MacroVoices #481 Jim Bianco: This is The End of The Beginning
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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 481 was produced on May 22nd, 2025. I'm Eric Townsend. Bianco Research founder Jim Bianco returns as this week's feature interview guest. And Jim says we're at the end of the beginning, meaning that the age of Trump policies stressing markets in new and different ways has only just begun. But the first inning in that game, which was all about tariff policy, is probably nearing its end.

But we should only expect it to be a matter of time before the next big Trump policy bombshell hits the tape. And I'm Patrick Ceresna with the Macro Scoreboard week over week as of the close of Wednesday, May 21st, 2025. The S&P 500 index down 81 basis points, trading at 5844. After a trough to peak 60 days, 16% rally, the markets are taking a breather. We'll take a closer look at that chart next.

and the key technical levels to watch in the postgame segment. The U.S. dollar index down 217 basis points, trading at 99.68.

The dollar weakening back toward its 52-week lows. The July WTI crude oil contract down 250 basis points, trading at $61.57, twice now rejecting key resistance. The key new oil trade range continues to prevail. The July RBOB gasoline down 141 basis points, trading at $2.10 a gallon. The June gold contract up

up 392 basis points trading at 3313 the primary bull trend remains intact but do the bulls have enough gas in the tank for a new bull advance the july copper contract up 43 basis points trading at 467 uranium down 84 basis points trading at 7095 and the u.s 10-year treasury yield up

up six basis points, trading at 460. This is a material breakout in yields now targeting January highs. The key news to watch next week, we have the FOMC meeting minutes, the preliminary GDP, and the core PCE price index.

This week's feature interview guest is Bianco Research founder Jim Bianco. Eric and Jim discuss the Trump master plan in reordering the financial system and the bond market outlook. Eric's interview with Jim Bianco 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 Bianco Research founder, Jim Bianco. Jim, it's great to get you back. I got to tell you, buddy, I think you were probably the most prescient of our guests this year, this calendar year, or in the last year for that matter. The last time that I had you on, you said, look,

It's time to reset our expectations. Trump and Besant have big, big ideas. They're not just jiggering a little thing here and there. They really want to change the structure of the system. We've got to be ready for them to have some big ideas. And you perfectly set the stage for what was coming with the tariffs. Now, what I'm seeing, Jim, is almost everybody seems to be feeling like, OK, CIS

Seems like maybe this tariff battle is starting to wind down. And I don't know what your take is, but my feeling is, OK, if that's really winding down, the right question to ask would be, what does Trump have next on his list after tariffs?

And it feels to me like everybody's saying it's done now. Is it done now? Is something ending or are we just at the beginning? And how should we be thinking about where we are in this process? No, thank you for the kind comments. I think, no, we're kind of at the end of the beginning is where we're at now. As far as tariffs winding down, let me take that part first. I've said, you know, the problem I have right now was in the messaging that you get out of tariffs.

There's two messages that a tariff can employ. One is leverage. I'm going to use this club to beat you unless you give me what I want. And what I want is freer trade and more access to your markets. If you're going to use tariffs for that, I think everybody's fine with that. And that is what kind of everybody wants. And that's a bullish outcome. But if you're going to use tariffs as a source of revenue and create the external revenue service, and we're going to raise all this money and we could do away with income taxes and

That's just a massive tax increase is what that is. And that is problematic. The issue that I have with Trump, Trump especially, is he kind of says that they're both tariffs and revenue in the same sentence. And I was like, well, they can't be both at the same time. They're either one or the other. So when people start to say winding down, that the tariffs are winding down, I think what they mean is they're going to be leveraged.

The leverage is going to result in what we saw with the deal with the UK, an opening of markets, a less restriction on being able to push goods into each other's markets, a leveling of the playing field. I'm not so sure that that's really what it's going to be at this point. And so we'll have to see where we go with the tariffs. Now, to the second part of your question, you know, what's next?

As well, when I was on with you last time, I said, look, he is talking about a reordering of the financial system. I'll remind everybody that in June of last year, Scott Beston spoke at the Manhattan Institute, and he said that we're at a rare period of time that only comes around once or twice a century when we completely reorient the global order. And now he's talking about the monetary and trading order, maybe not the political order, but that might flow from it.

And that he wants to be part of it. And well, he's the Treasury Secretary, so he's definitely going to be part of it now. And so I think that that's the second part that's coming. And what that's really going to be is, if I had to put it bluntly, the United States has a debt and deficit problem. We have too much debt. Our deficits are too big. There is an inability of Congress to cut spending.

And so we need to find more revenue. Tax the rich. Well, that's not going to work. We've tried that. Tax the middle class. That's not going to work. We've tried that. Well, who else is there to attack? Tax. Tax somebody who doesn't live in the United States. And so that's what tariffs are. That's where the other thing that's been kind of

lost in the shuffle a little bit is the idea that Europe needs to step up and spend more on their defense so we don't have to. And then the other idea, which is this, from when we're recording the week before Trump gave a speech in Saudi Arabia, where he talked about that, you know, that the main benchmark going forward from here is not going to be ideology and war.

It's going to be trade, you know, and I want to do deals with Iran. I want to do deals with Gaza. Remember, he wanted to build a hotel in Gaza City. He wants to do economic deals with everybody, which means less of an impetus for the idea of conquest in war. So this is very different.

than what we've seen before. And this is a different type of global order that we're going to. And the last point I'd bring up about this is,

I agree with Trump that the status quo could not hold. We were at a point with debt deficits, the imbalance of trade. Look, we set up the World Trade Organization and we set up a lot of these trading rules over a generation ago. And this is they're not really applicable for the kind of economy that we have now. We had to change. Now we can quibble whether or not this is the right change. And this is my been my pushback against the Trump critics is.

He's proposed a bunch of radical policies to change. OK, you don't like them. The answer is, let's just go back to the status quo. The answer is give me another set of radical policies to change it to. But we're going forward with this kind of change and we have to start to accept it and the ramifications for financial markets therein.

Let's talk a little bit more about what's happening now with the tariffs, because as you said, there's been mixed messaging here. Some of the messaging was, look, this is kind of a bluff game. It's about scaring the other side. There could be 100% tariffs. You know, you better come to the negotiating table. The idea is to get them to the negotiating table so that you can end up settling on a very low number for how big the tariff is.

But then there's another agenda, which is, hey, we could maybe eliminate income tax in the United States for most people by having actual high tariffs all the time. That's a very different agenda. Which one are they actually working on? I can't tell. I can't tell either. I mean, the problem is, like I said, they literally Trump especially says the same thing in the same sentence, both of them in the same sentence.

And like I said, they're very, very different at this point. Now, let me just say one thing about the leverage aspect of it. I think it gets misreported a lot. Well, we had 2% tariffs and we already had a level playing field. Yeah, that's the tariffs that we charge. But there's a lot of non-tariff barriers that countries have, you know, environmental standards and safety standards and, you know, cultural standards and health standards that they put on players.

Oh, yeah, we're not going to tariff your product coming in to our country. But if you don't meet these environmental safety and health standards, your product can't come into this country. And in order for me to adjust my product to get it into your country, it becomes prohibitively expensive and I can't compete. And so there's a lot of that that needs to be kind of addressed.

are fixed around the edges. Europe is probably the biggest abuser of this. Mario Draghi, the former ECB chairman and prime minister of Italy, wrote a piece in the FT in February and said, forget the US, look at what we do between health and safety and environmental standards between countries, between France and Germany and Spain and Italy and the like, and that they greatly add to the product prices of those because they put all of these different standards

per country, but they're not charging tariffs. So that's probably the thing that needs to be fixed. And that's the leverage part of it. But you're right. He keeps talking about the other side of it being the revenue side. And I think that the revenue side is going to come down to two statements that were made in the two days before we recorded. Over the weekend,

Well, let me back up first. Last week, Walmart had their earnings report. Doug McMillan, their CEO, said, look, we're going to start to see prices being raised in Walmart stores by the end of the month because of tariffs. And then Trump tweeted at him, or I guess it was on Truth Social, and he put in big capital letters, eat the tariffs, and that he doesn't want these tariff prices passed along to the final consumer.

And then Carolyn Leavitt, his press secretary, came out the day before we were recording, yesterday for you and me, Eric, and she said, China's going to absorb most of these tariff increases. And I've joked and I said, look, if Carolyn Leavitt is right,

Trump has found a way to pay for Social Security, Medicare, defense, disability by not taxing the rich or the middle class. He's going to tax the Chinese to pay for this stuff because they're going to absorb some big increase in tariffs. We should start chiseling him onto the side of Mount Rushmore right now if he could pull that off.

Now, I say that sarcastically because I don't think he's going to pull that off. And that's really going to be where the rubber hits the road right now. As I mentioned before, you know, the truflation numbers, if you look at truflation, those numbers are starting to move up. That is a daily measure of millions of prices that are aggregated into a number that approximates a CPI. It's up 60 basis points, six-tenths of a percent. That's

absolute up, not on a growing basis, in 18 days. That's the impact that tariffs are starting to have. And I think if we start to see prices going up broadly in the next month or two or three, and that's what I think we're going to see, and we're not going to see Walmart eat the tariffs, and we're not going to see China absorb those prices.

then I think this idea that tariffs are going to be this permanent revenue increase is really going to come under question because that means Americans are going to be paying that. And it's just a tax on Americans. But if it doesn't, if we don't get that inflation, then that means the Chinese are paying it. Like I said, put them on Mount Rushmore if you get the Chinese to pay it. But

I kind of doubt. So I think at the end of the day, we're going to see we're going to have to see where we go. I think we're going to get prices and price increases. I think that's going to push pressure on keeping these tariffs over the long haul and that they're going to be used as leverage to open trading markets and to make a more level playing field.

Does that eventually lead to tariff driven inflation? And does the tariff driven inflation become a political issue? In other words, if Trump gets blamed for causing inflation through tariff policy, that's a very different, you know, social outcome than the one that he's aiming for. Absolutely. I think it does. And I'll put a little nuance on this for people that are listening to this. When you buy something at the store,

There's the price in the shelf, and then you go to the cash register, and then they add the sales tax, and then you pay your final price. Why don't they embed the sales tax into the price of the product like they do in Europe? Because we want to separate prices from taxes. We don't include taxes in inflation. But in a tariff, it is embedded in the price. In fact, Amazon floated the idea that they were going to separate out, here's the price of the product plus the tariff, here's the price you pay.

And Trump put another truth out at them, basically calling them anti-American or un-American. And then they backed off of that real quickly. So I know people would say taxes are not inflation. Well, in this case, they are because you can't separate them out. So if tariffs push up the price of stuff at the store, it's going to show up as higher CPI and higher PCE, both at the core and at the headline level.

And all things being equal, if CPI and PCE go up, there is no way the Fed is going to cut interest rates. There is no way that the bond market is going to look past that and say, well, we could start to rally bonds. Even if you believe that that might slow down the economy, I'll point everybody back to three years ago. Three years ago, first quarter of 22, negative GDP.

But inflation was rising. What was the Fed doing in response to the negative GDP? They were hiking rates. And by the second quarter of 22, they were hiking rates at 75 basis points a meeting to deal with higher inflation. I think what I hear from the commentariat is, let's spend 95% of our effort talking about why the unemployment rate is going to go up, why the economy is going to slow down, why we might have a recession. And they might not be wrong.

And then they'll say the 5% of their effort is we have our prices might go up, but we're going to have a recession. So the Fed's going to cut rates. And I'll be blunt. If the other 5% is if prices are going to go up, good luck with your recession. They're not cutting rates. They will not cut if prices go up. They are inflation first. They were in 22.

They will be again in 25 and 26. And so if this does lead to higher prices at the store and more unemployment and lower GDP and less consumer spending, there will be no cut unless you can make the case that it is such a bad reversal of the economy that it offsets whatever inflation increase we would get.

your first indication that it would be a bad reversal would be what the stock market was doing in April. But now that we're into the end of May, the stock market is up on the year. So it's not signaling that something bad is going to happen. So I think we have to understand that we're going to get this inflation and it's going to keep interest rates up and it's going to keep, you know, the Fed from cutting rates, even if the economy slows.

Jim, you're talking about reasons that the Fed might not be able to cut rates. Of course, President Trump's commentary has been very much about how the Fed needs to cut rates and do so immediately. The president appears to be threatening to fire Jay Powell, despite the fact that the Fed is supposedly independent and the president can't theoretically do that. Jim, where is this headed?

I think it, you know, it looked like it was headed for a showdown because Trump had made noise about firing Paul because he wanted lower rates. Quick word about lower rates. Let's remember what Trump is. At the end of the day, he's a New York real estate guy. And he was the one who originally pointed Trump, I mean, pointed Jay Paul, you know, way back in 2017. And the joke I like to say about him being a real estate guy,

is that he became aware in Europe that they had negative interest rates. And then he was told that what a negative interest rate is, you take out a mortgage on one of your buildings and the bank pays you an interest rate every month. And being a real estate guy, he thought, man, this is the greatest thing ever. Why don't we have it in the United States? And then he was told because Jay Powell doesn't think it's a good idea and he's hated him ever since. And so I think that he, that's why he's made this talk about Jay Powell being too late is what he calls him too late Powell.

He's made noise about firing him. You're right. It's never been tested in court. We don't know if he has the power to fire him. He'll fire him. They'll sue. They'd have to go to court for months. But Powell's term is up in less than a year.

So Trump has said he could fire him, but he won't. But he won't reappoint him in a year. And so we'll have to see who he winds up taking in a year. And the leader in the clubhouse right now is Kevin Warsh. He is a former Fed governor, Morgan Stanley banker. Donald Trump has known Kevin Warsh for almost 25 or 30 years.

You know, he's very comfortable with him. But, you know, there's still 11 more months to go and things can change. But it looks like he would come. And then the expectation is that person would then start cutting rates in a year. Now, a quick word about cutting rates. I want to go back to 22 and then compare it to last year. In 2022, the inflation rate hit 9%.

And the highest 10-year yield throughout the entire calendar year was 4.22%. And that actually occurred in October when we were past the peak. Right now, as we're talking, the 10-year yield is at 450 and the inflation rate is at 2.3% on headline, about 2.8 on core. Why are we at a higher interest rate today than we were when we were coming just off the 9% yield three years ago?

Three years ago, the Fed was, as I mentioned earlier, raising rates at one point by 75 basis points a meeting. When the Fed is on the case fighting inflation, I, as a bondholder, can relax and don't have to get rid of my bonds so yields don't go up. But when the Fed gives up on the inflation fight, I then start to worry about owning bonds and I sell them. And if you want an example of that, last year.

September of last year, the 10-year note was 3.6%. The Fed cut 50 basis points. They followed up in November with a 25 basis point cut in December with another one for 100 basis point cuts between September and the end of the year. Over that same time period, what did the 10-year note do? It went from 3.6% in September to 4.8% in January. It rose well over 1% or 100 basis points.

There is no other example of the Fed starts cutting rates and the 10-year goes up by that much. In at least the last 40-odd years, maybe even closer, you'd have to go back to basically 1981 and the secular peak of interest rates in order to find the last time that's happened. Again, why did that happen? If you're not interested in fighting inflation, I'm not interested in owning your bonds. So Donald Trump has to be careful. It's not an issue now because Powell's not going to do it.

But next year, if he thinks I'll put Warsh in or I'll put whoever in and their job is going to be to aggressively cut rates, you could wind up telling the bond market, you're on your own when it comes to inflation. We're going to stimulate the economy into higher prices. You'll abandon the bond market. That's bond players will abandon the bond market. And the result will be just like we had in late 24, cut rates and long rates go up.

That's what we have to be careful of. Now, maybe the environment changes in the next year to year and a half that would necessitate a rate cut. But if it's like it is now, and if Trump had his wish today and the Fed came out and said, we're going to cut rates, I think the response would be higher long-term yields, not lower.

Let's talk about what this means for the bond market structurally long term, because really what you're saying here, Jim, is that we're at a moment in history where the United States of America is reevaluating its strategy.

It's government strategy for how it's going to deal with its debt, how it's going to finance itself. And as you've said in the past, they're thinking really big. They're not afraid to make major structural changes that were considered beyond the realm of possibility just a few years ago. So why?

What does this mean for the outlook for bonds if we don't even know how the U.S. government strategy is going to come together here? Yeah, you know, I'm going to use the often overused line, but does seem to apply in this case. And that is that there's tremendous uncertainty about bonds. And so that's going to keep the premiums on bonds a little bit higher, just like it's keeping, you know, depressing equities for the same reason.

But one of the concerns about the strategy or one of the concerns about the bond's big picture is twofold. One is if there is an absolute commitment to dealing with inflation. The president, the day we're recording, literally an hour or two before we recorded, he was speaking to the cameras and he was

taking good credit for, there is no inflation. He thinks there isn't any. He thinks he's defeated it. That egg prices are down and that gasoline prices are down. There is no inflation. As a bond investor, if the Fed started talking like that, I'd be very nervous. I want them to, you know, protect the purchasing power of my fixed income investment. I don't want them to watch and let inflation eat it away. But the president is

Is is definitely there. And then at the same time that this is happening, we've got what is called the big, beautiful bill in Congress. This is their their budget reconciliation bill all wrapped up into the same thing, which is going to what is referred to as the Trump tax cuts bill.

I think that the Republicans did a terrible disservice to themselves for naming it the tax cuts because there is no tax cut. It's just going to keep the rate the same rate that it's been for the last seven years. So there would be no tax increase, but no one's getting their taxes cut.

And on the spending side on this bill, they're not cutting anything. It's going to be just, you know, a gigantic boondoggle of pork spending to the point where the House Freedom Caucus, this is a bunch of fiscally conservative Republicans, put their foot down and said, we can't vote for this with a two seat majority the Republicans have in the House.

This bill is stalled in Congress for the moment. Now, maybe Speaker Johnson can find a way to get around it. But to my bigger point, if you're going to just continue to spend like crazy and talk a good game about reining in the debt, and you're going to wind up leaving us with all this uncertainty, the path for yields is going to be higher. And then add in what we were talking about a minute earlier,

Well, we're going to get higher CPI and we're going to get higher PCE because we're going to get tariffs embedded within those prices. Yeah, you could say to me that they're one-time increase. And you could say to me that they're not really the increase in prices, they're increase in taxes. But again...

The market doesn't nuance things sometimes like this. It just says, look, the inflation rate's going up. I don't want to own these bonds at this level because the fear I have is that the Fed will be under pressure to abandon the inflation fight, stimulate into these higher prices, and allow people to continue to pay them so that prices could go even higher. And that would be even worse for bonds. So the path for the least resistance for interest rates is up.

Jim, let's talk about how gold fits into this picture. We saw a recent, looks like it almost might have been a blow off top at $3,500, but it seems like the market's consolidating and getting ready to maybe challenge that high again. Where is this all headed? I kind of feel like the easy part of this gold bull market is over. We're into the big parabolic move up phase. The

The thing is, I know that leads to a blow-off top. I just don't know if that happens at $3,600 or $8,600. Yeah, I agree with you. I mean, we did seem to have that blow-off top. Again,

So gold is, you know, whenever you get unsure about the financial system and look, the Treasury Secretary is telling you we're going to reorder the financial system. I would say to you, I think it's necessary, but that doesn't mean it's not risk. It's got a lot of risk. There could be an idea could be right. We need to change, but we could do it wrong. So you want to try and get your money, you know, quote unquote, out of the financial system.

There's kind of two ways you could do it. Crypto is one and gold is the other one. Although in both cases, you're not really totally out of the financial system. You're only partially out. And that's what you've seen over the last several months. Both of them do very well. Bitcoin is still over 100,000. Gold, as you said, parabolically blew off to 3,500.

And now it's backed off with the idea that maybe these tariffs, you know, the tariff rates came down. We're talking. Maybe these will lead to being tariffs being leveraged that will open up and we'll have more trade, fair trade and even playing field, which is then an idea that you would want to shift back into risk assets if that's the case.

Or maybe we find out that they're going to be a little bit more chaotic as we go forward because they're going to move on to other things. And maybe the tariff story won't go as seamless as we think. And then gold will come back into vogue. I want to get my money away. I want to protect my money. I think that gold will come back because I think that this story, while necessary, you know, this is kind of Neil Howe fourth turning kind of stuff. It's necessary to have a fourth turning.

You can't skip it and go from the first turning to the first, from the third turning, which is autumn to the first turning, which is spring. You still have to go through the winter. And so it's kind of necessary that we're doing this. Maybe not necessary that we're doing it in this particular way. And that's why I think that the final story hasn't been written and gold will have another run. Still might be a couple more months, but I still think it's going to have another run. Just like I think things like crypto will also have a run as well, too, for largely the same reason.

Are we headed toward a moment of reckoning in the next few months where at some point the American public kind of wakes up and says, oh, wait a minute, this tariff thing sounded good when it sounded like the president was just going to, you know, basically tax foreigners instead of taxing Americans, get the taxes paid by somebody else. Yeah, I like that.

Wait a minute. It turns out that the foreigners didn't pay the taxes for us. They just passed them along and we've got this tariff driven inflation. Are we headed toward a moment where everybody who was kind of happy about this direction and supporting the president? In other words, we headed toward a moment of collapse in the president's support as people realize, oh, there's no free lunch when you

tax somebody else, the potential is that they're just going to pass that tax back to you. Yeah, no, I think that that's a real risk. And I'll throw in a statistic about that. According to the National Association of Retailers, 50%, 50% of all retail sales in the United States is now done by the top 10% of income. And that's the most concentrated it has ever been. So if you see

tariffs going up in price, you know, and prices of things are getting more expensive. And people say, well, that means that we're going to have a collapse in, you know, unit demand because people can't afford that stuff. Maybe not. Maybe what we're going to see is that the top 50 percent or the top 10 percent that does half the retail sales has the ability to pay those higher prices and the bottom 50 percent doesn't.

And so the bottom 50% bears an undue burden because of these higher prices because they don't own homes. They don't have portfolios of ETFs. They're not tracking the price of their home every day on Zillow to see what their net worth is. They have a job.

And they have an income and they hope that if tariffs raise prices by 4% or 5%, CPI goes up by 4% or 5%, and some Fed models have suggested that that's possible by the end of the year, that they better get a 4% or 5% raise from their boss. Otherwise, they're going to be behind.

Now, maybe people in the top 10 percent might not get a 5 percent raise, but they got enough net worth that they can they can shoulder those extra incomes. And so that's where the big reckoning will be. Now, what am I describing? I'm describing exactly what happened three years ago. And I'm describing the response to the election. Inflation went to 20 to 9 percent.

The bottom half of income was hurt very badly by that. And then by the time you get to 2024, if you looked at the polls, they said, what is the number one economic issue in the country in 2024? And the public said inflation. And the administration, this would be the Biden administration in 24, correctly said, well, wait a minute. The inflation rate was 9%, and now it's 3%. So we're getting rid of the inflation.

The inflation rise is so scarring to everybody that even after it came back to 3%, the bottom half of income being so vulnerable to inflation,

was still, you know, triggered by that word, even when it was back to 3% in 2024. We do that again because of tariffs. The bottom half of income is going to be, you know, beside themselves that they're going to have to shoulder this blame. And yeah, there's going to be, you know, there's going to be political consequences to this.

You know, we'll have to see how it shapes up and where it shapes up and the like. And more importantly, you know, if I say there's going to be political consequences, you might be saying, yeah, that means the Republicans will get routed in the midterm election. And that's very well could be the case. But I think before we get there, the Democrats are going to have to articulate their

How are you going to solve this? Because are you just going to say, forget it, we'll just undo the tariffs, we'll just go back to 2024 and 2023, the status quo, and we'll just run $2 trillion deficits as far as the eye can see and don't worry about it? Because I don't think that's an acceptable answer too. As I said earlier, if you don't like this radical policy, then give me another radical policy to replace it with. But going backwards, I don't think is going to be an option.

Jim, let's translate everything we've just talked about to an outlook for markets. What does this mean for bond yields? What does it mean for return on stocks? What does it mean for commodities? And what does it mean for interest rates? So in a period of big change like we are, and sometimes change is not necessarily bad. Don't read that word as being that it's going to be bad. There's going to be a transition period. So I've called these markets the 4, 5, 6 markets.

That over the next several years, not necessarily 2025, but over the next several years, if you have money in the T-bills or in the money market funds, you'll get 4%. If you have money in bond funds or bond ladder or something like that, you'll probably get them to return you about 5%.

And if you have money in this equity market, I'm talking about the broad indexes now, and I'm talking about the domestic indexes, you'll return about six. Now, that's not terrible because I think we're still in about a, I think we're in an elevated inflation world of about 3%. So I like to joke, not 810 or Zimbabwe. So if we're in a 3% inflation world and cash will give you four and bonds will give you five and stocks will give you six, it's not the worst thing in the world.

But a lot of people might think that because it's not the 22% we got in 23 or the 25% that the S&P got in 24. So why six on stocks? Let me start there and work down.

Because of the valuation in the stock market. The valuations in the stock market are very high right now. Some people call it overvalued. I don't know what the difference is between high valuation and overvalued, but it's very high. And I'll use the Shiller, the CAPE ratio, the cyclically adjusted PE ratio. It's at 36. That's one of the highest levels it's been in 150 years that Bob Shiller at Yale University won the Nobel Prize in 2013 for his asset valuation model, which is based on the CAPE ratio.

is that at 36, what that typically tells you is that you should be looking at the stock market over the next several years to return you about 3% more than the inflation rate.

maybe four. So if we're at a three-ish percent inflation rate, you're looking at six, maybe seven, but let's call it six because it makes the numbers work better. So like I said, that's not terrible. Now, why is that? Because when you buy a 36 PE or you buy a highly valued company like one of the Mag7s, does that mean it's got to go down? No, it means everything's got to go right.

And everything, if you're going to have major change at the same time and ask that everything also go right, that's a tall order. That's why I think the stock market slows down in its return. Bond market at five.

Well, that's the average yield right now in investment grade bonds is somewhere around 5%. You know, it's actually 491 or something like that, according to the Bloomberg Aggregate Index. And that's an index that measures all treasuries, all investment grade corporates, all investment grade mortgages and all investment grade agencies, about $30 trillion in that index.

And so 490, so that's really what the coupon is on the bond market right now. And I think that over the next several years, if you bought a bond portfolio, it will churn you out the coupon. You know, some years you might have a little bit of capital loss because prices go down, yields go a little bit higher, but then the next year you have higher coupons to kind of offset that. So you get about 5%. And then finally cash at four. Well, the funds rate is a four and a quarter to four and a half. And we're all talking about when the Fed's going to cut rates more.

The real question he asks is, what is the neutral rate? Now, I said earlier, the inflation rate's 3%. I think it's going to be 3% as we go forward, not 2% or lower, as the Fed is assuming that it is. That was the previous cycle was 2% or lower, which ended and we're in a little bit more of an elevated cycle, in my opinion. They use a term called R-star, which means, okay, take that long-run inflation rate of 3%. I'm going to take 3% minus my number. And you put a premium of about 1% on that.

And that gets you to four. That's the neutral funds rate. So when we talk about how many more times is the Fed going to cut or when is the Fed going to cut, the assumption built in there is that the Fed thinks that the neutral funds rate is still around three. Two percent inflation rate plus one gets you three. The R star plus one gets you three. I think it's closer to four.

And if I'm right on this, maybe there's one more rate cut in total. And that's not even necessary at this point. And that if we're at neutral over the next several years, that's what cash or money market or T-bills will return you. So we're in four or five or six markets. As I said, that's not terrible. You know, that's not disastrous. But I know there's this expectation that, you know, of 20% and largely driven by that's what it has been giving us.

over the last several years. But when you got to 25, two things happened. You had very, very high-valued markets, meaning that if you bought them, a lot of things have to go right. And we elected a president that's trying to enact secular change. I think that secular change is needed. But that has got its own set of risks with it, too. So to dial back four, five, or six. Now, that doesn't mean...

That there's nothing that you can do to get more than six. Sure, maybe stock picking comes back or other themes could come into play or some rotations into other markets like European stocks. The one thing European stocks have going for them is they've got very, very cheap valuations.

they don't need a lot to go right in order for them to go up. Where when you have high valuations like equities in the US, they need a lot to go right for them to go up. That might be another play that people could do if they want more than six. But if you're saying, look, I just want to buy a bond fund and I want to buy a stock fund and I want them to go up in a blended fashion with the stock market being up 20%, like 10, 12% or so, I don't think that we're in that kind of environment anymore.

Jim, I agree with you that we're probably not in that kind of environment. But I also predict that a lot of people who are paid, frankly, to know better are going to respond to that by saying, no, no, no, no, no, 6% is not enough. I better employ some leverage. Now you're going to employ some leverage and make it worse. It seems to me like we're headed towards some bad behavior if

a entire generation of professional traders who's used to what frankly have been some pretty easy times for the last few years are suddenly facing 6% average yields. I think they're going to misbehave. What do you think? Oh, I think they already are misbehaving. I mean, if you look at the markets, if one of the things I would argue that's the least understood

thing that's happened in the structure of the equity market in the last four or five years has been the dominance of the retail trader. The retail trader now dominates the movement in the equity market.

And most people will, when I say that, you know, I'll get somebody to tweet at me and say, well, look at this. These numbers say that retail traders are very small percentage of the equity market. Yes, individual stocks. They don't play individual stocks. They actually, they play seven individual stocks, the MAG-7. And then they play big time in the options market and in the ETF market. And actually in the options market, it's usually options on ETFs like SBY and QQQ.

And their buying and their patterns have been dominating the market. So if you want to know who is the 800-pound gorilla in this equity market, it is retail. They've got their accounts with zero commissions. You've seen the explosion of levered ETFs, zero days to expiration options trading, and a lot of that. And I'll give you one example.

The day before we were recording was the Monday after Moody's downgraded the US to AA+. Markets sold off hard in the morning and it came back and it finished slightly up on the day, like less than about a tenth of a percent, but it recovered from almost a one and a half percent drop. According to JP Morgan, in the first four hours of trading on that day, yesterday from the day we were recording, Monday, the 19th of May,

$4.5 billion of retail money flowed into the stock market in four hours. And, you know, so basically it's hundreds of thousands of people that are logging onto their phones, onto their accounts and pushing, buy that call, buy that levered ETF, buy, buy, buy, as Kramer would famously say. And they just powered the market higher. Now, what I'm not saying

is that those investors are right and that they're going to make money at the end of the day. They might, they might not, but they are the push in the market. And if the push in the market is coming from leverage, levered ETFs, zero DTA options, and the like,

usually that winds up ending badly somewhere along the way. And that's going to be the real fear that we're going to have to look for. So the structure of the market has changed. If you really want to, you know, listen to somebody talking about liquidity and who's the big player in the market, it's not what are the hedge funds doing or what are the institutional investors doing in equities? It's what's retail doing in equities and how much are they playing in the equity market?

And they're big and they're very big and they're now the dominant player. And is that a result of retail just getting more popular? Stock trading has become more popular or is it more a matter that we're seeing flows that are reflected as retail flows when in reality it might be somebody else doing that trading? No, I think it's gotten more popular and I think it's gotten more popular for a couple of reasons.

You know, fill in the blank, biggest hedge fund you've ever heard of, Bridgewater. That's the largest in the world. And they got equity managers over there. What does the equity manager know about

that the regular retail investor knows? Pretty much nothing. Everything's on the internet. Everything happens in real time. I mean, he might have more resources at Bridgewater in order to get that market PC news to in front of him faster. But you, as a retail investor, get the same access to it at the same time. What about his cost of doing trading? You've got zero commissions too.

You, what about, you know, complicated strategies that that manager at Bridgewater could do? You've got all kind of ETFs. You want to buy equal weighted S&P? That's RSP. He had to, a couple of years ago, had to engage in a strategy of buying all 500 stocks in certain amounts.

Now you can do it for zero commission by buying one ETF and there's thousands of them. So the retail investor is pretty much on the same playing field as that professional manager is.

You know, what the professional manager would hopefully tell you is he's got the experience and the knowledge and the know-how in order to do a better job. But no longer does he have resources that you don't have. You've got those same resources. That's why retail has jumped into this game full time. I mean, like I said, find me a strategy in the equity market that one would like to do

that you can't just give me a three-letter ticker and say, just buy that. It does that strategy. There, you've done it. And so that's why I think that retail is, especially among the younger generations, have taken it onto themselves in order to start to play in the market. This is not just find a smart person and hand them your money. That's what, Eric, you and I are old enough to remember the go-go eras of the 80s and 90s when we used to just, everybody would hand their money to Peter Lynch or hand their money to,

You know, any one of the other actively managed open ended mutual funds, because that was the way that you would invest. You wouldn't try and do it on your own. You didn't have the cost basis or the knowledge basis or the resources that they had. So you'd give it to a professional manager.

But in equities, that's no longer the case. Now, the last thing I'll say is maybe when you drift away from equities, you get into international bonds or even U.S. bonds or commodities or foreign currencies. That might not be the case there. That you still might want to say that the professional manager has a leg up in all the non-U.S. equity stuff. And I think that's true. But in equities, they don't. And that's why I think you're seeing this explosion of kind of do-it-yourselfers in

in the equity market. And we've given them pretty much every tool to do it themselves.

Jim, final question. We can't finish this interview without talking about the Moody's downgrade. I see a lot of people making excuses in professional finance for why it's irrelevant and unimportant that the United States of America just lost its AAA rating. I don't think it's unimportant. What do you think? I agree and disagree. Let me start with the disagree part. The U.S. lost its AAA rating to almost two years ago.

There's three major credit rating agencies, S&P, Fitch, and Moody's. What is the rating of any particular country? What is the preponderance of them? So in 2011, S&P downgraded the U.S. to AA+. And Moody's and Fitch were still AAA, so we were what we refer to as split-rated AAA. We were still a AAA-rated country.

In August of 2023, Fitch downgraded the U.S. to AA+. At that point, we became split-rated AA+.

So what Moody's did in the few days before we were recording was they just got aligned with what is the credit rating of the United States. So we already were AA+, and now they've joined Fitch and S&P. So mechanically, nothing changed from that downgrade. Now that I've said that, the other side of the equation is what about the message? What about the rationale that Moody's had?

that they looked at the big, beautiful bill. They looked at the amount of spending that we're going to do. They looked at the inability of Congress to rein in debt or deficits and

And that's why they reined us in. That's why they downgraded us. And that is an important message that we could argue that maybe we already were AA plus for two years. Fine. And that that is not going to lead to a forced liquidation anywhere by anybody because they can only own AAA securities. That already happened two years ago. Fine. But to ignore that message that they had, that's that would be dangerous. I think that that message that they had was very important.

Well, Jim, I can't thank you enough for another terrific interview. But before I let you go, please tell us a little bit more about what you do at Bianco Research, what services are on offer for institutional investors and where people can find out more about your work. Yeah. So two things. I run two businesses. Biancoresearch.com is our research business. We still have a business model where we cater to institutional investors, but you could

Request a free trial. And to augment that, I'm very active on social media. You can find me at Bianco Research on Twitter X, at Bianco Research on YouTube. We do have a YouTube channel. And you can also find me on LinkedIn under my name, Jim Bianco. The second business we have, which is more oriented towards retail investors, is we do run an actively managed

ETF. It's with our partner with WisdomTree. It's the WisdomTree Bianco Fund. Its ticker symbol is WTBN. You can find out more about that by looking it up under its ticker, WTBN, or you could look at Bianco Advisors.com.

which is the website dedicated to that fund and the index that we manage. Technically, we manage and actively manage fixed income index and WTBN tracks our index. Think the S&P committee manages the 500 and SPY tracks the index. We're set up similar to that. So we have an ETF for the fixed income market, the 5 and the 4, 5, 6, and we also have a research business as well.

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 Jim back on the show. Now, let's get to that chart deck. Listeners, you're going to find the download link for the post-game chart deck in your Research Roundup email. If you don't have a Research Roundup email, that means you have not yet registered. After you've registered, you're going to need to go to the research roundup email.

at macrovoices.com. Just go to our homepage, macrovoices.com, and click on the red button over Jim's picture saying, looking for the downloads. Okay, Eric, what are your thoughts here on the equity markets? Well, Patrick, the overbought rally in the S&P looks like it's probably topped out. I don't really have any strong view about what comes next here. I feel this is a news headline driven market and there's

plenty of room for big moves in either direction from here, depending on what the news flow brings us. The way that I would describe it is that we have an incredibly overbought market on the short term that is exhausted.

is approaching some very key overhead resistance and yet at the same time has not been presented yet a catalyst for beginning some sort of a sell cycle. So let's put that overarching theme into context. First of all, if you go from the April low from where the little crash event occurred, we have now in 45 days rallied 24% off of that low.

And since the April 21st swing low, we have had basically a 30-day 16% rally on the upside without any pullbacks.

And so almost all of this upside momentum has just driven these markets right back toward their 52 week highs up near 6000 on the S&P in a very fast manner. It is very typical from a technical perspective for the market to take a break. It doesn't mean a bearish setup that is a big shorting opportunity.

but rather simply a market that has to absorb making such a big move. And these kind of correction and mean reversions are very normal. Here, we were 300 S&P points above just a 50-day moving average, which was phenomenal.

a very typical period where a market mean reverts back towards that moving average. So for us to potentially see the S&P mean revert back to 57 to 5,800 on the downside would just be normal when you put it in the context of the prior rise. Now, when we get this type of a pullback, one should approach it that this first test will likely be a buy-on-dip.

which is that when the market gets down there, it often will return right back to the highs. I do believe the highs of the year from January around that 6100 on the S&P are likely to cap almost all upside for in this first half of the year.

And therefore, if you buy a quick dip, you can capture a nice 5% rise in the market on a tactical trade. But you need to be buying dips because you need to create some form of asymmetry in those trading opportunities. Overall, at some stage, I do believe the stock market will once again have another correction. Really, at this stage, I view it that that's a risk for the second half of the year.

all right eric what are your thoughts here on the us dollar well after almost testing 102 this week on the dixie we're back below 100. the open question at this point is whether the counter trend rally is already done after failing just below 102 or if there's still another leg or two higher yet to come

So far, it appears that it may have already ended and we could be resuming the downtrend in the dollar, but it's early to say. Yeah, I do believe that that rejection of the 102 level on the dollar index is relevant. We have the 50-day moving average there. That was the 50% retracement of the April decline in the dollar. So the conclusion here is that the dollar's primary downtrend is still intact and

Now, will we see that U.S. dollar make another major leg down or is it simply now going to be a new bottoming formation where it double bottoms along its previous low and starts to form some form of a trade range consolidation? I'm in the camp that at least for the next couple months, the dollar is going to be far more range bound. So as we approach the lower boundary of that 98-99 level on the dollar index,

it is likely going to be a support that then trades it right back to 101 and 102. And for the going into the summer here and through the remainder of May and into June, it's likely to just be a ping pong match between support resistance. And if there was going to be

another leg down in the dollar again it would likely be into the summer or going into a deeper into the second half of the year and so right now I'm very neutral as we're approaching these previous lows all right let's move on to crude oil

well patrick to my eye the oil market is just grinding sideways here i don't really see either a directional trend or a trade opportunity well eric maybe not an immediate trade is there but i'm actually watching for a particular pattern here on crude now we had a direct double bottom retest in may of its april lows and we now rallied back to the april highs and remain in this trade range but

We have had a year-long bear market on the downside of crude oil, and it's been dominant for such a long time that oil is quite oversold and trading at some very low levels. What I'm looking for is signs that this has entered a new equilibrium.

accumulation phase and a more of a trade range that would become the base of a potential future bull breakout. Now, we have to be patient on this because the likelihood of a bull breakout happening in the month of May, it's probably not that high. But as we go into June, if we see that crude oil is not making lower lows, creating solid bases,

it might be the foundation of where a bull breakout attempt can occur. And so this is high on my watch list, even though I'll agree that there is no immediate trade to be taken here. Now, Eric, let's touch on gold.

Well, key support we talked about last week, just below 2200, did eventually hold, but not until some fireworks last Wednesday night into Thursday that took us, boy, 70 points below the key support level before the market bought the dip and the rally resumed. We're back north of 3340 now, so the big question is,

are we going to put in a higher high, that is a high above $3,450, which was the last high, and then $3,500, which was the all-time high before that. We do have a new series here of lower highs and lower lows. We need to break out of that with a higher high and a higher low pattern. The opportunity to test that will be at $3,450, which hopefully will be coming up by the end of the week here.

Well, Eric, I do in principle agree with your view. We do have a bull market that is still intact. Old dips are being bought. They're all being bought at fib retracements, what were previous highs act as support. The primary technical bull trend is quite intact. And now I do want to see some key follow through on bullishly above 3300.

This is we're sort of in a short term trade range area where bouncing around between 3200 and 3300 could prevail here for weeks. But if we have a technical breakout that gets gold approaching its 52 week highs, then

suddenly it's going to become the focal point of many traders as to whether or not we have that move up to 36, 3700 in store here in the first half of the year. Overall, when we take a look at all of the assets that we've discussed,

It is entirely plausible in my mind that the remainder of the first half of this year through May and June can be very messy and trade range bound and give false starts and that the really big moves in the market are setting up for a second half of the year story. So I really want to see that gold can follow through here on the short term or I'm going to just...

kind of push forward my expectations in terms of when a really big bull advance can get underway on that upside. Finally, Eric, let's touch on uranium here. Well, the sentiment problem facing uranium finally seems to be reversing with so much positive nuclear news flow. I still think the market is badly undervalued compared to what it's worth. I think it's still a bargain. So there's lots and lots of room for upside here.

Goldman Sachs has a research note out this week on uranium and all things nuclear, basically just echoing and saying the same things that Justin Hune and Mike Alkin have been telling Macro Voices listeners for years. Structural supply deficit crisis.

imminent, and it's going to last through 2040. It raises serious questions about how the industry is going to grow to meet demand, and it almost certainly ensures much higher uranium prices to come.

There's no denying the bull case over the long term. The puzzle to solve here is whether the next bull phase has genuinely begun. So when we look at this chart here on the Sprott physical uranium, what we can see is that we're now getting a little bit of a pause and pull back right to the 50-day moving average, right back to a 50% retracement area.

If in fact uranium has transitioned into a new bull phase, we should see this level being defended and bought on dip. And we should see something like the Sprott Physical Trust get back to like the $23 level on the upside, right back to the

May highs and really start to show an accumulation. So I'm looking for technical evidence that the buyers have truly come back in this market and that it's the, and the continuation patterns will be there. If that's the case, this one plus year bear market decline in uranium may be over. And this is the biggest puzzle to solve here because the type of money that could be made here is really big.

But just getting it right in terms of when the next trend move has begun is clearly what we're trying to accomplish here. Patrick, I see you have a chart of the 10-year Treasury note in the deck again this week. Walk us through it.

Finally, let's take a look at the treasury bond charts. I have on page 7, I have the 10-year note and I have the 30-year bond on page 8. What continues to be the interesting part is that the longer duration bonds are distinctly weaker. The 30-year bond

is almost back to its 2023 low, while the 10-year is nowhere near as bad. And so we continue to see a huge steepening in this curve, and the longest duration bonds are by far the weakest. Now, we are approaching a very critical support line, and I think that this is something we can't ignore, because if we have the 30-year bond break down,

2023 bear market low as yields rip to a fresh multi-year high, the markets may start to care because something might be breaking. And whether the support line holds or not should be on everyone's radar. And this is something that will keep a very close eye for all of our listeners.

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 week's Research Roundup, you're going to find the transcript for today's interview as well as the chart book we discussed here in the postgame, including a number of links to articles that we found interesting.

you're going to find this and so much more in this week's Research Roundup. That does it for 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 researchroundup at macrovoices.com and we will consider it

for our weekly distributions. If you have not already, follow our main account on 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. And 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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