It’s Not a Fed Put, it’s a Fed Short Call! And more inflation thoughts with StoneX’s Vincent Deluard

In this week’s episode, Jeff talks with StoneX’s Global Macro Strategist, Vincent Deluard @VincentDeluard, who authors weekly research reports on global macro trends, asset flows, European capital markets, and quantitative topics. We catch him literally right after the Fed hikes 75bps, and learn quickly that Lagarde was an accomplished synchronized swimmer and that having a French accent sure helps selling “French” wine in China. But what about that Fed hike? Are we saved? Are we doomed?  Who’s got the cleanest dirty shirt in the global economy this time around?

In this fun chat, Vincent talks about inflation, deflation, stagflation, and even some greenflation….but don’t insult him by saying he’s an economist. He’s a researcher, making calls and taking stands. We dig into his early inflation call, what different Inflation hedges look like, his unhappiness with Silver, commodity supercycles, the ticking corporate debt timebomb, a potential short squeez to end all short squeezes in the Japanese Yen, and so much more! Vincent also gives us a hot take…that the real pain yet to come?! Yikes..except he does it all with a smile and charm. SEND IT!




Check out the complete Transcript from this week’s podcast below:

It’s Not a Fed Put, it’s a Fed Short Call! And more inflation thoughts with StoneX’s Vincent Deluard

Jeff Malec  00:07

Welcome to the Derivative by RCM Alternatives where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Happy Flag Day week everyone. Flag Bay was in here this week Sunday I think not sure when. But we’ve got some banner guests coming up on the pod See what I did there, headlined by Nancy Davis. We talked a bit about tips on this pod and I literally know next to nothing about them so excited to hear Nancy do her stuff and join us on the show. Onto this episode, which was as much fun as I’ve had with a Frenchman since well, it’s a story for another time. We’re talking with stone X’s global macro strategist Vincent deadly Warren. Covering inflation, deflation stagflation green inflation, I should have brought up, shrink flexion and hit for the cycle. We get into the Swiss milkshake JGBs global demographics when nothing gets done in 2022 and recorded right after the Fed hike 75 pips it was a bit of fun to hear his first thoughts live. It’s a good one, send it This episode is brought to you by RCMs China group. We talked a bit about China in this pod. And you know who’s been on the ground in China for years figuring out their derivatives markets are since China group which has Chinese investors looking for and funding Western trading talent. To learn more visit our And now back to the show. All right, so we’re here with Vincent Deluard. did I pronounce that correctly?


Vincent Deluard  01:44

You pronounce it well enough. I’ve been here for 15 years. So I’ve heard a lot worse.


Jeff Malec  01:49

Well enough. And where your French originally?


Vincent Deluard  01:53

Yes, I’m French. I’m from Burgundy. Us About 16 years ago.


Jeff Malec  01:59

All right. Are you big Tour de France man.


Vincent Deluard  02:01

I was when I was a kid. I I mean, I have, you know, the whole doping stuff. I mean, it’s been a it’s been a bad few years. But when I was a kid, and I did not perceive any of that, I just saw the guys on the bikes and, and the landscape. I mean, it is it is one of the greatest races in the world.


Jeff Malec  02:17

Would you go watch?


Vincent Deluard  02:19

yeah, I mean, it didn’t go through my hometown a lot because it’s not really the mountain. So I will go in the opposite of Piran is like the, you know, the bigger calls like you know, when they have to like climb up. I mean, it’s very, very spectacular. And I like the atmosphere, as well. It’s a very popular feast.


Jeff Malec  02:38

Yeah, become addicted somehow here in America. So I spent coming up here in July, I’ll spend most of my July watching hours and hours of the television till two in the morning. Right now just record it and fast forward through it and catch the scenery. So it’s on my bucket list to go actually check out a racer,


Vincent Deluard  02:57

I think you you should make a trip out of it. It’s an experience, you know, being being on the spot.


Jeff Malec  03:05

And speaking of Burgundy, so some nice wines from there. I heard so yeah, that’s the rumor. And then I think you have a little bit of experience with doing some stuff in wines. What’s your wine link backstory?


Vincent Deluard  03:20

Well, really the my main qualification for this is that I look pretty French. And I talk pretty French especially 20 years ago, when I happened to be in China, I was doing the English teaching gig back then that was a big thing. It was just opening up. And then because of the way I sound, I was approached by someone who was supposedly selling French wine, do hotels and restaurant now. I only suspect that it was not really like kind of prove that. But I think I was hired mostly to look French and go to dinners in weird second tier cities in China. You know, that’s about 20 years ago that was just after the SARS pandemic so at the time like this was really different country and and my job was mostly to to get a glass of wine. Look at it in the sky. Make some absolutely absurd comment like oh, we taste of mushroom and butterflies and you know coconut and pineapple and then taste it in the most noisy way possible. And then all the guests would do at this time. You know, this one was just starting in China. So just get on Bing and just drink the whole thing in one shot. So that


Jeff Malec  04:41

you take you must have pasted it. So did it taste legit. Are you not so much?


Vincent Deluard  04:45

Well, after a few glasses. Great.


Jeff Malec  04:53

So maybe it just had been some somewhere around France? Yeah, I


Vincent Deluard  04:58

would think so. It was actually probably Moldova based on the people that I’ve seen around. And it’s a small country in Eastern Europe, which is probably next on Putin’s list. But they do produce wine, I think by the cheapest space, you can buy grapes, and then put them in a bottle with a French label on it, which I suspect what was going on.


Jeff Malec  05:17

And then did you speak Mandarin and you speak Chinese at a time?


Vincent Deluard  05:20

Very, very poorly. But it was a great source of amusement for my guests.


Jeff Malec  05:27

They like say something about wine and in Mandarin. Awesome. And so then you made it from there back to France or straight to us.


Vincent Deluard  05:36

Yeah, eventually back to France. And then I was fortunate enough, my school had a dual degree with Columbia University. So I got into that brought me to the US in Oh, six or seven. This was, you know, preweighed. So if you could open up an Excel spreadsheet, you could call yourself a hedge fund analyst. We wish I could do any I’ve been doing research ever since. And, yeah, it’s, you know, funny how the ways that life takes,


Jeff Malec  06:05

right. And so now, where are you located around California?


Vincent Deluard  06:08

Yeah. Oakland.


Jeff Malec  06:10

Oakland. All right. So you’re rooting for the Warriors? Is that game tonight? When’s the last game? You know, you game six.


Vincent Deluard  06:17

I am more interested in the Tour de France than than the NBA basketball.


Jeff Malec  06:20

Okay. So we happen to be recording right here at 1pm. Central, which is right about exactly when the Fed just announced. So let’s do a little live fed report takedown, if you don’t mind for a quick second. What did they do? They were talking 50. I


Vincent Deluard  06:41

can’t buy 50 surprising the market? Fine. So I think he said would you fly it up these points? That’s, you know, pretty much pricing of 100 certainty. Yeah. And rates at Wow. 3.8? I think that’s a little higher than then people expected.


Jeff Malec  07:06

3.8, is there,


Vincent Deluard  07:07

a need for the terminal rate is what I see on the Bloomberg seems to be high. I mean, for me, it’s pretty low. But I think where the market was going to be pretty high. Let’s see how the market reacted. 10 years up to your two year was down and then shot up stabilizing? Yeah, looks like you know, not too much drama, which is probably what they were aiming for this point is, you know, no news is good news.


Jeff Malec  07:38

Yeah, some people are crying for just do 150 Get it over with? What’s your thoughts on the whole get it over with phenomenon?


Vincent Deluard  07:46

Well, I mean, I get the idea. I think the logic behind it is, you know, if you are, if you have very few cord injuries in Uganda, you might as well just shoot them all at once the beginning to make a big impression. I think that’s the idea. Now, of course, the problem is that after that, what do you do? I think that phenomenal problems, the 30s. You know, they can I mean, they missed it, they missed it, that there is no other way to say I mean, I and I’m not talking about like the pandemic stuff, that was fine, buying high yield bond or whatever, you had to do what you had to do back then. But, you know, up until last month, for God’s sake, they were buying mortgage backed securities with the kind of inflation we had the transitory stuff. So, you know, they, they missed it by about 12 months now. And they have to make it back. And there’s probably only so much we can hike without seriously breaking things. I think we are in the process where they start to break things. So yeah, there’s probably only a couple rate hikes they have left. So yeah, why not? You know, maybe front load everything, try to shove the market into submission, try to restore restores inflation expectations, probably isn’t the best strategy. I don’t think it’s going to work at the end of the day, I don’t think anything that they can do will work. I think inflation is secular is structural. It’s mostly a supply shock. But probably frontloading is the logical reaction to having been so late for so long


Jeff Malec  09:18

with but that didn’t do it. So we’ll see what happens. So speaking of those inflation thoughts, so you were kind of early on your inflation call versus other economists which call yourself an economist or just a researcher. I don’t know if that’s a bad word for you, economists. Yeah,


Vincent Deluard  09:41

I would prefer researcher I mean, economist economists doesn’t have any finish, right? Anybody can be an economist. That’s probably the only science or can I use science with air quotes? I don’t know if it’s recorded. Where really anyone can just show up and make a forecast and cool themselves on economy. So no, I didn’t had the audacity to call myself an economist. What I did and I liked that you said that I was earlier another word for early in my case would have been wrong. Because I was so early that so I actually started worrying about my first report inflation was, I don’t even remember Bloomberg Businessweek. In the in the summer of 2019, had a cover call the death of inflation. There was a little dinosaur and fairly dinosaur on the cover, which I thought oh my god, this is the echo of the death of equities that they published


Jeff Malec  10:30

in in 99. Magazine indicator, boom, correct.


Vincent Deluard  10:34

Right. So I went through this whole spiel of like reporting, no, it’s different inflation is not that we have always case demographic, technological, for secular inflation, and I was even pre COVID Right, and I remember my 2020 outfit was called only one forecast reflation, and then boom, COVID hits, everything shuts down, you know, all prices go negative 10, your yield goes to 50 bibs, inflation expectation goes super negative. And in April 2020, I remember looking at this and thinking, you know, this is crazy, like we are constraining supply like crazy, there’s no way we can keep everybody locked down without giving them money. So we’re going to have to like push a lot of money, this is going to accelerate so many things, you know, MMT digital transformation work from home, this is going to be the biggest inflationary shock in a generation. So I published a report in April 2020 equaled a crazy but logical call for stagflation. And I still think to this day, this is probably the best report, best title I’ve ever done. And of course, as time passed, you know, we had you know, inflation slowly accelerated reach 2%, and a little bit over it, it was called transitory back then, then it fell into the 2021, which seemed to validate the, you know, five days of deflation demographic that all of that stuff, disruption, but then came back. And I think, at this point, I, I don’t have the burden of proof like, you know, I think that the people who argue for deflation or even disinflation, are the ones who need to explain, I think that the base case should be that, you know, he’s going to be stagflation, and it’s gonna last, I think longer than people think I still think that transitory narrative is not that it’s still in the market to just kind of extended the definition of what transitory means in terms of magnitude and length. But we still have this framework that it cannot happen here.


Jeff Malec  12:27

Yeah, I think you see that with stock market prices in particular, right of like the markets down 20% Inflation is going to be debt, like this is going to snap back so far, inflation is going to fall off a cliff. And like, I’m not sure you will quite understand what it what it means in that same time you I’m paying 649 A gallon here in Chicago for gets so


Vincent Deluard  12:47

deep, man, I’m at seven.


Jeff Malec  12:50

I know at Costco when Costco goes over six bucks here in Chicago, that’s going to be that’s going to open some eyes. So, I’m interested in your take. So secular inflation versus stagflation. Just give us a little definitions there of how those different


Vincent Deluard  13:06

right so, but by secular inflation, I mean, I think the inflation cycle is probably one of the longest, you know, you have your, your commodity cycles are quite true equity cycle, around 10 years, and you know, and then Bombay inflation move very, very slowly, right. So, basically, you can think of, you know, their four year cycle really of these inflation since, you know, the Volcker fair to 1981, you know, all the way down to 21. This is this is what I’m in secular disinflation, I think we have something like that the other way, downward, like the prior 40 years with, you know, between World War Two, the Korean War, the Vietnamese War, you had like secular rising inflation, I think that’s where we are, because of demography, because of really mostly, I would say, demography, but also geopolitics. Even technology, we think we can talk about this well, so that’s the four year picture. And then you combine that 44 year with think of like, yeah, like rising. I mean, in the sense that inflation will be a problem for a very long time, like the same way that certainly outside of the US unemployment was the problem for, you know, pretty much since the end of the oil shocks within Europe, since you know, 1971, the biggest problem was not enough demand, unemployment rate. That was a problem for most of the US was a little bit better. But you know, that was a reflection of the deflationary mindset. We moved to where unemployment is no longer a problem, inflation becomes a problem and it will stay there. And of course, it won’t be a straight line. It won’t be at 8.5% all the time. You know, there will be ebbs and flows. But in general, I don’t think we’ll see a sustained period where we don’t have to worry about inflation the way it was, you know, in the in the 90s in 2016 Sundance that That era is behind us. So that’s deflation part. Now, as far as the stock goes, I’m actually relatively bullish on the economy compared to consent, which consensus is so bearish that, you know, Dag studies bullish, right, because everybody expects a recession, right. But obviously, we are coming at, uh, you know, the economy will have to slow because of the amount of tightening we’re doing because of the strength of the dollar. Because also the the, the, the difference in the fiscal imbalance, right, we had so much stimulus that, you know, just removing that is going to slow the economy. So, in the short term, you know, Stagflation is logical now, over time, I would think it could actually be a high growth period, you know, you look at the 70s. I mean, it was not that bad. I mean, there were two recessions in the middle. But overall, you know, I think real GDP growth in the 70s was much higher than it is now. So, it doesn’t have to be, I think we’re just entering a new era of, you know, the main difference is going to be inflation, and then distribution versus concentration of wealth.


Jeff Malec  16:05

And so some of this is tying in with your thread, I read a little while back on saying nothing works in 2022. And so some of these underlying themes there, which talk a little bit about what some of those underlying themes are there that you’re saying that can persist. Yeah. So


Vincent Deluard  16:23

basically, going back on inflation, I think that the main driver is demography. And this is something that people get mixed up all the time. You know, we have the Oh, the Japan I hate that word. Whatever it is sample of one. Okay. Aging is the is deflationary. Why? Because Japan? Well, I mean, my view is that aging is yes, maybe it’s deflationary. At first. When you have a lot of high income empty nesters that can save you know, when when you biggest we boomers are 50 to 60s, deflationary but you boom, when you boomers become 65 to 75, it becomes massively inflationary because you have a lot more net consumers, and you have fewer workers. And I think that’s the problem we have in the US all around the world, it’s even worse than stationaries catastrophe in Europe. So you have this kind of squeeze on labor. Too few people weren’t too many people in retirement or disable too few people working. And then you had the same time, we have a squeeze on capital as we removed the central bank liquidity. So if you think of your production function as a function of capital and labor, both things gets gets squeezed, the only thing that can save you is productivity, which you know, in standard economics is a residual, you don’t explain. So if you want to make a case for deflation, you have a make to make a case that productivity is going to spike. And indeed, I’ve seen a lot of that and, you know, people like to make fun of Kathy woods, and a lot of it I do think she has the most interesting argument for for deflation, if you want to make a case that percent are gonna go up, you have to go you know, all over the the exponential age and, and argue that, you know, our COVID is a positive productivity shock. So that’s, that’s where disagreed in that. Fred, you mentioned, I think that’s a joke. I mean, you just go outside your window. COVID is not a productivity positive event. I mean, we are, you know, making, you know, people take their temperature and stick stuff up their nose and restricting travel and creating a whole class of consultants in COVID protocol, closing the Chinese economy creating, you know, stop and go patterns. And nothing works in Korea, Korea to like, you know, and you can see that again, I was in France bass to leak, you know, I mean, waiters even worse than usual. There was a book


Jeff Malec  18:36

that says something for a French waiter. notoriously bad.


Vincent Deluard  18:40

Yes. But it is not just that it’s Yeah, you don’t have enough people to work. The people who who are working are burned out. The level of anger, rage, you can feel it everywhere in the US, of course, the political stuff, but even in Europe, and all that, to me, makes the economy kind of stickier and does not work as well. I mean, I think we look back to 2019 as some sort of a golden age, even though it didn’t feel like that back then.


Jeff Malec  19:08

Right. People seem to miss that connection right there. Same thing you’re out there. You’re with friends and they’re complaining like oh, well, they can’t get help. That’s why the food is taking so long. And these are first world problems to be sure. But right now we’re like, yeah, we can’t get a car. I ordered a refrigerator it took all this time to get there. But then they’re like, Why? Why is gas so hot? So they seem to be disconnected in people’s minds. And you’re saying even economists and other researchers minds, and papers and so many back to Japan because you hate that word I want to hammer what why was that different? Why is their demographics deflationary for them like famously So, or infamously? So right.


Vincent Deluard  19:48

So first of all, I think that the magnitude of the bubble in Japan was versus something else, right. And you remember in 89, that two pools either the Imperial Palace was worth more than all the real estate in California. So yeah, What you had to observe, right? I mean, the MSCI Japan was like half of the world’s market cap and tiny island with you know, I mean, yeah, now I feel the US is overvalued, but at least the US, Japan. So it was much bigger bubble to start with. So you had to deflate that for a lot longer than the other thing that I was specific about Japan is it’s, you know, it’s next to China, and South Korea and all of Asia. And in the 90s, what happened is the biggest macroeconomic shock in the world and the great doubling rights, suddenly, you had, you know, basically the Asian continent was kind of shut off the global supply chain should have the global economy by Communism comes in with massively undervalued currencies, in the case of China. And then, throughout East Asia after the financial crisis, rather, the dyebath, the Korean one, everybody comes in with like, depreciate the currency by 80%, as it’s very young, productive workforces that come into it, usually facial in shock. And Japan was really like, clearly on the edge of that. And a lot of the manufacturing capacity moved overseas. So this where this is where the deflationary shock came in, you had to work off that bubble, and then you had to the impact of the entry of China, to WTO. And then you have all the cultural peculiarities about Japan, it’s a massive net saving country, the corporate sector wants to save the household sector wants to save all that is very, very different from the US massive creditor country. So I think we are trying to extrapolate from a sample of one. And in general, that’s I’m not an economist, but I’ve heard something about, you know, sample size,


Jeff Malec  21:38

right. But that’s even it feels that’s the global case now, right? So that they may have been just the poster child of like, cheaper labor, and globalization. And now if we’re moving away from those two themes, you know, they moved away from it 30 years ago, and now maybe we’re seeing that in the rest of the world today. Two other items I liked in that conclusions of that where there’s no fed put. So talk a little bit about that. They’re out of bullets. What’s your theory on? There’s no fed put anymore? Yeah,


Vincent Deluard  22:13

I actually think of it more as a Fed call a Fed short goal. I think the market is obsessed about like the Fed put because this is what we’ve been bred with, right. I mean, Allison’s LTCM. Every time the market, you know, drops enough for the big enough tantrum, you know, that comes in and saves the day. So, you know, now we don’t 20% I mean, I see all these parallels to 2018. Right? Oh, look, you know, Powell back then he was also talking a big game, but eventually, you know, we can will the fed into submission, right? The repo market freezes. When did it last time, maybe here, it’s, I don’t know what’s going to do it, the NASDAQ blowing up or crypto. But there’s still this hole that the Fed will will come and save the day. I’m not sure because at this point, inflation is a political problem. And the Fed is a political entity at the end of the day. And yeah, inflation is more painful at this point than the closing price of the NASDAQ. I mean, the closing price of the NASDAQ is very relevant to people like us. But for most people, that’s just the number out there, I mean, really doesn’t register, even what matters is the price of gas, this is what’s going to make or break election and elections are what’s going to make or break the Fed. And the Fed has been late on this. So they have to double down by, you know, being extra cautious to make up for the mistake they made in the past. So I really don’t think there is a fed and I you still see that in the Eurodollar curve. I mean, if you see those, it’s kind of like March 2023, this expectation that the feds going to stop caring. I think this is kind of crazy, crazy talk at this point. What I would think though, is that we have a short call. And by that I mean that if and when the market does stabilize, or even go back up, then you can know that the Fed will just go back in and just like squeezing another 75 basis points. So that’s the more likely outcome if, if things do get better, I think that the Fed will be very happy to jump in and throw in more tightening, but I’m not sure that they have the capacity to cut or do anything to ease things. If markets get worse and influence Antrim.


Jeff Malec  24:16

I thought you’re gonna go with they’re not there’s not a Fed, long fed put on equities there’s a short fed call on energies.


Vincent Deluard  24:26

Yeah, that too. Yeah.



Jeff Malec  24:28

I like that. Because even like you said, that’s the thing people care about. Yeah. What what and as you mentioned, what are your thoughts on I agree with you even in our space, I feel like people aren’t talking about the NASDAQ bloodbath enough, right? Do you look at those aren’t list of Ark stocks down 60 to 90%. Like it feels if you look through some of those names like tooth out, you know, bust, but not nearly as much press not nearly as much pain. So I don’t I don’t know what I put that to what do you think is the Reason for that. Just there wasn’t enough. Those were all speculative bets to begin with.


Vincent Deluard  25:04

Yeah, also, I mean, the the feeling bubble was was so much bigger, right that you know, something? I mean, still, even if you look at the market as a whole, I mean, you know, we still up quite a bit from from two years ago. I mean, you should fall asleep. Yeah, whatever. 2018 you just wake up, you open your, your brokerage team and Ali had a pretty good five years. So I think there’s maybe more, more tolerance for that. And also I, I feel, you know, we are just starting to see the stuff that hurts, which is layoffs, basically, you know, tech companies, but so far, it’s been the small stuff like the binance. And the crypto stuff, you know, announcing, like 20% layoffs. But I think when you start seeing maybe Apple and Microsoft and Google starting, you know, announcing, like, maybe even Amazon, like mass layoffs, that could potentially affect, you know, hundreds of 1000s of people. And keep in mind, and they can, by the way, I mean, there’s just so many product managers at Facebook, what do they do? What’s the product manager? I feel that’s the next thing that’s going to happen. It’s just gonna be like, an all these massive hiring and happening that push wages like crazy in the valley, this, this is going to read out and then maybe it’s going to feel more real. At this point, still theoretical, I think,


Jeff Malec  26:21

what’s your marker for when that starts to happen? Like Bay Area, real estate starts to tick down? Yeah, we’re just literally like Microsoft announces 8% of the workforce is getting laid off.


Vincent Deluard  26:34

Yeah, I think that I mean, on the real estate of me, you know, the issue we got to have is so much of the bubble was due to stock based comp, right? I mean, if you if you are, and that greatly bothers me, by the way that because, you know, friends of mine, who credited the same time as me and wanting to tag and I used to make more money than when I started. And now he’s just like, destroying me because they getting the I mean, again, 50% of their of a comp in stocks. Yes. Yeah. Straight up. So I mean, most people like late 30s, you know, that they’re multimillionaires, just by having a job, you know, not even starting as, you know, setting it up having a job. So my point is really, that was the fuel that was a Kryptonite of the everything bull market in the Bay Area was was done based comp. And it was is great for companies because it cost them nothing, right? They can, they can, they can print dollars, but they can print their stock


Jeff Malec  27:29

on the back of the pensions and the institutions buying up the stock for ARS



Vincent Deluard  27:33

Bertha Yeah, this demand also from index funds, and, you know, so it was fantastic. And then, uh, you know, if you can outsource, because for big tech, your only expense really is labor, right? I mean, a couple of servers. But that’s it. Right? So if you can outsource 50% of your payroll to the stock market? Yeah. Your free cash flow, Mark, you know, we’re free cash flow machine. Yeah, of course, you can great free cash flow, because you pay your employee in stock. So I think that’s, that’s gonna be the process as as the value of the stock rents is revised down people who think they were making half a million a year, realize it, no, they’re just making 252 quite comfortable. But you know, there is a place to live, and then that’s how it feeds into the recent.


Jeff Malec  28:14

It’s almost the perfect perpetual machine, right, then they’d get that income, put it back in index funds, that would put it back into


Vincent Deluard  28:21

Yeah, we invented the perpetual motion machine, we did


Jeff Malec  28:24

the Eisah some good Twitter action the other day, the it’s like maybe paying a software engineer $400,000 a year for free app wasn’t a great idea. Like maybe that’s the cash flow problem.


Vincent Deluard  28:37

Yeah, and I would argue that fits into the inflation problem, also, in the sense that, and I call it the millennial lifestyle subsidy, right or YouTuber, you know, it costs like, you know, 10 bucks across the city, or you can pay some poor guy to get across the city on a bike under the rain to bring your sandwich for to daughter, or the stupid little scooters. All of that was lost making and all that, you know, the idea was the whole unit economy trade, I’m, I’m selling $1 for 95 cents, and I’m making up on volume, which of course, never made sense. But the point is, you know, we’ve done that for 10 years, and that effectively kept the lid on prices, like, you know, real captive to compete to Uber. So, Uber subsidize, you know, drivers, then they have to drop the price or hotels have to compete with Airbnb. So there was a hidden subsidy in the market from this kind of insanity. And I think it’s, it’s being removed now. So the first step I think, as we remove the Punchbowl is actually going to be inflationary, because you have to remove all this uneconomical production that we have subsidized for decades.


Jeff Malec  29:45

And you have heard it argue, right, that subsidy was on the back of that guy who’s biking the sandwich across, right he’s using his bike he’s using his time. Right? And what’s he really making on that are on the Uber drivers I’ve been a lot of studies that right? That’s not such great career, and you’re really making way less than you think.


Vincent Deluard  30:04

Yeah, no, I spent, I spent some time in, you know, poor developing countries say that. And it strikes me that, you know, when I come back to like Silicon Valley, I’m like, Wow, these guys have reinvented the cool, you know, it’s like, so much of the innovation in the productivity enhancing stuff. I mean, you go to Kolkata, or, you know, or Bangalore, or actually think it was quite wealthy? Or, you know, Legos, yeah, there, you know, you have a guy, you know, fixes your sandwich, and you have a guy who drives your kid to school and you have another guy who’s, you know, who cleans your pool. I mean, in a way, we’ve kind of reinvented this gray economy of, you know, massively underpaid people serving wealthy people, we just put an app in between and call that productivity enhancing.


Jeff Malec  30:55

And one, that was one of your themes, right, that that wealth concentration is going to turn back to wealth distribution?


Vincent Deluard  31:02

Yeah, I would think so. I mean, I, I mean, I, I mean, personally, would not necessarily be my interest. But I think, from any social political perspective, I mean, we stretch this, you know, so far, I mean, if you look at the ratio of vulnerable Lee, the minimum wage for the s&p 500 index, I mean, you look that over the past four years, like, well, this cannot, this cannot possibly last, I think we we start to have like consequences like, like, like populism, like, like, you know, riots that that really threaten social fabric, and I think we’re getting there before COVID and COVID kind of sped up that increased as with many things, you know, it was unraveling under the surface COVID Just made it obvious.


Jeff Malec  31:45

And then does all this fat and inflation thwart that, though, right, like, hey, the workers started making more money, it causes all this inflation, the Fed hammers it down. Or, or they reached a new minimum level, and they’re not going to come back off that.


Vincent Deluard  32:00

But I think at least, you know, so far, the wages are growing faster at the bottom, which I think is very, very positive, right. I mean, it’s growing faster for uneducated. It’s work for a nonwhite for hourly workers, for young workers. So that wage gap that used to be always in the favor of, you know, those who are doing well has inverted because the squeeze is on low qualified labor at this point. So I think nominal wages, you know, they’re not keeping up with inflation, but almost, and then what’s really happening with the Fed highest the value of assets being written down, and that’s what you need. Or if you think about inequalities, inequality is really about, you know, is really about who owns what, so issue issues, you write down the value of assets, that means that access to property, buying stocks is a lot easier than it used to be, you know, in the 70s, you will hear these stories where you know, you take a summer job to pay for college or you know, pay back your mortgage in three years like, but this is the stuff that’s required to kind of rebuild a thriving middle class. And I think in order to do that, you need to write down the value assets. And that’s, it’s painful for us, as I said, owners, but that’s what we’re witnessing right now.


Jeff Malec  33:13

I have my doubts that that’s gonna happen anytime soon. anecdotal, but we were at a lake up in Wisconsin, the realtor guy is telling us like, it’s nice that he’s like $4 million houses I have a list of 120 people are like is there’s nothing for sale on the lake. As soon as one comes, give me a call for 5 million and up, he has a list of 40 people. And he has a list of 20 people he says Call me no matter the price. Yeah. Right. So I feel like there’s so much money waiting to pounce and buy up values, that I don’t know if we’ll ever get there unless it massively painful, however, some


Vincent Deluard  33:47

of where you’re at, that’s what it’s going to be a very long and slow process. And I think that’s why the market is wrong thing is going to be over so quickly. Because basically, we’re trying to address inflation with a wealth effect. And the wealth effect is a very crappy tool when it comes to controlling the price level. And we saw that in the way on the on the way up, right? I mean, when when Bernanke started with with QE, and then started talking about the wealth effect, I mean, he didn’t work for 10 years for 10 years of service, like pumping, pumping asset prices. And then, in fact, you know, prices did not respond. But I think the same way now that they’re trying to take the liquidity out, hoping that you know, asset prices will fall and then that will eventually trigger the CPI. That’s a multi year process. I mean, the market is expecting this to be over in three months, it’s not over especially given how, as you point out huge the bubble is and how much liquidity the series in the system.


Jeff Malec  34:45

So speaking of that, let’s talk a little bit of what someone would use for an inflation hedge. We’re not just here to talk about this, right? Like, people thought crypto is going to be in famously a bad call, but people thought crypto would do it people Well fat tips would do it. I’m gonna have Nancy Davis on I think next week talking everything tips, but my guess is people have been super disappointed with tips performance. Even though you could argue no as expected, the bond piece went down. Trend has worked energy companies of our commodities have worked gold not hasn’t worked. So what are your thoughts on what people can? What inflation hedges are out there and what they why they perform the way they have?


Vincent Deluard  35:27

Well, yeah, I’m gonna rebound on tips, because I think that is probably one of the most in underappreciated signal in the past month or so is tip seal as have flipped positive, you know, because of that duration effect. Right. But like, I’m the tentative to getting 70 basis, point positive, positive real yield for the first time since COVID. I think that is important. And yeah, I mean, I was bearish on. I didn’t think tips were a good hedge because of that duration component. But I think now that you can get them at a positive real yield, it’s probably the first time in the cycle that okay, I think they have a, they have a place in the portfolio. The goal has been, I think, I’ve liked gold and precious metals. Silver’s disappointing me more than anything in the world.


Jeff Malec  36:19

That’s quite a statement.


Vincent Deluard  36:21

You know, I’ve been wrong with that. Although, I mean, gold is, you know, the thing is, gold is never it’s not a perfect anything, right? That’s, that’s both the beauty and the downfall of gold, right, that people tell you gold is a hedge against political chaos. It’s a hedge against inflation. So it’s a bit murky, it is all these things, and none of them at the same time. So I still think over the long term gold is their goal at a big, big rally in 2020 1920 20. You know, taking a breather there, you know, when you have days, like what we had last week, I mean, everything’s going to set off at the same time, including the things that should not set off like gold, but I will still think eventually, you’re going to make it back up on precious metals, just thing it’s a matter of like setting the right expectation. And that sounds like I feel a crypto bubble has really polluted our minds. I mean, I hear people like I need to double my money in the next three months, you know, what should I do? I’ll go to Vegas, you know, if you look at the you know, free four year goal has had very good returns, especially in non dollar return I mean, gold is at an all time high, Euro Yen and so forth. So not throwing the towel on gold yet.


Jeff Malec  37:33

So is that really the real yield differential at play there? Right, like for those are massively negatively negative real yields. So gold outperforms them versus


Vincent Deluard  37:44

the dollar has been incredibly strong and gold is you know, for us gold is priced in dollars right so that’s so you really want to think of gold we think of two trades long gold on dollar. Right. But if you so that the gold poor hasn’t really done it, but I mean, that for, for Europeans? So no, I think the really the best inflation hedge has been in will probably keep being energy. Because that is really the wrecking ball at this point. You know, on days when everything’s down energy has the you know, energy has to do has been the only thing that’s gone up because energy is the driver of short term inflation or short term disinflation. So I think that argues for an allocation to energy and commodities, not necessarily based on the fundamental view, but on almost a risk management, and are like, we came from a world of deflation was the biggest risk. So you you held long term treasuries, as as, you know, portfolio diversified, it seems to me that energy and commodities are going to do that, in the next decade.


Jeff Malec  38:45

Few things are so just plain old buy and hold commodities or some sort of trend approach.


Vincent Deluard  38:51

While trend works really well, as you know, in, you know, in a in a stagflation environment, you look at the 70s. This is where the best, you know, CTAs are really finally, you know, and you look at this year, I mean, you had amazing returns, in, you know, CTAs and systematic trend following strategies, you know, some funds are up like 5070 80%. So, this is the time for these strategies to shine, of course, you need to be an institutional investor in most of these funds. So, you know, a way to somewhat replicate that is either, you know, you own the thing of what’s kind of always kind of hard to store at your house, or, you own the companies are produced that.


Jeff Malec  39:40

Yeah, I was trying to find this post of like, commodity companies aren’t commodities, right, because then you get all the debt and the leverage and the management mistakes and all the issues.


Vincent Deluard  39:50

Correct, but I would think that this, you know, there’s always a risk, but I think, at this point in the cycle, it’s less of a reason before and because we come out of tactical blowback. A market, I get typically energy companies or gold miners, they’re you know, they have $1 in their pocket, they spend 10, they acquire and then then they buy another, they buy the other guy who has this. It’s very undisciplined, unstructured industry with a lot of capital destruction. And I’m sorry, I’ve seen a lot of that, especially shale that, you know, the past decade. But again, it’s been so hard for them. And then on top of that, you had the ESG stuff, you know, the drying capital from them that if anything, for very rarely, but like you haven’t much more disciplined, much more return to shareholders, which is probably not economically good. I mean, at this point, these guys, you’ve just been like keeping the money and just invest in increasing production. But it’s not happening because for 15 years, they’ve been bleeding. So and yeah, the dividend yield is pretty high, I think energy as a highest dividend yield of any s&p 500 sector, which I think has ever happened before.


Jeff Malec  40:54

Yeah, and I think that’s a big hangover from 2014. Right? When energies and then the banks were just like, No, right? I’m not, I’m not giving you any more leverage, I’m not giving you any more money. make do with what you have. So for sure, some better but but and that’s moving towards this secular theme, right of like, metals, miners, energy coming, everyone hasn’t put the money back into the infrastructure back into getting the resources out of the ground and paying for it.


Vincent Deluard  41:23

Yeah, and there’s a timing aspect to this, right. And it’s, it’s the time to invest was five years ago. So and then again, that comes down, going back to these inflation expectation, and then, you know, steal that transitory narrative that, you know, it’s going to be data by March 2023. I mean, the problem is that we haven’t invested for 15 years, I mean, how in five months, especially because we’re still not not seeing that pick up in capex at this point. I mean, all I hear about is you know, it’s criminal that these guys are making money and when the tax that money that’s you know, it’s not really a steal I don’t think there’s a lot of appetite for funding kind of conventional energy long, long, long lifeline projects like you know, it deep sea offshore drilling or stuff like that. It’s it’s so it’s,


Jeff Malec  42:19

I’ve long said that it’s massively deflationary, right, we used to drill down gets well, now you can drill down drill sideways, 500 feet get to these pockets, like the technology growth, there has been perhaps overshadowing the lack of building new infrastructure? Indeed, yeah, yeah. Well, two things there. So one, okay, if energy’s so high right now, is to that timing aspect. Is it too late? You’re saying no, this could go on for another five years? 10 years?


Vincent Deluard  42:45

Yeah, I would think so. I mean, you don’t get no energy or just share the s&p 500. I mean, it’s still probably less than apple at this point, or at least it was a month ago, probably around, you know, four or 5%. I think the last time where there were, you know, was probably in 2000. When, you know, all prices were a fraction of what they are today. And all probably, you know, energy profits are a fraction of what they were today. So, again, I think it’s a slow moving cycle and show we finally, I like this expression, you know, the easy money has been made. Any easy money.




Jeff Malec  43:22

Right? That was the definition of not easy. My right if you were invested in Exxon Mobil, like people were throwing coal at you. Coal is probably a bad example. People are throwing rotten fruit at you. Right? You had a political problem. You had a philosophical problem, and you had a performance problem. They were just in the dumps for years there. Yeah, so I totally agree. Not not easy money. So you mentioned cycles. Do you think we’re What is your thought on commodities overall, we in a commodity supercycle? What does that word even mean?


Vincent Deluard  43:52

Yeah, I’m not a commodity now. So I’d be I think you’d have to be a little more more granular, depending on you know, which commodities and so forth. Now, in general, what I’m convinced of is that we are in inflation era, and in inflationary era, commodities are valuable. In general, I, you know, I would think that, you know, it’s a bad idea to learn commodities because, you know, commodities do not pay a dividend, they don’t pay a coupon. And generally, humans are smart. So when you’re long commodities, you’re smart, you you, you short, human intelligence, which is a pretty bad idea, you know, we’ll always figure out, you know, new ways to produce more with less. And


Jeff Malec  44:34

the worst part of it, dwarf wheat is the couldn’t figure the wheat got so heavy would fall and kill itself. So like, genetically modified it to, like have 10 times the yield on the same stock.


Vincent Deluard  44:46

Yeah, exactly. That’s, that’s a great example. So, but I think there is any there they are. An exception to this kind of rule of thumb is is when you have what we have a period of structural underinvestment. For, you know, many, many, many years, and yeah, you get you get a squeezed like, you know, if you look at the oil market is now balanced, I mean, you remove Russia, there’s just not enough oil to for the demand I mean all you have to destroy tremendous amount of demand to good but to get back to balance and you can do the same the probably the same analysis for a lot of commodities. So there’s that scarcity return, which is usually means it can spike out because everybody needs it and you can find it. That’s one source one reason to own it. And then the other reason is, is the diversification aspect, right? In a in a deflationary environment, your stocks and bonds have a negative correlation, right? So you can have one or the other that goes away from inflation. And I would argue that commodities claim that mental so if you think in terms of multiple field theory, you’re efficient frontier, which had probably zero allocation to commodities, and anytime in the past 20 years, now, you can improve your risk adjusted return, even though I would argue commodities are negative expected return asset, because, right, but you can add an asset with a negative expected return and improve your risk adjusted return, because so diversifying so I think, and that would also argue for a greater allocation to the sector, from institutional investors, central banks, even retail investors ETFs. And so for which we, you know, kind of get that talk of supercycle, whether it means something about


Jeff Malec  46:24

the upbringing, green inflation here. So right there, you could argue even with Russia in the picture, even if their energy is there, we’re going to need so much energy to pivot to this new green economy over the next 20 years that we’re going to use every single bit of fossil fuels to get there, right. Like the amount of metal that needs to be mined, the amount of equipment that needs to be built the amount of the factories that need to be built to do that, it’s going to use up all that traditional energy sources. What were your thoughts there?


Vincent Deluard  46:57

I think that that’s been a mistake, right? I mean, because yes. And I, I mean, I’m not anti ESP or whatever. I mean, I’ve been critical on it. But I, I theoretically agree with the goals. I mean, obviously, we want to move to like renewable sources, we don’t want to like dig holes and pull the atmosphere to do that. But the right way to do that is to finance the transition, you’re gonna actually need more conventional energy. And that was the mistake that, I mean, I talk about Germany, and I give hinda. I mean, that was, that was pathetic. I mean, fine, you want to do this, but don’t close your nuclear nuclear plants at the same time, I mean, or, or you end up depending solely on Russian gas and getting an insane amount of leverage through bad actor. And and that’s the politicians really miss they thought it would just, you know, go from, you know, point A to point C and skip on B altogether, and that that’s what we’re realizing harder today.


Jeff Malec  47:50

And being European France has still a lot of nuclear, right.


Vincent Deluard  47:56

Yeah, but we messed up there quite a bit. So it’s very unfortunate. So this is this has been a, you know, long standing French policy since read and before before the goal basically realized, you know, don’t get wrapped the oil embargo, that, you know, we had, we have no oil and we dependent on foreigners, so we had to develop our own internal sources. Well, there is no hole in the ground, but we could take your chip uranium from from Sahara. And so we built a very strong nuclear industry in the 70s 80s. You know, at one point ADF interested funds with the largest utilities in the world, at about 85%, of electricity in France was generated by nuclear, and it was significantly cheaper than the rest of Europe. However, we haven’t maintained this very well. So now we get into this crisis, where I can’t remember the exact number, but I think at least 10 nuclear reactors are shut down. So at the time, when we need the most, we don’t really have it now, we’re still in a much better position than, say, Germany, which carried all together and buying nuclear power from France or coal fired from from Poland. We kept some of it, but again, and again, with the problem of nuclear is a very slow investment cycle, right. I mean, it’s like, especially the new second generation ers, you know, I mean, it takes 10 years to build. So kind of paying the price of past mistakes here.


Jeff Malec  49:24

But what and it’s just curious to me if that differs from America to Europe, but doesn’t seem like it if Germany Shut up, like its nuclear has gotten lumped in with traditional energy sources, right. It’s gotten lumped in with fossil fuels when it’s


Vincent Deluard  49:38

a big deal at the COP. What’s the big climate thing that the Glasgow conference? Yeah, the French are really lobbying to include nuclear into the definition of renewable energy, you know, if you take a Climate Change View, I mean, nuclear comes with other risks, but if you go redistributive You know, life on life on earth will and this the temperature rises by more than two degrees Celsius. Nuclear an obvious answer to this problem?


Jeff Malec  50:09

Yeah, I think it’s people’s emotional, right. You’re more scared of dying in a fiery flash when the nuclear plant reactor breaks then dying slowly over 40 years?


Vincent Deluard  50:20

Yeah, yeah. All right.


Jeff Malec  50:27

So switching gears a little bit. corporate debt, I had Chris Cole was on the pod beginning of the year saying this is the next big shoe to drop. You posted some interesting data recently. What are you seeing there in terms of the issues in the corporate debt world and where rates are at?


Vincent Deluard  50:44

Well, I think it all comes down to bankruptcy suppression, right. And basically, you look at a chart of bankruptcies in the past, you know, 10 years just go straight down, there’s almost no bankruptcy anymore. You know, what happens? Is it possible that for? Since the Romans, you know, that this prison living company would fail, like, What Why is nobody failing anymore? What does that mean? Well, that means that, you know, does that mean that everybody is smarter and making profits? Of course, not


Jeff Malec  51:12

using QuickBooks better or something?


Vincent Deluard  51:16

No, it just means that companies that would have always gone under been able to, to survive, because they’ve been able to borrow money at cheap rates, because there was so much liquidity. So once again, the Russell 2000 index, so us small caps, I was looking for companies were overriding OBrien cash flow. So the most generous metric he could find guff is not enough to cover just the interest expense. I’m not even talking about the tax or the depreciation or whatever, just like, can you just pay your interest bill. And then I also look for companies, on addition to that, who had less than 12 months of interest expense cash on hand. So that if the market is shut down for them, you know, after after a year, they gone, that’s more than 20% of the Russell 2000. And I run the number as of q1. So the trailing 12 on interest expense is based on a junk bond yield of about 4.5%. It’s closer to nine. So that 20% is probably closer to 40%. So


Jeff Malec  52:23

in your projection, this is taking their actual cash on the book and actual rates, even a different rate than what is today. Yeah, so




Vincent Deluard  52:31

there might be a lag here again, because you know that if you’re smart, you’re the duration of your liabilities, not a year, right. So you know, they’re not going to start paying 8.5 for some liabilities right away. Because they still have the the old debt, right. So I think for junk bond index, maybe duration is on five, six years. So you only need to rollover the 20% of your debt every year. So it’s gonna take five years to to pass the entire yield shock, but it will come. And I think that’s the thing Chris calls, right? I mean, the obvious Big Short at the beginning was the kind of speculative profit less that we’re really good, really good valuation, some of them no sales, right. So it’s horrible, bubbly stuff, style stuff. That was the story that started. Yeah, February 2021. You know, he’s been, he’s been getting hammered before for two years. Now, most of these names that are my 90%, because the next route is going to be a school that is the zombie companies, right companies that, you know, they have no economic purpose, but survive only because of the availability of cheap credit that’s being pulled away.


Jeff Malec  53:39

But so if a lot of those have already been marked down so much inside the rustle inside the NASDAQ, does that have a lasting effect for market participants at the index level?


Vincent Deluard  53:48

Yeah, that’s a good point. Well, I mean, it’s, if you think in terms of market value, like, I thought I call it the toxic blob. You know, it’s like that. And actually, I think there are two of them, there’s one now and then there’s going to be the zombies. The toxic blob is the, you know, basically COVID darlings, the stupid companies, you know, trading for, like 100 times sale with whatever. So these guys are getting, you’re right, they’re getting written down very, very fast. Now, the problem is simple. You also have new entrants in that blog. So you have these two forces. And last time I checked, actually, the size of the blog was was increasing. Because you have more and more competition, fortunately, who made this definition of having, you know, very, very low or negative earnings and in the variation is not improving, right? I mean, if you think about the companies that had no sale like what’s, what’s the multiple on this like? He dropped by 80% until infinity multiple. So that’s kind of the problem with with real bubbles in the sense of where you’re not really financing a, an asset that produces anything is you grind them down, but it’s not getting cheaper.


Jeff Malec  54:59

But it’s Almost like the toxic blob isn’t all that toxic like it has an infected these other better companies. Right? That’s the spin the surprise to me of this has been this orderly sell off everyone’s calling and interest stair stepped down. So yeah, why why do you think that is?


Vincent Deluard  55:17

I think because the economy’s doing really well. But better than people getting credit for I think people are you know, like worrying about a recession like the reality is the economy’s you know, is booming has been slowing down. But he was worrying so fast that, you know, every company that was not in that toxic blob, yeah, costs are rising and whatever. But the top line is growing so fast has been growing so fast that you know, things have been okay, like, you’ll get index level earnings. We’ll see at Valley earnings growth last last quarter. We had, you know, really strong earnings growth in them in the past two years. So I think it will come. It’s probably coming. I think for q3 q4 would be my guess, when we have this high earnings expectation when we’ll finally feel the effect of a slowdown, and I’m not calling for recession, I’m just saying slowdown. And then there’s the contagion. Maybe it happens for the credit markets, maybe it happens through some, you know, some very large investor blowing up. And, you know, who knows, and another way it could happen in tech is, you know, I feel that a lot of that spending on stupid unicorns and companies, you will be small ended up, you know, being buying AdWords on Google, placing ads on Facebook, renting server space on AWS. So I think somewhere I read I I think it’s a Chamath quote, so I should go with I think Chairman said that 50% of every dollar raised in VC funding ended up in the fang. I mean, I don’t know how he came up with the number. But


Jeff Malec  56:55

it makes sense everything you just said, Yes. ad spending the server’s spin. Right. Now, where does that where do they refill that money? I’ve always wanted to do a blog post on that of like, you know, when you’re on most of these websites, and you see this complete junk at the bottom of the page of like, right, just like See, see what these child actors used to look like? And this right, all that junk? Like, is that really what we’ve built? That’s the internet? That’s, that’s productivity enhancing? Right there? Yeah. And then invariably, I’ll always click on it like once a month. Like, that sounds interesting. So maybe they’re the smarter ones. Lastly, here, I want to do a little world tour with you on some of the areas you’ve brought to light. Get your quick thoughts. We mentioned Japan’s will go back there, but more specifically, their JGB peg, their rate peg, what’s that doing to the yen? And what the end game there looks like? I think some stuff yesterday, was it starting starting to break?


Vincent Deluard  57:55

Well, I mean, there are two end games, I mean, either they destroy the Japanese economy, which is what’s happening now because you know, you are a large industrial exporter with very thin margin in a highly competitive market. And your currency collapses by like 30% Every month, and you ppi, and we’re gonna get 50% and you have no inflation, so nobody pass it through, you get destroyed. And I think that’s what’s happening now. Or, which I think is the more likely outcome, given the historical ties between the LGB and Japanese elite and the manufacturing export business sector. There is a moment like Okay, guys, you know, we keep doing this six months, six more months of this, we no longer going to be industrialized nation. So we got to stop that insanity. And then we get the mother of all short squeezes. And we see that, for me the template would be, it was 2015, the Swiss central bank, yeah, like the euro. And then you know, of course, the Swiss franc always wants to appreciate right because it’s better economy it’s better better run you know, money for the banking sector and and the Swiss franc, the SMB, we’re just trying to prevent it, prevent it, prevent it. And then we’re like, okay, we can’t do this anymore. Just like shot up by 20% in one morning. I think there’s, you know, in Japan, like, I think it’ll just for the towel, give up the lack of control. And then you’ll just see that singers, the yen just like pop up in the motherboard, short squeezes.


Jeff Malec  59:22

So that Yeah, I think we did it. Research of that. I think it was 20 years of range. was in that one daily bar on the Swiss that day?


Vincent Deluard  59:31

Yeah. I think it was a 76 sort of human event. Yeah.


Jeff Malec  59:35

And there’s no right it’s a free trading thing around the world. So there’s no like limits or circuit breakers or whatnot. Right? It just goes straight. And so that would affect the dollar in a big way.


Vincent Deluard  59:51

I think so. Yeah. I mean,


Jeff Malec  59:54

it’s so it’s weird that everyone’s putting on which everyone I know is guilty, right? All the trend followers are short, the In a big way, but you’d think you’d start to see little people starting to place bets on the other side of that.


Vincent Deluard  1:00:05

Yeah, the thing is, What worries me is that it’s, it’s gonna be any event, right? It’s gonna be one night it’s gonna be over. So it’s almost an impossible event to time. Right? So I mean, you can if you’re on the wrong side of the just getting hammered, hammered bleeding, you have no idea one this bleeding is going to stop. So I, to me, it’s gonna be a lot of maximum pain. Is there a hard way? It’s very hard to profit from him.


Jeff Malec  1:00:30

Where did the JGBs go from there? So they’re, they’re paying now. So they you’re saying they come out and say, these are no longer peg, we’re gonna let them their new rate of 3% or something?


Vincent Deluard  1:00:40

I have no idea because it’s not a market. Yeah. And I mean, they are they are they are their own changes. And so it’s at this point, just an accounting game between the BOJ and the Ministry of Finance. So if you want to restore a market or not existed, I had no idea what the price is that could clear that I


Jeff Malec  1:00:58

show does that put the death stake in MMT? If this boj experiment, turns out, throw in the towel?


Vincent Deluard  1:01:08

Well, I’d be okay. I, I have some sympathy for MMT have no. Fallen, I’ve been a believer for long. I would argue that everything that’s happening is consistent with MMT. I mean, what MMT people told you is, you know, eventually the only real constraint on the ability to monetize deficits, inflation. That is, this is playbook textbook. MMT. We are we are now that’s the problem and it is weak is you know, because it assumes that, you know, if and when inflation does pick up, then, you know, smart politicians are going to do the right thing and they’re going to tax you know, tax back to that’s the part that never happens. Because it’s so country to do our own thing. Even even in Europe, you see it, it shocks me, by the way, on inflation. You know, we I still feel we have this view that it cannot happen here. Right. When our Brazilians here, I mean, we are, you know, like, look at what people are doing, you know, governor of Netherlands, you said, Oh, gas prices are high, I’m going to send everybody 1000 Euro check. In the US we have like price gouging be, oh, no, these guys are making profits. That’s that. We are reacting in the exact same way that Google Chavez or you know, your average Peronist, you know, Argentine politician would react. And still, we think we’re so much better than,


Jeff Malec  1:02:27

yeah, that yeah, I don’t get that of like, here’s a gas credit to buy more gas for when we have a gas price problem. Alright, moving on, what we’ll we’ll move to this one speaking of gas, so, Norwegian kroner versus the Swiss?


Vincent Deluard  1:02:45

What I like them both. I mean, the virtue of Norwegian kroner is the the the energy play. Right. And that’s, but I mean, in terms of countries are very similar, right. So they both, you know, very small, very wealthy, very well run countries, which were smart enough not to get into the European Union. And as a result, I think have the ability to like, you know, when, when the train wreck eventually happened, so maybe not a full train wreck. But let’s say, I wouldn’t want a golf job right now. They have more flexibility. They have these huge reserves, right, I think for I know for Switzerland is equivalent of 120,000 euros per capita, in FX reserves. So they can pretty much set the price of their currency the same way there for Norwegian that the government pension fund that they all found is the largest invest in the world, I think they own about 2% of the world’s stock market cap. So And my view is that we are in a new era where, you know, 10 years ago than it was competitive valuation, right, though, the central bank, who was the one who could devalue the currency, the fastest to still grow from their neighbor. Now it’s the exact opposite, right? The biggest problem is import inflation, you want to keep your BBI low, so you can keep your manufacturing center competitive, you need a strong guarantee, who has the best shot at having a strong guarantee? I would say it’s wisdom. And boy, because of the huge reserves of fact, we’ve been suppressing their currencies for a long time. And because they’re so wealthy, and and generally were run so these are the kinds of places where people want to put their money anyway. And so


Jeff Malec  1:04:14

do your thing there as be long both. Yeah, I would say again, it comes down, you’ll correct do better.


Vincent Deluard  1:04:21

All right, and I would I would hold that against the euro as secure as bad. I mean, the dollar is kind of a hard one. I mean, you know, I I would be tempted to short the dollar, but I you know, I don’t know Brian Johnson told me better. It’s kind of an it’s very frustrating for a foreigner that that you know, there are no consequences in the US you can be as stupid as you want. And still, you know, when you have a big mortgage, then you currency rally so much. So, that’s why the best, you know, take a bad fundamentally flawed currency like the euro as the other leg of that trade.


Jeff Malec  1:04:54

So I didn’t have that on my list, but since you mentioned it, so the Euro experiment will be shortly. Well, and one day, everything.



Vincent Deluard  1:05:03

I mean, everything ends one day. I mean, he brings $1. So I mean, I already, you know,


Jeff Malec  1:05:10

which ends first the euro or the dollar,


Vincent Deluard  1:05:12

probably the euro. But I think the, you know, at the end of the day, I think it’s about what you care about most. And the level of I think people underestimate the level of attachment to the euro for the European elites, and their willingness to make insane sacrifices. It’s like almost a sacred cow. Right. I mean, and I think that’s why people are under estimating in 2011 2012. And sovereign debt crisis. Yeah, we are going to put, you know, half of Europe in a depression in order to keep our stupid little currency because it’s, it’s too costly for us to admit we were wrong in the first question. And I think that logic is still there. Now, they don’t have the tools to do it. I think regardless, kind of working on it. I mean, the problem now is you need to raise rates as they raise rates. So two spreads, you know, spreads keep getting higher, you know, eating is a problem. Now, I think people overestimate how quickly that’s going to happen. Because you know, it only is that the majority of Italian debt is about eight to nine years. So it’s going to take quite some time for Italy stopping they have the reimbursement from the P BBB. So they have a bunch of stuff they can do. And I sense and that’s something that I’ve seen, you know, current European markets for 15 years, Americans are just so ready to jump on the Euro because it’s the only thing obviously yeah, it’s stupid. Okay, we all know that but stupid things can last if there is the willingness to defend them. And I think that’s the part they underestimate.


Jeff Malec  1:06:47

Bitcoin so 20,000. So point in case but if you had to fix it, what would you do you get rid of Italy. You get rid of Greece you get rid of who


Vincent Deluard  1:06:58

you get all you do for fiscal union and then you just do what you guys did after the Revolutionary War. And you know, you have transfers you don’t know me, us, you measure whether Alabama is subsidizing New York or I don’t know which one it is probably


Jeff Malec  1:07:13

where we do you see more and more of that. But yeah, it’s not it’s not


Vincent Deluard  1:07:17

a you know, it’s constantly daily like you don’t you don’t you don’t keep the fat, the original fares and keep a separate balance sheet in total. Are you owe me?


Jeff Malec  1:07:26

Yeah. So you mentioned this was like in this way, so you been tweeting around the Swiss milkshake? So that’s a brand Johnson steal? Milkshake? Yes, yes, yes. I’m gonna give you credit for that. I hadn’t heard it before. It sounds, it sounds better, right? Sounds more tasty. Than $1 milkshake,


Vincent Deluard  1:07:48

and make really good milk and really good chocolate in Switzerland, which, you know, none of these things are made in the US so.


Jeff Malec  1:07:55

So what’s the theory there in the Swiss milkshake?


Vincent Deluard  1:07:58

Well, it’s the same argument, really, that? You know, we’ve entered this new era, where the game is, which country can defend this currency the best? And you look at the world, it’s to me, it’s clearly Switzerland. I mean, you have I think, this year, they’re gonna have a budget surplus, a surplus. Okay. Inflation is within I think, is around maybe picked up a little bit. But it’s I don’t think it’s about 4%. Massive current account surplus. So if a country and then these reserves, right, these insane reserves, like I mean, basically an entire after, after a way the entire world has gone QE. And for the US, Japan, or Europe, which we just bought our own bonds, right. So it neither created a liability or an asset, right? We’re just buying a claim on ourselves in Switzerland, maybe QE, but they bought other people’s stuff. So the SMB, for example, is probably one of the largest holder in the stock of Apple, and Microsoft is buying, you know, these, these us or the German bond market. So they have, I think, more than a trillion in currency reserves, which can be mobilized in order to defend the Swiss franc, which, which I think they will be I mean, remember that they had to import the policy of the ECB, which I think they hated, because of how integrated they are in the European Union. You know, if the Euro does something stupid, like negative rates, they have to copy it. And the Swiss is generally smarter. And I think they hated it, but they had to do it. But because otherwise you’d have massive deflation without becoming Japan. Now inflation is back above 2%. They can let go of it and the currency repression that the Swiss franc appreciate. And, again, I would I would play that versus the euro. Because I think, you know, Switzerland does not have to deal with Italy or Greece or Spain. So if you need to move fast, the SNB is probably the best European Central Bank to do that.


Jeff Malec  1:09:56

And what about they’re playing along with the US From the sanctions with Russia, they seems like they lost a little neutrality in that episode.


Vincent Deluard  1:10:05

Which Yeah, I think that’s one of the reasons why my trade hasn’t worked. It’s it’s really, you know, I started that pounding the table in January on, you know, the longer longer Swiss franc. And then, you know, a month later, you got Russia in the Ukraine. You know, you generally don’t want to ask a Swiss banker where the money is coming from. So I think, yeah, there was quite a bit of Russian money in, in Swiss banks. And yeah, Switzerland is not in a position. I mean, they have to go along, right. So that the traditional role of the Swiss banking sector as a place where it’s safe to keep dirty money, where without many questions, that’s, that’s probably a little bit under threat. And that’s probably weighed down on the currency and also on the performance of some of the big Swiss banks.




Jeff Malec  1:10:51

And then also, they own all that Apple stock, it’s down 20%. So right, so at some point, all those earnings are like, right there, some people call them the world’s largest hedge fund, right? What if they went short? And then China and Brazil, have your thoughts evolved on each of those over the years?


Vincent Deluard  1:11:15

Well, I think for China, I think the people are are the people make, the mistake may people make is kind of underestimate the demographic squeeze that’s coming out of China and what it means, um, you know, I think the notion that, you know, China will keeping the manufacturer or the world and keep subsidizing the West, I think, this is strange. I mean, China now is kind of reminds me maybe of, I don’t know, Germany in the 70s, or something like that, where their interests are going to change dramatically. And they will try, you know, the, instead of being a surplus country, that isn’t going to be a deficit country, they will start to need a stronger currency, they will need currency integration. So, I mean, I guess the long story short, the trade implication from the slogan of China, I think, is to be to be long Chinese government bonds. The same way, it was a fantastic trade to belong, German boons in in the 70s, or Japanese government bonds after the bubble burst, because you’ll get two sorts of returns one, much lower rates and the rest of the world because their population is shrinking, and a stronger currency. On Brazil, to me, I’ve had this call for eight months, it was very painful at the beginning. And then it took off, it’s, you know, it’s, you know, very undervalued commodity exporter, that does not share a border with Russia, where you have, you know, 10% plus overnight rate. So, that’s true most of Latin America. I mean, this is very rare moment where Latin American central bankers have been smarter than the rest, like we saw the inflation calm or maybe didn’t have a choice. But by the time the Fed started hiking these guys over here, we’re about 10%. So if you’re if you’re worried, you know, you don’t want to fight the Fed. Well, you know, good Brazil, go to Chile, go to Colombia, go to Peru. These guys have done probably 95% of hiking cycle already.


Jeff Malec  1:13:14

I’ve talked with some Brazilian hedge fund guys are like, well, our hurdle is like 18%. Right? They have to go because they can get 10% in the treasury. So tough game for a hedge fund manager down there. But in theory, the opportunities are bigger. You said you’re not a Fed guy. But I had a question for you of because, you know, the ECB and you know, the Fed. So if we’re starting a fictitious country, or global economy, and you had you have to pick one to pick your fighter in Twitter means now pick your fighter to run our new fictitious country’s banking system. ECB are fed.


Vincent Deluard  1:13:52

Well, if we thought about Joe Madison, easy, easy one. I mean, I think anybody were to guard when she’s French, right? She is French. Yes. That is that way on economy. She’s not a banker. She has her own lawyers. And attorney. That’s right. Yeah. But I primally. She’s a synchronized swimmer. And that’s something that I the one area where I really respect Christina gar. She made the French national team and synchronized swimming in any late year before she was 20. And I think that that’s her main skill and you can really see it in the way she conducts herself at the ECB is, I mean, she just watches what Powell does, and just repeat it with a six month lag perfectly. But that’s probably not what the ECB means. I you know, I thought, I mean, in general, I would say the ECB has a weakest handle among all central banks, right because of the flaws of the Union. So you really need a an extraordinary central banker to check in. Are you playing poker and you have like, yeah, right and that’s, that’s Only there and you need a master bluff and we had that with Draghi. And I think we lost that.


Jeff Malec  1:15:07

And why can’t they get her out of it? What are the mechanics look like for this?


Vincent Deluard  1:15:12

Well, so yeah, all the political stuff, right? So it’s like, okay, Northern Europeans already I think they made a, an exception to this right? Because after drag it should have been it should have been German, but they weren’t getting vide mended, goondas bang guy because he was too hawkish back then. And then the guard kind of came in as a compromise. You know, she’s French, French, neither sovereign or you know, and she’s a woman. And she’s, I mean, she’s very eloquent like she, you know, she and she’s superior. She was somewhat, there was basically this deal between Macron Mark Gallo, where the Germans would get the Vandelay and the European Commission, and then you have to get something to the French. So they agreed to defer the ECB. So again, with a it’s always horsetrading. So you cannot just undo that very easily. And know what I think that anyone or shoes could do anything better at this point. I mean, it’s just a horrible job. You know, I mean, she’s going to have to basically swallowers for, for him to whatever the expression is.


Jeff Malec  1:16:12

I like swallowed her sword shot to get past her airmen scarf to swallow her sword. Right? Was that your little imagery? Right of like, she’s talking about the poor weather? Or may scarfone? Yeah,


Vincent Deluard  1:16:24

yeah, there is a strong many alternative vibe here. You know, let them UK when every ECB conference? Well, I mean, because it always ends up the same and I’m, I’m not. It’s an I don’t know, I don’t know if I do any better. So they shoot. Very, always ended up like, Oh, we’re not worried about inflation, because wages are going up. I mean, what they’re really telling you is that your plan, their plan is for you to start, because, you know, they fail to address inflation at the proper time. And now Yeah, you get your up. Yeah, we get out gas from Russia, we don’t have a good way to deal with it. You know, we don’t have any alternatives. You know, we can do anything. So the best hope for Europe at this point is that wages don’t go up and people you know, lose like 20% of the purchasing power. And don’t protest about it. Because all it’s it’s in order to fight poutine or to fight climate change. So yeah, strong Marionette vibe here.


Jeff Malec  1:17:21

And like, Who would want that job in the first place, kind of a, you know, in the Fed to, like, you should almost be disqualified if you want to serve in that role. Last bit here, give me your hardest take either something nobody’s talking about something that you think one way and everyone else thinks the other way? Gunny, got anything for us. Sorry, I didn’t prep you for this one.


Vincent Deluard  1:17:48

You did not prep me for this. I don’t know if it’s a hot day or not. I suspect you you share that view. But you know, this, this is not. This is not a market rout. You know, this is a very oily sell off. We haven’t seen you know, the kind of stuff that you would see where, you know, you get margin calls everywhere headphones blowing up. massive spike in volatility. Like, I think they’re, you know, after last week, there was this this desire to say, Oh, this was a big traumatic event. This was the bottom like, you know, pretty much every stock on the NYSC was down. I don’t think that is it. I think that comes in the fall. I think we have another, you know, another 20% to go in the fall. And this is when the real pain will be felt. I don’t think this for now. It’s it’s not real pain.


Jeff Malec  1:18:39

Another 20% From down twice. So eventually will be 40% off that. Yeah. Nice. What does that put the NASDAQ at 80? Or some so be basically an OH WAIT Redux of those types of levels?


Vincent Deluard  1:18:52

Yeah, it was maybe more on the NASDAQ, the NASDAQ was down 80%. And you know, from between 2002 1003. So you look at you know, where valuations have been. And again, at this time, keep in mind, we didn’t have the problem of inflation. We had a Fed put back then. So here we have, I would argue we had a similar, if not worse, over valuation of you noticed, the NASDAQ. And on top of that, we have to face a beast that we haven’t seen for years, which is second inflation.


Jeff Malec  1:19:21

And you think it happens more violently that next leg down? I think me personally, like no one ever seen a second leg down? Really? Right? It’s been either the sharp spike, where we’ve never had this down sideways for 12 months, and then another 20% down since way back when, like Great Depression level. So that’s kind of the where my head’s out of like, nobody’s prepared for that second leg down. Yeah. And even worse, they’re probably saying there, oh, there’s not going to be a second leg down and they’re piling at these levels. And so where how do you position with that versus just going short equities or when I use it? I mean, okay,


Vincent Deluard  1:20:02

yes was mailshake cache i mean i stupid because I’m, I’m the inflation guy and I’m like I have a ridiculous seemingly Fourth World personification to cash. But I mean, you know, I’d rather lose 8% to inflation and 50% to their market. You know, cash is gaining value when it’s measured in asset terms. i We already discussed I mean precious metals, I mean, as long as you have like reasonable expectation, or they can do some energy yourself in Latin America comes in stronger from this, at least on a relative basis. Like it’s at this point. It’s not even an equity investor anymore. It’s not even a you know, Latin America is probably like as our continent is, you know, less than apple. You know, you’re not taking a big risk there. Now, you want to be fun and have some fun and you know, have a story to tell your grandkids you buy the Japanese yen and hope that that event happens and, and you look smarter than everybody else.


Jeff Malec  1:21:04

That’s the one I’m doing. I’m taking that away from our chat. Maybe there’s a triple levered yen ETF we can look at but you would have been probably, it’s probably already bankrupt. ETS, like, if that was triple levered long, you’d be right be down 99.9% so far. All right. Any last thoughts for everyone there? Tell them where they can get you on Twitter and all that good stuff. Okay.


Vincent Deluard  1:21:33

So I’m at Vinson, Dillard VI, N C, and T G. Au ARD. I am active on Twitter, not as active as some of my friends, but I enjoy it, I’ve met very many smart people, including you. So you can follow me there. There is a if you look at my pin tweet, there is a link to where you can register for a free trial of my work. If you are a client of stone x we are, you know, big FCM we have, you know, big securities business. You should talk to your whoever covers the account and see if you can get added to my list.


Jeff Malec  1:22:14

Your friendly RCM broker will get Yes.


Vincent Deluard  1:22:17

Exactly. And if not we also the research can be can be had as a subscription only products. It’s priced very reasonably. We grant free trials to everybody who asked for them. And otherwise, yeah, Twitter, Twitter is where it’s at. I hope you don’t mess keeps it that way.


Jeff Malec  1:22:37

Yeah. Who are most of your customers on the research? It’s mainly all the stone X customers or you get some paid subscribers? Yeah,


Vincent Deluard  1:22:45

no, we do. So initially, yeah, initially started with the stone X customers. We have a lot of business in Latin America. So I have a big, big following and my own resume and hedge funds pension funds across Latin America. And that’s also helped me frame the kind of inflationary


Jeff Malec  1:23:02

right. Now, I’m gonna say like, I don’t know, if I trust your Latin America calls your house.


Vincent Deluard  1:23:08

Well, but nobody helped me. These are people who understand what what inflation is and understand also the value of real assets. So there’s that. And then, yeah, no, I mean, I’ve been we’ve got a lot of interest. I mean, the inflation call was very early, but turned out to be very right. So we, you know, historically have a big, big following in Europe. So private banks in Switzerland, places like that, and we’re looking to grow this business. So hopefully this is not


Jeff Malec  1:23:40

that just a question popped in my head when you’re talking to these Latin American guys. So do your research has come from like talking to the practitioners talking to the people trading these markets? Where you’re sitting in your ivory tower? Coming up with the thoughts? bit of both? It doesn’t look Highbury. It looks wooded. Yeah, these nice wood beams there. Your wooded tower?


Vincent Deluard  1:24:06

No, but a bit of both. And I mean, also one thing that’s helped, I think it’s things like what you’re doing podcasts, where I mean, you really have I feel I’ve seen in my career, like so many more resources, if you want to educate yourself about global macro about investing, and access to really smart people. And I must say, I’ve been impressed and, you know, people have taken the time to talk to me and to you know, if I have a question about a very technical aspect, I mean, I can ask someone who’s written, you know, a 20 tweet thread on this on Twitter, and more often than not, these people will take the time and will share Excel spreadsheets. And so it’s, it’s fantastic. I mean, when I started my career that did not exist. And now I think, you know, this is this actually truly productivity enhancing so


Jeff Malec  1:24:58

someone had a thing once he’s It’s like George Soros or Jesse Livermore or something like had a hotline phone on their desk and you could just call them at any time and they’d answer like there’s some super smart hedge fund guy who’s managing billions of dollars that will answer DMS and tweet intelligent stuff out yet it’s an amazing time to be sure. And my last piece was going to ask you what were you at Stone X before they were stone X when it was FC stone?


Vincent Deluard  1:25:24

Yeah, I started when it was I NTSC so I actually started after Brexit. Brexit is the I was discovered as a head of the Europe product. So the Euro product from the Navy’s research before that, and the I think when the how I got to stone axe is when the Brexit vote happened. We’re on MDR was not a this was owned by a British company who was very anti Brexit and I didn’t have very strong feeling either way about it. I just thought it’s democracy, you know, and they asked me to write a piece of propaganda, you know, predicting like, you know, that, you know, frogs would fall from the sky and we die because of that Brexit. What am I how you want me to do this, and then I had been in talks with my NTL for a while. It’s great, great, great company, great team. They wanted to build in their own global macro products. And they promised me that they would never ask me to write something stupid to please the ideological preferences of the CEO. So I’m glad I did.


Jeff Malec  1:26:21

I was wondering, I was more gonna ask you what you thought of the name. The stone X. Stone Age is good, but the stone was


Vincent Deluard  1:26:27

weird. I NTLM cystone is where we started. Okay, so it’s all about you benchmark.


Jeff Malec  1:26:31

Yep. And I’m showing my age because I just do it as FC stone then it was imcl FC stone, and now stone x, but all the same group. Awesome. Vincent, thanks so much. Have a great day. We’ll talk to you soon. Thank you so much.

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