The End of U.S. Dollar Empire? | Ash Bennington & Warren Pies
58:11 Share

Hi, everyone. I'm Raoul Pal, the CEO and co-founder of Real Vision. Here at Real Vision, we're committed to give you the best knowledge, tools, and network to help you succeed in your financial future. If you're enjoying this podcast, please take a moment to give it a five-star rating. It truly helps us continue to bring top-tier content. Thank you so much.

Welcome back to Real Vision. I'm Ash Bennington. Today, I have the pleasure of speaking with Warren Pies, founder of 314 Research. Warren, it's great to have you with us. There's no shortage of topics to talk about. And what a moment to have you on during a report recently crossed my desk that you've written called Twilight of the Empire. It's a sobering title. The report underneath it is sobering. Big picture, 50,000 foot view. Where are we right now?

Well, yeah, it's great to be back. And it is a I mean, these are the times you live for in markets. Big picture. Where are we? I think look, whether you want to technically call this a bear market or not, I'm just going to say this is basically a bear market from at the lows. And we're in one of those moments where the fears are existential. It's not cyclical. It's not about is this going to be a downturn? Yes, that's part of it. Will we have a recession? Yes, that's part of it.

But the overarching concerns center around the structure of the global financial system and how the United States fits into that and all these assets. And so we've been picking up on just very odd cross asset flows and behaviors, which tell us that there's a lot of existential and structural concerns in the background here.

Yeah, I'm going to read just from the Wall Street Journal that set it up this morning with some of these statistics here. So Monday, the Dow lost 1,000 points. S&P 500 performance since Inauguration Day is now the worst for any president up to this point, going back to 1928, citing bespoke investment group for that statistic. And Dow headed for the worst April since 1932. These are the statistics that people are looking at right now. This is where the concern is. Your report

does take this a look at the, as you say, the existential threat, some of the broader trends below the surface, the market plumbing, a cross asset, understanding what's happening underneath equity markets. You have a chart at the very beginning of this with a very sobering title. Is this the end of American exceptionalism? And this chart looks at the divergence between 10%,

10-year treasury yields and DXY, a proxy here for the U.S. dollar. Talk a little bit about this chart, what you're seeing, and why you believe it's significant. Yeah, absolutely. So we wanted to start the chart report and just kind of understand how unique, it feels unique, these moves. So we wanted to frame that up in our report. So the first thing we did was to look at over these 10-day periods,

when have we ever seen the 10-year yields up by 40 plus basis points while the dollar index is down by 3% or more? And this kind of came from a question that a Bloomberg reporter had posed to Scott Besson. She said, these are the conditions that are happening. What do you make of this? Is this a de-dollarization type of trade? And he blamed it on hedge fund de-leveraging. So we were like,

We want to see how unique this is and what the potential causes are deduced from cross asset flow. So there are 12 days that we found historically that match this trend.

off in simultaneously in the 10 year and in the dollar. And if you go through those cases, most of them are logically are risk on rallies. So usually it's coming out of a period of stress and then you are rallying on risk assets like equities are rallying alongside the sell off in the

the dollar in bonds because what had happened before that is the fear had caused people to flock to safe havens and now they're removing inequities. So that's what you usually see. And we did not see that this time, rather the S and P 500, as everyone knows was also down big over this time. So that adds another layer of uniqueness to this episode. We've just gone through. So we had just to restate 10 year down big,

Dollar down big. S&P 500 down big as well. When we go through that chain of events and we kind of filter history for that, the only time we've seen that was in the three days basically around the GFC. These were the days right after the Lehman bankruptcy in September of 2008.

So that was a real, and so then you look one more layer into that. Gold was up huge during those days back in the GFC. And again, gold was up this time as well. Hi, Raoul here.

Listen, I think we've got until 2030 before the economic singularity arrives. Now, it might not be the exact date, but it's around then. So we have about six years to figure out how to unfuck our future. I've put together a report to help you called Prepare for 2030. It's going to help you take the first steps in that journey to make sure you're secure past 2030. So just click on the link below and start your journey now. So...

What was going on then was it was just a, I don't want any counterparty. I'm worried about the entire global financial system, GFC fears. And that's why you buy gold. No counterparty on the other end of that transaction. It's the most safe of the safe havens you can go to if you think you're really going to have kind of an Armageddon type of event in finance.

This time, though, when you go the final layer down and you look at gold priced in a number of other developed market currencies, look at gold in euros, gold in Swiss francs, gold in Japanese yen, it was flat to down across these currencies over this period, which makes this set of cross-asset flows completely unique to history. We now see a picture where bonds were down,

The dollar was down. S&P 500 was down. Gold was up in dollar terms and gold was flat across other developed market currencies. When you put that mix together, it pretty much paints a picture of a flight out of U.S. assets and dollar based assets. So this was the first shift.

This was real money sellers. And the strength we saw in the yen and the Swiss franc and the euro tells me that these real money sellers were mostly located in developed markets. So that's the sobering, I think, in why you've seen so much alarm in markets and among commentators. And even if people haven't pieced it together exactly the way I just did, they can sense if you're a market watcher, you can sense something has been off.

Yeah. So let's talk a little bit about this. Obviously, trade and tariffs are very much on the mind of investors right now. Since this is driven in many ways by the view of policy positions, I want to try and give the other side of the story. I imagine if we had someone from the administration here, and we're trying to get someone shortly, their response would be that this is about resetting global trade. This is a negotiating position, and it's about understanding the flow of

of goods trade across the world. We're less than three weeks into this here. Give it time. I would imagine that would be their position. We're not there yet. They're trying to get a deal. That would be the view that I suspect we would hear from the administration. What's your response? Well, I don't have a bone to pick with the administration. I'm not like a partisan in that way. So I'm just going to say, though, that

The stated goals around the tariff policies have always been at odds. So you can't raise revenue while simultaneously lowering barriers to free trade everywhere else. It's, it's incongruent. And,

Putting that aside, really, though, the thing that I think shook confidence up for me and for investors across the world was how this tariff plan was unrolled by Trump with taking out that poster board. These were not reciprocal tariffs. These tariffs reflected a belief, if you take them at face value, that any trade deficit

Reflects us getting ripped off And that's just I think that's economic It's economically illiterate To think that way I mean you take a country like Vietnam Or you know Just much poorer countries like

it doesn't make any sense for us to run a trade surplus. What are they going to buy from us and create a trade surplus, the world's richest nation and some of these more impoverished nations. And so that at the heart of it shook a lot of confidence. And I don't think the,

since then have calmed anything down. It doesn't feel like there's a real coherent plan. I still don't think when you zoom way out, like we can get really deep into this doom fear right now and like, oh, we're going to, dollar's going to lose reserve currency status. I think it's important to avoid burying the lead. I don't think that's how this ends up. There are too many negative feedback loops that run back to the White House and back to policymakers and

uh, in the current posture that we're in that will prevent them from going down that path. I think that deals will start coming and the, the administration will have to roll this much of this back and the dollar is going to be fine. Our, our companies are still the most innovative companies, uh, in, you know, we have, uh,

The best capital markets, rule of law, private property, respect for private property. These things are the lead that the U.S. markets has over every other possible venue for those global flows is insurmountable in this short amount of time. And I believe it's going to hold. So when I zoom out, I'm okay with it.

Yeah, it's important, obviously, particularly during moments of uncertainty to give both sides of the story. And the view is for people who support the policy that this is again, we don't take a position here one way or the other. Real Vision, I don't certainly this idea of just trying to understand and sort through what's happening. And there's a view that says this is an opening salvo. This is the opening position and we're going to move to a deal. We've had Scott Besson on the show, Secretary Besson on the show here at Real Vision.

Obviously, a guy who ran a hedge fund who understands global capital flows, who understands cross-asset, cross-border flows. So you point out this idea of the feedback loop, that as this information gets priced into markets, there's a policy response. You don't just have a sort of a flat response. There will be give and take. But it is a concerning moment, obviously, for a lot of people, talking of which we talk about cross-asset. I also want to take a look at the chart on page two.

cross-asset, cross-border flows, where you're looking at post-COVID foreign equity holdings versus foreign asset holdings of U.S. treasuries. This is an interesting chart as well, if you could walk us through it. Yeah, this is just the value of foreign equity holdings and foreign treasury holdings. And so it just kind of ties, closes that loop. On the other side of this

Cumulative trade deficit is a recycling of those dollars, which once we buy goods from other countries into our capital markets. And so to me, this is the reciprocal of the trade deficit is those dollars come back into our capital markets. And so we've seen that, especially post-COVID as the trade deficit, the current account deficit has blown out.

You have both treasuries and equities. If we looped in every other asset, it's about $30 trillion total of U.S. denominated assets that foreign players own. And so it's a huge...

It's a huge number. It's $16 trillion of just equities, which I think showed me when I started digging into it, how vulnerable the equity market is. Everyone talks about the vulnerability of the treasury market. I actually think that the equity market is more vulnerable. There's much less space and much, I can identify much fewer marginal buyers for U.S. equities if we did cut off these flows indefinitely. Yeah.

But on the other hand, I think there are rebalance flows that would happen into treasuries that could actually take off, take up some of this treasury debt. And you could see pensions, which are really way overweight equities and households, which are way overweight equities move back into the debt market at, you know, 5% yields or something like that. So not to get ahead of ourselves, but this is the other side of the trade deficit. So when you close all that, those trade deficits, you know,

immediately you end up stopping this flow um of of money into our capital markets and so that's that's what we're showing here yeah and and this is it gets into the balance of payments aspect so when you talk about current account deficit the flip side of that is the capital account surplus precisely to the point you've just made yeah absolutely and uh so i think it's the uh this is why i i i really think um

You need to move. If I was going to advise the administration, I think that number one, we should identify our goals. Like, do you want to raise a little revenue? Do you also want to bring down trade barriers? I think those are, those are foreign trade barriers. I think those are good goals. The it's about, it's about how you go about that. I think a,

you know, you put a flat tariff on globally and then you work backwards and, and, you know, shore up your, any potential deals with, with friends and develop markets and trading partners and allies. And you shore up those allies before you go after China hardcore. Cause that's what it feels like is that we're at, you know, that's the one pain point. Those are, that is a country that, uh,

They do manipulate their currency and they have broken WTO rules. And so it makes some sense to try to bring China to heel. But I think you need to have – you can't be fighting Canada and Mexico and the UK and Japan at the same time. I think you got to pick and choose your battles here. Yeah. Yeah.

So let's talk a little bit about risk asset prices. Obviously, you talk about this move toward the direction of an endgame. What do you think that looks like in terms of the sequence, the process, the path to getting back there in terms of what happens to risk asset prices along the way? Well, I mean...

If I had to guess, it is just a guess. So I'm just saying philosophically what I do in a situation like this, because it's such a volatile period to try to get into like Trump's mind in particular and understand, is there an element of 4D chess here? Or is he just kind of,

going off the rock off the rails and so i don't know that and i don't have an edge in determining that so what i think you got to do is really focus on technicals and price price action history um objective indicators so that's going to be what guides me ultimately but by the way i was just i was just chuckling to myself when you said that because i guess part of the game of playing 4d chess is the perception that you might be going off the rails precisely you can get yourself wrapped in a pretzel but you might just be dealing with like uh

you know, kind of a economically illiterate old man, or you could be dealing with the most savvy, uh,

tactician the world's ever known. And then ultimately we won't know. I will never know, you know? And so, and you'll have people tell you both at the same time. My feeling is that the objectively, I think that this, this was the, not the optimal path to go down tactically, even when you just state the goals out top, like I said. So what I think is going to happen is we're going to have a series of deals. You'll probably see Japan and Vietnam come first.

It's not just like there's a lot of people say, oh, we can't get a trade deal done in nine days. It's not going to be a whole finalized deal. It's going to be a deal in principle. It'll be outlined. It'll create the framework that will, you know, other deals will fall into place with where ultimately tariffs settle. You know, I think some kind of 10 percent ish across the board is what we're looking at.

depending on how much give there are from trading partners to get that down. But that's a palatable level of tariffs. Ultimately, everyone can him and ha over it, but 10% would have been fine out of the gates. I think the market would have digested it and moved on. And you could have built it as like, Hey, this is a way to pay down our,

to help our fiscal situation, give us more fiscal space, which is obviously needed in the United States. But this is the fascinating thing about this. This is kind of the paradox, right? Which is on the one hand, markets hate uncertainty. Everybody knows that. It's the oldest truism in markets. And on the other hand, the only way to negotiate to get deals is to

add some layer of uncertainty, because if your adversary in the negotiation or counterparty in the negotiation knows what your position is at the outset, then it's very difficult to get a better deal than you might have gotten just by by by making the statement and saying, here's where our break positions are. Right. And nobody wants to do that. This is the this is the weird game theory point and counterpoint that we find happening in in in global markets right now.

Yeah, I mean, this was something that my research partner, Fernando, and I talked about leading up to this announcement. And Fernando in private had said, wouldn't it be great if Trump had a spreadsheet where he put every country's tariffs on that spreadsheet? Like, and just said, this is what they tariff us that this is going to be our new tariff rate. And nobody would have gotten upset with that. And so I, you know, I think that, yeah.

When he first pulled that poster board out, that's kind of what we thought was happening. Then the numbers were totally disconnected from reality. And so I think it is a matter of what we, we have a certain amount of leverage, a lot of leverage. I think Trump has believes that in the United States, it's a matter of, um,

kind of defining what that what what you want out of the deal and making it a realistic ask uh and when you go too far and you overplay your hand like this i think it actually lowers your leverage because you're you now have this kind of uh collective that's turning against you um and so i think he's overstepped his his bounds um if that was if this was some kind of

tactic to just act crazy or act unreasonable in order to anchor people up here and then bring them back down. Yeah. And anchoring strategy. It is very interesting and very difficult to know. I mean, the one position that I feel pretty strongly about right now is that, look, it's the end of the first quarter.

We don't know where the game is going to go. Could get worse, could get better. Unknown and maybe to a certain extent unknowable. But having you in here to walk us through some of your views, because you've done the research on the data, as you say, when you find yourself with this uncertainty, the one thing that you can rely on, you always have a price. You have a price. You have a price history. You can put those things on a chart and you can look at it against other assets and try and get a sense of...

where these things are or may be going. Let's as we as we as we walk through this, you have a you have a chart here. And this is just on page 11, where you you walk through de-dollarization scares. This goes back about 18 years. Tell us what we're seeing here as you as you because you have it's a really interesting chart because of the way it's structured with these with multiple columns. You can look at 10 year yield, dollar index S&P 500 and

and gold, along with some other cross currencies on this, when you see a chart like this, and you see where we are today at the bottom of the chart 2025 411 410. Talk us through what you see when you look at this table.

Have you ever wanted to trade Bitcoin but haven't dared try? With Plus 500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo. See a trading opportunity? You'll be able to trade it in just two clicks. Feel ready?

Thank you.

Experience the fast, accessible futures trading you've been waiting for with Plus 500. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500. It's trading with a plus.

This is exactly really just the visual representation of what I laid out at the beginning, which is showing how unique this price action has been, which I think is showing there's real validity to the fears that are out there in markets. This is an existential fear that if we did drive into this isolationist type of situation,

that there are real negative results. The area that I think, again, just going back to what I laid out at the beginning of the conversation, the area of the chart that I found interesting was over this 10-day period that we're measuring gold priced in other currencies. That's in the bottom right-hand corner. You could see gold, I think it was in the Swiss franc and in the yen and in the euro was flattened down. And that was what makes this such a unique situation

And there was this concern. The reason we did this was there was a concern or a thought or a theory from Scott Thessant that this was a – this sell-off in treasuries was really about a hedge fund, relative value hedge fund unwind, basis trade unwind. And this tells me it's – that's not –

We didn't see that in open interest for Treasury futures that I would have in a way I would have expected if it was just basis trade anyways. But this tells me there were real money sellers. They were likely not China either. That's the other thing is we had a there was a fear out there that China was doing this retaliatory selling of U.S. Treasuries assets.

in response to the new tariff regime. And I don't think that was happening either. First off, it's very counterproductive for what China's trying to do. If they were to sell our treasuries in mass, it would push, it would pressure their currency higher. And that's obviously one of their goals to keep their currency artificially weak. So when I go through all the options, basis trade on wine, treasury reactive selling from China,

like punitive selling from China, or just did we see real money stop moving into dollar assets from other developed markets? And that's what I think this table shows. That's what the evidence shows, that US investors in Japan and Europe were ultimately sellers of dollar assets during this period of time, during this weird risk-off de-dollarization period.

Let me just ask you this while we've got the chart up on the screen. You mentioned gold and CHFs, which, Frank, that dark maroon color, this down almost 3%. Explain why that's significant. Just walk us through the specifics, mechanics of that trade. Well, I think the most important, what I take away from it mechanically, I don't know if this is where you're going, but what I take away from it is

you see all of these dollar-based assets. And most, we already went through treasuries, the US dollar itself as an index, and then S&P 500 all down. Then you see gold in US dollars up huge, but Swiss francs versus gold in Swiss francs down. What that tells me is that there were

Swiss francs coming home. So Swiss investors selling out of the first group of assets and moving back. Press

Pressuring up that currency, pressuring up Swiss francs, pressuring up Japanese yen, pressuring up the euro as they repatriate, they get out of dollar based assets and move back to their foreign markets and they have to translate into their own currency. And that's creating pressure in their currency. And so therefore, we're able to deduce from that.

This kind of flow that was happening, this real money foreign selling that was happening in our markets over this period of time. And so I think it's a really important signal. Like if you go back to that table and you look at all the other periods, especially the GFC, when you had this combination where you had treasuries down.

Dollar down, S&P down, gold up in dollar terms. Gold was also up in all those other currencies. All those other currencies were still moving into gold. They were getting out of financial assets. Gold, one true counterparty free asset, not happening this time. It wasn't a fear about the overall financial system. It was a fear about the dollar-based assets in particular.

So essentially, these are Swiss franc and yen coming home. It's not that it's a pair trade where they are selling gold and buying the currency. It's just the repatriation. So you're seeing the price of the foreign currency rising faster than the price of gold in terms of that local currency. And you're seeing that's why you're seeing that delta there and those relative underperformance of gold 2%.

to the local currency in Switzerland and in Japan. I know this gets complicated. Yeah, exactly. No, that's exactly what it is.

Yeah. And then the point, I guess the next level point is that these are real cash money buyers and sellers. This isn't a mechanistic phenomenon that you see for an unwind of the basis trade, the idea that you're offsetting on the basis trade specifically here relative to US treasuries. Yeah. If this was just a bunch of hedge funds that were levered up and then forced to sell

You would have just seen open interest in Treasury futures fall. We didn't see that. You wouldn't have seen this kind of action that we're showing on this table. It would have been more of this innocuous deleveraging. And that's what I think the hope was during this whole trade. And I'm not saying there weren't some relative value trades getting unwound in here. The marginal buyer of Treasuries has been U.S. hedge funds.

who levered those positions up quite extensively over the last 10 years or so. But that's not what I think was happening. I think that the real gist of what was happening, this was a real money selling treasuries, real money selling U.S. assets. And I think it's important to look at that, to understand that's the first whiff of what could happen. Now, I do not think this was like a...

true structure. Now the argument is, is this structural? Will this continue happening? Look, if these guys really were like, I can't be in dollar assets, period, you'd be limit down every day in the S&P 500. Like that first chart we went through showing foreign holdings, like we would, there is...

no marginal buyer to sop up that, that kind of selling if that's really what was happening. So it's at the margins. I, it is not a full capital R reallocation at this point in time. It's just a cooling is what I'd say, a shot across the bow. And I think it can be, I think it can be fixed obviously, you know, because the motivations are there for all part for all parties to fix it. And, and there's much to be, um,

much benefit from the current system, but it was real money. For this moment in time, this was real money and it was unprecedented.

I also want to go to this chart on page 12. And this maybe is a measure that gives you a sense of perhaps the pain and the perception of the pain here in the United States. This is the U.S. equity holdings as a percentage of household financial assets right now. There you can see it upper right hand corner, top right, all time high.

Yeah, if you were to, so again, I, I'm lean, I'm leaning offensive just to be clear. I can, you can get really bearish and just pile on the negatives in these periods. My view is that when we get through this, there's going to be a nice buying opportunity there.

And that's what we're, but you have to create the fear and the selling. Now, on the other hand, you don't get that without a real scary story that's being discounted somewhat, at least part of it is being discounted in the market. And if I was going to construct the very scary story, you'd start with what we've already talked about, that foreign money is now

leaving U.S. assets and U.S. markets, specifically equities. And we showed how much that foreign investors have gobbled up of U.S. foreign equity markets. Now, the other side of the scary story is who would pick up the slack? U.S. households? This chart's showing you that U.S. households are

already stuffed to the gills with equity exposure. This is why I'm more concerned about equity prices under a true de-dollarization scare versus treasuries. Because if you looked at this same chart, U.S. household treasury exposure is actually pretty low versus history.

And then there's another chart in this report. I don't know if you have it or not, but we should look at pension funds. Pension funds during this low rate regime have dialed up their equity exposure too. So I think pension funds are like at about 75% equity versus debt. And we know that once rates get up to about 5%,

There's a huge incentive for pension funds to rotate into debt assets. There you go, that charges. Yeah. So when you put these pieces together, what you see is that if we were to change this system of structurally creating dollars and foreign investors that then come back and are recycled into our markets, right?

There's a lot of downside for U.S. equities in that scenario. If we were really to push forward with this, because there isn't a natural buyer to take up that slack, you would need, I think, much lower prices to do that for price discovery there. U.S. households are already at an all-time high for equity exposure in pension funds, also at an all-time high for equity exposure. So it's a scary...

It's a scary prospect. I think we have to look at it. Like my view is that again, in recognition of all that negative stuff in the bearishness there, my view is that this current system is not done and that these deals will be, if anything, maybe trade gets a little fairer, hopefully coming out of this. And, but the, the,

The ultimate flows in the system will continue in the recycling. The foreigner who end up with us dollars are going to want to move into our equity markets because we have structural advantages. We are the leader in AI. We have been innovators. We have private, we have property rights. We have rule of law. Those are the things that make our, our capital markets so attractive. So it's,

We're looking at the bearish, very bearish setup here, but I'm not ready to embrace it.

Yeah, certainly much to be bullish about in America. And by the way, to precisely your point where you said earlier, look, if this were an unqualified catastrophe, we'd be limit down every day. I mean, here, as we film live Tuesday, April 22nd, about 1030 in the morning, I'm just looking at the numbers on my screen right now. And it's a lot of green for U.S. equity markets, essentially the Dow, SPX, Nasdaq, Russell 2000. They're all up between one and a half to two percent.

Yeah, I mean, it doesn't, we were down big yesterday. Some of this price action, like I still don't, I'm not ready for a V bottom in the markets personally. Like I said, we're going to follow our indicators. So we've seen depressed sentiment. We now need technical confirmation. The average bear market bottom is, you know,

you see retests and chops at the bottom. And I would expect that here because I don't see a lot of stimulus coming. That's where you usually get the V-shaped bottoms in these bear markets where policymakers pile on the stimulus for doing zero interest rate policy from the Fed plus QE plus fiscal stimulus. That's how you get V-shaped bottoms. Like you've done some damage here and you probably need to repair that. And that's going to,

manifest as a choppy price action with some big up days and some big down days over the next few months. Yeah. Listen, we've got some live questions pouring in right now. Let me hit some of these because they're really interesting ones. Our first one comes to us from one of our regular viewers, Paul E., who wants to know what other countries are you bullish on for 2025? And he gives you a menu to choose from Greece, Poland, Argentina, Spain, Chile, anything. I mean, I think I would be...

We are really U.S.-focused investors, and so I don't have a big list of longs. But if I was going to, number one, I think you want to look for commodity consumers. And I think that this is going to result in maybe us trying to strengthen the alliance we have with some of our best trading partners. So Mexico, potentially India. I know India's had a run.

You throw Argentina in there, there seems to be a burgeoning relationship between us and Argentina. Those seem like three good places to look. I know China is a popular pick. I'm

I think there could be a lot of damage coming out of this for China still. Um, so I'm, I'm not looking to, uh, go down that path, honestly. So I'm looking for more, I'm looking for the U S to come out of this and the current system to stay intact. And so, and also, you know, there is some, I think there's a trade still going on, on the Europe with, especially on the DAX with, uh,

with a new a new wave of defense spending coming out of some of the trends we're seeing there's probably some legs to that so but structurally ultimately my honest opinion i want to be long america coming out of this i think that america's selling off relative to all these other countries is gonna we're gonna look back at this as a gift uh

Ultimately, when you zoom way out, like we're getting a chance to buy some of the best companies in the world at a discount. And so that's where my focus is. Ultimately, here's a question that speaks directly to that point. This one comes from Willem. And is this a good headwind for the US energy build out? Or might this be a good time to allocate to NASDAQ 100 utilities and energy?

I think yes, in general, we're getting closer. I think yes, on the AI front. I think there's some AI concerns built in here. But I've always said these hyperscalers that are the Mag7 that's being really picked apart here. Set Apple aside maybe because Apple's its own thing now with all the stress in China. But the other hyperscalers,

that are definitely being sold here, I think you're starting to have some value emerge. Those are still, these are the buyers. So if the cost of AI is coming down, which is kind of what we expected and what we've been seeing in these buyers, these consumers buying,

of the GPUs are going to benefit. And I think a CapEx can maybe levelize and maybe even come down and some of the improvements can still be there. So yes, that's a long way of long-winded way of saying, yes, I like the mag seven. If I'm starting to look places, utilities,

Yeah, maybe I'm less excited there. Energy is a totally different story, but we are starting. I've been an oil bear for a while. We need to get through this and understand, you know, you don't want to buy oil right before you go into a recession, which I think our recession odds have gone up significantly here, but we're getting much closer to a place where I could say,

Getting long oil again is a in oil specific beta stocks is a good place. So that's a little farther away. The closest here is AI and NASDAQ as a buy. And, you know, I think down the road, we'll see a good opportunity for oil and natural resource stocks.

This is kind of funny, actually. I'm literally just reading down the questions in the chat in the order that they are, and it's like they're perfectly sequenced. So coming off that answer, this is a perfect question for Mignazio C., who wants to know, what's the technical confirmation that Warren is looking for to get back on U.S. stocks? So if you see that case, what is the technical confirmation that you're looking for to validate that thesis? Well, number one, so I'll give you kind of the one that's more obvious, and then there's some stuff that I don't think we...

talk exactly about it in, in public. Cause we want to keep some stuff under a hat, but number, the first thing would be a, a retest. We've had before this, take this case out. We've had 18 bear markets, basically, you know, 18, 19 plus percent declines 13 of those 18 bear markets. You get a retest of the initial lows. And so basically,

I'm looking for a retest. The retest usually comes between, like I said, one and a half to four months from the initial lows. So if you say we had made the initial lows in mid-April, we should be on watch anytime from June through into August for that retest. If we go back in time, the last 10 bears starting in 1987 retested.

Retest in every one of those cases, 87, 1990, 1998, 2002, 2010, 2011, 2022, all had retests, no retest in all.

2009, 2018 and 2020, 2020, 2009 were big stimulus years, which I don't think you get retest as much, but we're not in that case. So all the evidence points to a retest. Most of those retests I just rambled off. You break marginally lower.

From the previous like 3% or so from the previous lows. What I want to see is that retest, see the retest hold and maybe get some bullish divergences at the same time. We've already got sentiment in place for a bottom. I want to see that. That would be my ideal setup. The other stuff we have are some, what I call bottom spotting breadth thrust indicators where we're looking for a, a big short-term rally with some other things piled in there,

um, in, within your, the broad market. And you want to see a lot of participation there. And, uh, if we were to get one of those, there's those, those, they're very rare. Uh, the ones that we're looking for it, but when you get them, the, the forward returns, uh,

are very good. And so that's what I'm looking for is like, we have our checklist. We want to see that retest. We want to see bullish divergence. We want to see bread thrusts when those things happen. You know, usually if you go back, we break all this stuff down for our clients and stuff. If you go back, our signals probably hit,

when you're about 7% from the bottom, we don't really philosophically catch the bottom of the way we do things, but I think it's a much better way to navigate these situations. So, you know, you're going to, if you just try to buy eat new lows, that's where you can really get chopped up and still catch a falling knife type of situation.

My advice to the listeners is that you create your own little checklist, your own little framework for what a bottom looks like. And you follow that. You have depressed sentiment, technical confirmation, and that gives you the signal to buy. And so that's how we're navigating this. And like I said, when we quantify it, you're up. If the low is 4,800, it would probably be...

back in somewhere more like 5,000. But if you're catching the beginning of a new bull market, you'll never miss that 200 points. I want to shift gears here and talk about something else. It's somewhat tangentially related to this because I just found it really interesting. This is a chart on the bottom of page 13, where you look at the price of gold versus GLD fund flows, which have significantly lagged the rocket ship that has been the price of gold. Any thoughts on that?

We've been big gold bulls for a while. So I think we were, we came into 2024 saying like, this is the year where we break out to new all-time highs. And we thought that the secular bull market had started. And one of the, some of the things we looked for was when we made a breakout, we saw a gold breakout number one and an equal currency basis first. So this was back in a strong dollar days. So back in 23, we had gold breakout in equal weighted basis and,

And then when it did break out on dollar basis, we saw GLD flows were pretty depressed, which is different from we had went through these periods where we were chopping around in gold for years, looked like we're going to break out and it was just the top of range. And every time GLD flows were at

were spiking. We saw gold breaking out first on an equal weighted currency basis, then on a dollar basis. And when it broke out on a dollar basis, we hadn't gotten that retail participation. So it made us really confident in 24 that we were going to have this massive breakout in bull market starting. The other thing we saw in 2024 was gold had its best year despite

It was an odd year where you'd never seen gold before.

when the dollar index was up this much and when real rates were up this much. We plotted it, a couple scatter plots over history, annual return and these other metrics. And this was like an outlier year. And the only time you see that is at the beginning of a secular bull market. What it tells you is that gold's breaking from its normal drivers. It's going up despite dollar strength. It's going up despite real rates,

moving higher. That means there's some whales back there buying it. Central banks, post-Russia, Ukraine, central banks had started to this very early grumblings of the trade we're talking about here where

These central banks wanted to diversify their reserves and gold is the logical place for that diversification. So we saw these things in the data way back when. And I think that you're now seeing that blow off, which we've been saying when gold gets into a secular bull market, it's like a runaway freight train and you don't want to stand in front of it. So we've been like max overweight gold for a long time and we're still max overweight gold.

And I don't see the evidence that retail has piled in yet, that U.S. retail has piled in yet into gold. I've heard rumors of China retail buying and things like that. But I think that you really don't want to be anywhere near cautious on gold in this environment until recently.

You see U.S. retail pile into GLD in a way that we're not seeing yet. So this is just 200. I believe on this chart, we're looking at 252 or 126 day flows, cumulative flows in the GLD. And it just doesn't look anything like you can see. You can go back and see that previous peak and following COVID. We don't look anything like that. So I think there's still legs to this run.

And is that where you see ultimately the, the, uh, retail piling in, would it be into the ETFs, GLD and others? Yeah, I think it's the simplest, uh, way to, to, to, to, to get at that. Um,

Yeah, you might see some of these other metals. We could track other flows and other metals, ETFs too. But ultimately, I think it shows up in GLD. On a 21-day basis, we have this chart on a 21-day flow basis, and it's spiking a little bit. But that's why I wanted to zoom out and be like, okay, we're at the early stages of retail accumulation of gold. And so with central banks buying and all these other secular macro tailwinds kind of building up, if you –

have some retail buying it just pours gasoline on this bull market yeah let's have as i'm always compulsively googling charts i'm one of the big gold investment sites and i'm looking at the canadian uh gold leaf a one ounce price 3566 by check or wire priced in bitcoin 3603 that's really interesting so literally have sites are saying hey you got you got bitcoin we'll give you gold

Yeah, I mean, that was one of the if you want to make a bear case for goal, I think it was that maybe Bitcoin steals some of these flows. But it's just been one of those crazy times where they both can go up together. And yeah, I mean, you can swap one for the other, I suppose.

Man, Bitcoin has had one hell of a last couple of days here. We're trading over 90 again. And boy, I saw this morning, I was Googling and searching decoupling. You see it's decoupling everywhere. It's the word popping up in news stories. How's that for a sentiment indicator? Yeah, no, I think that, I mean, the idea was, and we had some charts on this, is that Bitcoin had been a great diversifier during market rallies.

over history. We'd never seen a period where Bitcoin had diversified portfolios during equity market weakness. So specifically, you get NASDAQ tech stocks selling off, Bitcoin falls on the way down. And so now you had periods where Bitcoin could sell off and the rest of the market could go up. So as an allocator, you kind of like that because it's a non-systemic asset and it's uncorrelated in that way. But the final part you want is to see

Bitcoin able to hold up in the face of structural equity market weakness. And I think we're finally getting that a little bit. So it is a, it is a very positive development for Bitcoin. I think you get more allocators on the train and,

If you see, if we come out of this and out of this episode and you can say, hey, I might have, you know, I'm not just replicating NASDAQ exposure with my Bitcoin on the downside because all we really care about is what happens at downsides. Do correlations just go to one? You know, is there anything that diversifies your portfolio, especially when bonds and equities are selling off together? So this is a nice test case for Bitcoin. And so far, I like how it's acting.

Yeah. And by, and by the way, that's always been the dream of Bitcoiners is that it's not only not correlated, but inversely correlated that it becomes essentially a fight, a flight to quality asset that's decorrelated to paper assets. That's the view that's, that's always been the, the, the, the, the, the Holy grail. And, and we saw in, in, in many past bear markets when you NASDAQ went risk off, the correlation was, was one. And, and,

The hope is always that this for the Bitcoin world is that you will see precisely that type of decoupling that that we see some a little bit, a little bit of evidence. Yeah. Yeah. And I can say like in our fund, we are our ETF is a systematic asset allocation ETF.

And that we've we've been running a max overweight in Bitcoin and I've been nervous. It's a systematic fund. But personally, I'm looking at it knowing that, OK, if markets fall apart, we should expect Bitcoin to fall apart. And so I'm pleasantly surprised as an investor and I need to be more people who come along for the ride.

Let me ask you this. Anything we've missed here? Any other important points? I know that you look at this cross-asset, cross-border. Lots to cover here. Anything else that you're looking at right now? I think we covered it pretty well. The number one thing we didn't talk about, we talked a lot about the secular bear case and things like that, but a few things from a sentiment perspective. We measure sentiment from

Retail, we like to look at inverse ETF volume. It's been pretty low, pretty pessimistic. So that's good. That's bullish. Vol targeting funds, which have de-risked aggressively during this bout of volatility, as you can imagine. So we model that out and it's getting to a place where you'd expect for a bottom.

CTAs who are kind of trend followers and trend following component. They are also in our, according to our models, net short. So when I put this sentiment together, we're in this place where, you know, I know we just defined this very secular and we've had some foreign outflows. So we've had a lot of selling. We've had de-risking institutionally. We've had pessimism in retail.

So, like I said, I think we should chop a little bit and build a base. But the sentiment side of the equation looks good. We just need that technical confirmation. And so that's the that's the good news. And we didn't talk a lot about good news, but, you know, fear sells a little bit more. So I understand that it's more interesting to us. We all like to be scared a little bit.

Follow through on that case, though, on when you talk about the bull case, what could you see? Obviously, you mentioned sentiment indicators. Talk a little bit more about how that sequence might play out.

Well, I think that you end up with sentiment is depressed and that's the first thing you want. And then you get some positive news flow or even potentially something that's, that's ostensibly negative, but markets rally on. And then you get a technical confirmation. Like we talked about, I think technical confirmation takes a little bit of time. The other, like we, I, one other thing I'll throw in there, but I know we had a,

viewer question on. So we look at something called reset days, the amount of time in a bear market or a correction that you've reset. So if you were, you hit a low, how far back on the calendar do you have to travel to see that last low at the lows here? We were at 242 days. The, the typical, the,

bear market, the median bear market is about 400 days. So that'd be like in market terms, that's like a year and a half, 252 market days in a year. So we've only gone about one year back. So we're still, I think early days on the technicals, but we're in the right spot for sentiment. So we chop here, you know, we establish a base, maybe we retest,

successfully with some bullish divergences. This all plays out over a matter of months. Cinnamon is low as much as it's depressed right now can stay depressed. You know, it doesn't mean that it's like it can't stay here for two months. It can stay here for two months and you can draw down 8% from there. It can feel really nasty. But when you zoom out, when you not monitor your, you know, your one year, six month performance patterns, they're, they're good. And a lot of our sentiment stuff, we'd like to see it go down and then start coming back up and

And so we're down. We need to start seeing it come back up. We need to see the technical confirmation. And so what would be the thing? It could be any catalyst. It could be the obvious one would be some kind of a deal. Japan deal happens. The, what I'm watching right now is we get a Japan deal or a Vietnam deal. And, and then what does the market do? You want to see the market respond positively, obviously. And maybe everyone's like, well, no,

No, no crap, Warren. That's what the market does. It's going to respond positively. But what I would say is that you could very well be in a position where you get a Japanese deal or something like that and the market tries to rally and then sells off. It's not enough for it for some reason or another, or it gives you a head fake. We're going to get a lot of information from that. So I want to see that first deal and then I want to see how the market moves forward.

Cause maybe what the market is saying at that point is we've, we've done enough damage to the economy that we now have to discount a recession. So I don't think we've discounted a recession in this decline yet. And so that would be the next leg down. And so those are, that's the, the, the sequence there's, it's all about these paths that we could travel, but you have to have kind of your indicators lined up and know what you need to see to pull the trigger and philosophically know that

uh yourself as an investor like some people want to try and buy the lows um i want to buy right after the lows um and just because i'm okay with that and my clients know that's how we approach things well it's always a compelling and interesting conversation when you join us where i want to give you the opportunity here to do final thoughts key takeaways from this wide-ranging conversation yeah my takeaway is that there's a lot of fear out there and it's legitimate i don't want to wipe i don't want to

you know, brush it off. Like, and we went through that. It's legitimate fear, but I think the system holds, you don't get 20 plus percent sell-offs in the equity markets without legitimate, scary stories floating around. This one's a legitimate, but we're going to get through it. And I think ultimately on the other side of this is a, is a good buying opportunity. It's going to be one of those dips. When you look at the long-term chart, you're going to wish you bought just a matter of when that is, is it in a month from now, four months from now,

Only way we'll know is by watching markets and taking our signal from the markets. So that's my closing thought. Fantastic conversation. Warren Pies, founder of 314 Research. That's it for now. Thanks for watching. Thanks for listening, everybody. Have a great afternoon. If you like this episode, I'd love for you to head over to realvision.com forward slash join for a free membership. Start your journey today to unfuck your future. Just one click away.

Have you ever wanted to trade Bitcoin but haven't dared try? With Plus 500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo. See a trading opportunity? You'll be able to trade it in just two clicks. Feel ready?

Thank you.

Plus 500. It's trading with a plus.