join in the conversation with me on X at the Michael Every, all one word.

Patrick Ceresna and I will be back as Macro Voices continues right here at MacroVoices.com. Now, back to your hosts, Eric Townsend and Patrick Ceresna.

Eric, it was great to have Michael on the show. Now let's get to that chart deck. 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 registered at MacroVoices.com. Just go to our homepage, MacroVoices.com and click on the red button over Michael's picture saying looking for the downloads. Now, Eric, let's jump into the equities here.

Well, I'm not surprised by the strength in equities this week, which I think represents the market cheering the Trump administration as being far more business friendly than the Biden administration. But hang on. The other shoe, which hasn't dropped yet, and I predict it will at some point, I'm just not sure how big, is eventually Trump's enemies are going to strike back. They're going to try to undermine his strategies and prevent him from succeeding at implementing his policy objectives.

The question on my mind is what's the market going to do when we start to see those moves happening? So I see room for a major, huge move higher in equities if Trump seems able to carry out his policy objectives and doesn't get undermined. If they're not successful in blocking him or preventing him from doing what he wants, I think it's very bullish for markets.

But I also see significant downside risk if we get into a situation where the government's just trying to, you know, two parties trying to sabotage each other and we're not getting anything accomplished. So it remains to be seen what's going to happen. I don't know how to predict which way that's going to go. Clearly, Trump's enemies really, really don't like him.

Are they going to really be effective in undermining his policies? Or is the populist support that he's got so strong that they're going to step out of the way? I think that's the real question. I don't know how to answer it unless you have inside information from what the deep state insiders are up to and what their intentions are.

Well, Eric, I would like to look a little bit under the hood here just as to how this rally has developed. Now, on page three, I want to start with just looking at the breadth of the market because the way the indice behaved over the last two months, it's a little deceptive. We had quite an extraordinary sell-off in the broader markets that was disguised by a Mag7 series of stocks that just because of their market cap weightings

kept the indice much higher we had an extraordinarily oversold market where we reached levels that we have not seen other than at bear market bottoms or at least at major correction bottoms where we would see you know something in the teens in terms of the breath readings we got down to 18 percent on the measure of number of stocks above their 50-day moving averages

I was so incredibly oversold and these oversold sectors, particularly like when you looked at the equal weight S&P 500 or the small cap basket, they were so oversold for five, six weeks that they have just had this extraordinary bounce. In many cases, they're now retraced about 50% oversold.

of that very oversold state and this breadth indicators now got to about 50%. Just that very oversold level has been unwound in many ways during this rally while things like the financials have led the way higher. We have a scenario where the mag sevens are not really re resuming leadership in the advance.

And so the question as to whether the market is capable, on page two we have the S&P 500, if the market's capable of making an all-time new high and let's say running to 64 or 6,500 on the upside,

I would think we need to see a couple of things. One, we would need to see the Mag7s rejoin the party. And we see, obviously, Amazon has already broken to a fresh high, but Apple bounces and a few of these other stocks start to participate again.

And we would need to see that money flowing back into those incredibly beaten up broader sectors that just simply have had an oversold bounce. If we have breadth widening and everything participating, then certainly a rally to all time highs can happen.

But there's a lot of things that could fail here as well. If the Mag7s simply don't take new flows and we see that this oversold bounce on the Russell and the Equal Weight Indices stalls out at these levels, then this could become just one big market topping formation. I don't want to say anything overly bearish just here because we are above the 50-day moving average. The dips have been bought.

So the price action is still in primary trend, but we're at a very key inflection point along these previous highs. And so I think going into next week FOMC meeting, by the time we are recording next week's episode, we're going to start seeing whether or not there was a catalyst introduced that either a spurred the market all time new highs or has a, well,

in this trade range, trading right back to lows that we saw throughout the previous few weeks. Now, Eric, on page four, I have the U.S. dollar index. What are your thoughts here? Well, we're down on the Dixie a little bit this week, but still holding short-term support just below 108. So to my eye, the uptrend is still intact until proven otherwise.

Well, I like to size up the dollar in a simple way. We've had a primary bull advance basically since October, higher highs, higher lows. And we were quite overbought as we approached 110 on the upside. And so it was long overdue for us to get some sort of a meaner version, particularly the euro was so incredibly oversold. But

But the thing is, is that almost all of these, whether you're looking at the dollar index approaching its 50 day moving average or the euro bouncing back toward it, you have a scenario where we just are going to determine right now whether this was just a very overbought dollar that needed a pause or and before resuming its primary bull trend or whether or not this becomes a major reversal point on the inauguration.

As we're at this inflection point, this is going to be where we determine whether the dollar is bought on dip. And I feel that generally you want to always give the bulls the benefit of the doubt that we resume the primary trend that's been in place, particularly since we've bullishly broken out of a two-year range and have not hit any major overhead resistance points yet.

It's certainly worth entertaining the idea that the support levels in this 107, 108 level hold and they give another shot on the upside of the U.S. dollar in the weeks or month to come.

Now, Eric, let's talk crude oil on page five. It's been very volatile in the last few weeks. What are your thoughts? Well, for now, the rally failed at just below 80 on WTI. But as of Thursday morning, the continuation 200-day moving average has held. So maybe a bounce or even a continuation of the rally is in the cards from here. Now,

Now, this past week's sell-off of about 5% has probably been driven by perceptions among the masses that Trump will dramatically increase U.S. oil production through drill-baby-drill policies that he's very vocally announced and repeated in the last several days.

But our good friend Dr. Anas Alhaji says to be cautious drawing comparisons to Trump's first term in office because Anas says it would be impossible for the U.S. to increase production anywhere close to as much as we were able to during Trump's first term.

Saudi Arabia also signaled an interest in investing more in the United States, implying that MBS and Trump will again be best buddies and get along rather a lot better than Biden and MBS got along. So it's possible that expectations of better U.S.-Saudi cooperation could also be contributing to the sell-off.

I continue to view oil in a very simple way. We first started with a liquidity squeeze. Basically, everyone was consensus short the oil market. It was stuck in a trade range. And then a squeeze happened. And the rally in crude oil was in the

$12 variety, which was the type of bounce that we saw not only in June, but also back in September, October when the oil markets last squeezed. We're now pulling back. The big question is, does this pullback drop it right back down to the $70 level, putting it right back in the trade range?

Or do we see the bulls establish a new higher range, which is that it finds support above its 50-day moving average and does not enter back into that September through December trade range, let's say staying up here in the $74, $75, $76 levels during the pullback?

If we see the bulls defend this area, then we have to entertain the idea that some sort of a new bull phase is occurring in crude and that there might even be a shoot up back to last year's highs around the $82 to $86 area. And that's certainly something that I'm entertaining. It will be an asymmetric entry here. We're going to watch closely whether this shapes up into a buy on dip opportunity. Now, Eric, let's talk gold.

We've decisively broken out to the upside above the triangle formation, but the RSI and slow stochastics are now flashing extreme overbought. I think the rally is likely to continue much higher, but at least a consolidation or small pullback is likely to happen first, and it's needed in order to erase that overbought signal on the stochastics, which we really need to see before a really big move higher can begin.

Eric, my position on gold hasn't changed much week over week. I can continue to compare this to that May, June, July period where gold had an extraordinary bull run at the start of the second quarter and then entered a phase where it just consolidated for almost two, three months earlier.

absorbing that overbought state and then use that as a pivot from which it did a brand new bull breakout. Well, here we put in a high in October and here we are in January continuing to grind in this trade range.

Uh, it's attempting to test its previous highs. The interesting part is the other precious metals, uh, silver, platinum and palladium have not yet broken out. And so it's very curious whether gold here can march to the beat of its own drum based on China buying, uh,

and whether other precious metals would join the party. But if we see a bull breakout in gold here, uh, particularly to a fresh new high, it will, uh, garner headlines and certainly, uh, get a lot of people interested just based on, uh, the fact that it will be, uh,

on everyone's radar again. If that kind of a bull breakout is what we see, the only logical target is a measured move up towards the 3,000 level. So we're right now right along that previous high, and it's certainly the thing to watch as to...

whether we get a big gold breakout here or whether this finds resistance and just stays in the trade range for another, let's say another few weeks or the remainder of the month. And that's one of the key things to watch at these levels.

Now, Eric, let's move on to uranium. Uranium and uranium miners are finally starting to rally. But, you know, the pace of that rally is muted. It's weak. I'd say even pathetic when you consider the incredible amount of bullish news flow, starting with the Stargate announcement.

Now, I suppose that that bullish news flow is bullish for the nuclear industry, and it's not going to translate to additional fuel demand overnight. So maybe that's the reason that we're not seeing an immediate reaction in uranium and uranium miners.

According to our friend Mark Nelson, each Stargate will require at least five gigawatts of power generation, and nuclear is the only sane long-term option to power them, although gas is likely to be used to bridge the construction time for new nuclear power plants.

Guy Keller over at Tribeca Investment Management, who runs one of the three major uranium and nuclear hedge funds, made the prediction a couple of weeks ago that the tech bros would get involved in the nuclear fuel cycle, not just in nuclear reactor companies. And sure enough, news broke this week that Peter Thiel's fund will be doing exactly that.

Well, you're correct, Eric, in that uranium stocks have actually been behaving relatively bullishly. But uranium prices themselves, particularly even with these Sprott physical uranium trusts and so on, we haven't really seen the next growth.

a technical bull phase really kick in. We have, you can just draw a big trend line along all the previous highs to see that there's been a one-year correction that hasn't yet broken out. We're not seeing any closings above the 50-day moving average or above the trend lines to say that the next bull phase has broken

now engaged. Instead, we're in this trade range. I'm very curious when it will break out. Obviously, there's a lot of reasons to be bullish, and we're just waiting to see technically when is the trigger point for that trend to really resume. And finally, I want to just touch on that 10-year treasury yield, which hit at the 480 level. At this stage, we had a material rise in interest rates

The question is, is that a sustainable level on these rates? And that's what we're watching. A quick reverse on the CPI numbers the other week. And now we're going to find out whether or not these rates revert back down to, let's say, four and a quarter or some lower level, or whether this is just going to pause here and re-resume its path all the way up to 5%.

On the short term, the prevailing trend is higher rates and lower bonds. We're waiting to see whether or not we see topping formations or other types of things that say that we've hit a ceiling as to where they're going to let rates not go any further. And that really is going to take even weeks or months to establish. At this stage, I don't want to make any big high conviction calls.

other than that i don't believe we're going to see uh another huge uh bond bear market yet and i say yet because you certainly can't rule out uh you know just like michael every was talking about uh

the way the governments approach things in the years to come. But on the interim, I don't think that we have the backdrop for a bond collapse here in the first quarter of the year. And so therefore, I think that this is the upper range of a trade range. And I could envision a scenario where we head right back to 2024 lows.

And that doesn't make it a bond bull market, but rather that there's a prevailing trade range and like a ping pong match where we're bouncing back and forth between these support resistance levels.

And at this point, I think that we're much closer to the top end of this range. But the question and the puzzle is, when do we see the start of some sort of reversion back to the other side? And right now, I mean, we do put in a short-term top, but when will that actually mark an actual turn point where yields will move in the opposite direction?

Folks, 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.

Well, in this research roundup, you're going to find the transcript for today's interview and the chart book we just discussed here in the postgame, including a link to a number of articles that we found interesting. So you're going to find this and so much more in this week's episode. We appreciate all the feedback and support we get from our listeners. And we're always looking for suggestions on how we can make the program even better. Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email at

researchroundupatmacrovoices.com and we will consider it for our weekly distributions. If you have not already, follow our main account at X at Macro Voices for all the most recent updates and releases. You can also follow Eric on X at Eric S. Townsend. That's Eric spelled with a K. You can also follow me at Patrick Ceresna. On behalf of Eric Townsend and myself, thank you for listening and we'll see you all next week.

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