TLDR;
In this episode, Anthony Pompliano interviews Henrik Zeberg, head macroeconomist at Swiss Block, about the current macro outlook and investment strategies for the coming years. Zeberg argues that we are in a late-cycle environment, heading towards a significant market correction, and that the real economy is already rolling over, despite the euphoria in risk assets like tech stocks and Bitcoin. He suggests that central bank easing at this stage is a late-phase response that won't prevent the downturn and that investors should be cautious.
- The market is in a late-cycle environment, nearing a blow-off top in risk assets.
- The real economy is rolling over, with consumers struggling and job numbers weakening.
- Central bank easing is a late-phase response and won't prevent the coming downturn.
- A monetary reset is likely needed to clean up the excesses of money printing and speculation.
- Investors should consider gold and cash as safe havens during the coming volatility.
Intro [0:00]
Anthony Pompliano introduces Henrik Zeberg, head macroeconomist at Swiss Block, to discuss the macro outlook, the K-shaped economy, inflation, a potential big tech bust, the Bitcoin four-year cycle, and why holding risk assets may not be wise in the coming months. The conversation aims to challenge common beliefs about the market, Bitcoin, gold, and tech stocks.
Where are we in the macro cycle? [1:20]
Henrik Zeberg argues that there is no indication that we are in the early phase of a macro cycle. Central banks typically ease in the late phase due to a deteriorating economy. Recent job number corrections and consumer confidence levels do not align with an early phase. Declining short-term yields and topping long-term yields further suggest a late-cycle environment. Zeberg dismisses the idea that central bank stimulus can easily prolong the cycle, pointing to the economic crises of 2001 and 2007-2009 as evidence that stimulus is not a foolproof solution. The real economy, particularly the struggles of a significant portion of the US population to afford food, indicates a downturn that liquidity cannot prevent.
Are we getting a blow off top in risk assets? [9:47]
Zeberg discusses the possibility of a blow-off top in risk assets, noting the rapid increase in the S&P since April and the unprecedented rate of market movement since October 2022. He points out that the NASDAQ is up significantly since 2009, and the market capitalisation is at 216%, far exceeding levels seen in 2007 (109%), 2000 (136%), and 1929 (89%). Zeberg suggests that the crypto market, with many joke coins valued at extreme levels, exemplifies the current bubble. He anticipates the S&P potentially reaching 7500 or higher before the real economy rolls over, marking a late-phase environment.
Historical stock market valuations vs today [12:20]
Pompliano argues that companies today are significantly better than those in 1929, citing improvements in efficiency, productivity, and growth rates, which justify higher valuations. Zeberg counters that everything is relative to the economy, and historical valuations have rarely exceeded 75-85%, while current levels are at 226%. He questions the argument that better companies justify such extreme valuations, noting that similar narratives existed during the dot-com bubble in 2000. Zeberg acknowledges the concentration of top-performing companies but argues that technology alone does not prevent overvaluation, drawing parallels to the electrification and automotive innovations of the 1920s, which also preceded a bubble.
What happens in the next 12 months if we are in a bubble? [25:42]
Zeberg outlines his expectations for the next 12-24 months, highlighting the toxic environment in the real economy. He notes that a significant percentage of the US population struggles to afford food, and existing home sales are at very low levels. The affordability index is also poor, indicating a standstill in the housing market. Zeberg believes the real economy will eventually outweigh the impact of liquidity, leading to a downturn reflected in negative labour market numbers. The Fed will likely attempt to stimulate the economy but will be late and ineffective, as consumers are unlikely to increase spending due to high debt and economic uncertainty.
Is bitcoin 4 year cycle different this time? [29:07]
Zeberg dismisses the idea that the Bitcoin four-year cycle has changed due to ETFs and other market changes, calling it "this time is different" narrative. He believes the cycle will likely hold, with a potential top in Bitcoin within the next 50 days, possibly at a much higher level. However, he sees this as a secular top, leading to a significant crash to levels lower than most anticipate. Zeberg emphasises that the real economy rolling over will negatively impact risk assets like Bitcoin, making it a poor asset to hold for the next few years.
Thoughts on where inflation is going [33:39]
Zeberg anticipates a decline in inflation as the real economy rolls over, leading to deflationary pressures. He notes that the Fed is already late in addressing this, and their aggressive stimulus efforts will likely be ineffective. Zeberg argues that the stimulus measures during COVID-19, when supply chains were breaking down, reintroduced inflation on a secular basis. In this environment, simply injecting liquidity will not improve the outlook. He expects the Fed to try the same tactics again but find that the "free lunch is over," with inflation potentially kicking up again in the longer term.
The framework for being a good investor for the next 10 years [37:35]
Zeberg advises investors to study investment strategies from the 1940s, anticipating a difficult period to navigate. He foresees a blow-off top followed by a deflationary phase with yields coming down and the dollar strengthening. The Fed will then attempt to weaken the dollar, leading to a different phase. Zeberg suggests that hot assets like commodities, gold, and silver will perform well during the stagflationary period. He anticipates a monetary reset to clean up the excesses of money printing and speculation, establishing a sound monetary system for future growth.
What does the monetary reset look like? [41:09]
Zeberg believes a monetary reset is necessary to stabilise the global financial system and facilitate trade. This requires a stable, trustworthy currency system with checks and balances to prevent excessive printing. He suggests that gold will play a role in this reset, with Asian economies accumulating it in anticipation. Zeberg envisions a system where gold backs a new global reserve currency, potentially a basket of currencies with a digital component for efficient trading and transparency via blockchain technology.
How to prepare your investing portfolio [45:00]
Zeberg discusses portfolio positioning in a volatile environment, distinguishing between his personal approach and advice for clients. He notes that Warren Buffett is holding a record cash position, reflecting a cautious stance. For those wanting to ride out the volatility, Zeberg suggests gold as a long-term hold, despite potential pullbacks in a deflationary bust. He advises against crypto investments, citing Bitcoin's history of significant crashes and the potential for a major tech bubble burst. Zeberg personally holds risk assets, planning to sell into the final steep phase of the rally. He anticipates going long on the dollar during the deflationary bust due to a dollar shortage for settling debts.