Bloomberg Senior Commodity Strategist Mike McGlone is bullish gold and expecting deflation. In this interview Mike explains why, although retail prices are high, we should expect a deflationary trend. He also discusses his outlook for gold, silver, some industrial metals and electrical vehicle adoption in the U.S.
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0:00 Introduction
0:53 Deflationary trend
2:07 Retail prices high…how can we expect deflation?
4:40 Fed Reserve will be printing more money
7:06 EV adoption rate in US over next decade
8:22 Bullish gold
10:45 Bitcoin has hindered gold price
11:59 Silver
12:27 Aluminum
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See Full Interview Transcript Below
Bill Powers: Thanks for tuning in to Mining Stock Education I'm your host Bill Powers and joining me today is Bloomberg Commodity Strategist Mike McGlone, Mike thanks for coming on the show again today and our politicians including our President and the Federal Reserve are telling us that inflation is transitory do you believe this argument and what's your assessment about the inflation deflation debate going on
Mike McGlone: Bill, I'm basically a contrarian in life but I think the biggest trend in markets are deflationary in the time stamp we're on July 19th we're finally seeing a correction in the stock market, crude oil is down 8% and to me that's just meh it's more the same crude oil has just got way too expensive about $75 now it's below $66 in WTI and guess what $75 was half the price of 2008 and tell me what's inflationary about that then you look at money supply over that same period from 2018 now it's up 130 percent so we're just going back to deflationary trends and there's one primary force that needs to go up for any form of inflation that's the stock market has to continue advancing and if we just are beginning the first 10 percent correction in the S&P 500 since the bottom 2020 then I fully expect WTI to go towards $50, 30-year bond yields have finally dropped below 2% that was a key signal in the past I expect them to go towards 1% and guess what's not profound about that that's just following the trend of the last 40 years and following the rest of the world
Bill Powers: So when I go shopping I went to a restaurant let me tell you recently and on the menu this dish said $53 bucks went to pay for it he said $62 I said that's not what it says in the menu right before me he said sir that's what our price is right now you know the menus aren't even keeping up with some prices at restaurants how can you tell me it's a deflationary across the board though
Mike McGlone: Well there's a difference between wholesale and resale and right now there's been a historic event that happened that cut back on supply of restaurants and other things and some of the in the network to get that food there so let's start with the world's most significant commodity in terms of agriculture measure on the world, measured in terms of dollar value metric tonne is corn, corn is at the moment of 14 a year at five bucks at the same price it's 2008 that's 13 years ago and it's peaked this year around $700 it was up 50% coming back so this year underlying basic commodity market now look at soybeans same soybeans at $13 bucks at the same price as almost 10 years ago it's up only four percent on the year look at lumber, lumber was up 120% I look at my screens now it's down 22% so yes you're seeing that initial reaction to most significant event of our lifetimes completely shut down economies crushed these businesses destroyed some of that supply but expect supply elasticity and free markets to kick in and most knowledge because rapidly advancing technology so I'll leave you with this look at the crude oil total consumption of liquid fuels in this country is about 20 million barrels a day well it was before Covid was around 20 now it's down around 19. that's the same as 20 years ago yet everything is increased stock market demand everything and why and why in GDP input because it's more efficiency look at that 10 years from now it's going to be all EVs we just don't need as much as any more and populations are changing so there's your lack of demand pool and I fully expect deflationary trends to kick in you're seeing the spike and now that sugar high that we've had from the most significant inflation in money printing in history is starting to wear off and the key thing is I'll ask ourselves and our listeners and our readers this just picture a little bit of a 10% correction the stock market normal and we stay down for a while what does that do for everything the trickle down is phenomenal versus the market's completely been so used to a stock market going up it's going to find out deflationary trends are much more significant and that's not very profound it's following things like one of my favorite books was The Price of Tomorrow by Jeff Booth pointing out the significant deflation of trends I just point out in commodities
Bill Powers: in a deflationary environment where the stock market is turning over what does the Federal Reserve do with interest rates in your opinion
Mike McGlone: Well we know the answer to that there's only one thing a baby can do when it cry it's just so true there's only one thing the Fed can do and that's to print more and that's what exactly is going to happen it's not just the Fed it's every essential make on the planet what just happened to China they just cut rates now here's a key fact about the cut of reserve rate in China there's never been the correlation between lower commodity prices and lower reserve rate in China is very high in fact the first time they cut rates they haven't done anything but raise rates the first time they cut rates in 2011 was right around the peak of the Bloomberg Commodity Index and right around the peak commodities now they're doing it again why because there's a problem, free market capitalism is not running free in that country there's no way they can have that kind of information you get from free markets we have here so I see every central bank in world's continue to do it I started trading JGBs Japanese Government Bonds in late 90s and everybody told me the same thing I'm short, I'm happy and then they went to zero and then Germany went to zero a lot of the rest of the world's gone to zero yields and what's going to stop the US from doing that I don't know the trends that way going to zero and what's the key catalyst the next bear market in the US stock market I'm not predicting I'm just pointing out if or when we get a bear market in stock market means it stays down doesn't go make a new high for at least a year I mean in the old days you say go down 20% stays now but no remember it's different this time so that to me is the key catalyst that we're going to get negative yields in this country and we're going to just get more and more fiscal monitor stimulus to hold it up
Bill Powers: In terms of electrical vehicle adoption in the States in 10 years what's your penetration estimate
Mike McGlone: Don't know exact number but I look for BNF Bloomberg New energy Finance I love this concave shape of that curve and I just look at it every I drive an EV I bought mine like seven years ago it's the best vehicle I've ever had I drive a poor man's Tesla Chevy Volts I've got experience I've got solar panels got experience in space and there's some of the best technologies cost-effectively I've ever seen that are becoming as Cathy Woods said the average EV in this country is going to be cheaper than internal combustion in five years what does that do for simple supply and demand economics and then you realize your cost of usage and driving for miles is just a fraction of what internal combustion engine is that's what I have with my EV yet I have it's kind of a plug-in hybrid so to me it's just a matter of time and rapidly advancing technology and the big difference I'll end on this compared to last administration they pushed back on these natural organic trends and rapidly advancing technology pressuring prices and advancing the human condition this current and condition is pushing forward on it so EV penetration just amount of time EV owner here I'm not you know I love Tesla's but there's range anxiety it's not part of the current infrastructure but it's getting there it's getting there a lot faster than most people per day
Bill Powers: When you look over the metal sector would one of your most bullish commodities that you'd look for be like a nickel or a copper
Mike McGlone: Gold
Bill Powers: Gold and why because you're a bitcoin bull?
Mike McGlone: Well gold and bitcoin so first of all I'm bullish to me and I'll just put this clear my clear outlook for the second half of 2021 was gold that bitcoin and long gone should be outperforming right now it's long bonds they're the leader I feel expect them to continue I don't see a lot of upside I fully fearful that copper peaked at ten thousand dollars a ton and I'm afraid it's going to do what nickel did remember nickel peaked around forty five thousand I see it eighteen on my screen at the moment my commodity strategies in London who dig in deeply supply demand tell me it's too easy to come up with supply now everybody gets that narrative I agree with it, copper has to lead all commodities if commodities are going up because to me it has the most highest potential for typical supply demand command is a rally but this is not the typical world if the stock market does not go up, copper will not go up with the highest correlation in the history of our database since 1960 just that's all that matters now supply and demand does not matter if the stock market is going down and that's what we're looking at right now so we have to get past that bleeding for me to get bullish on copper and S&P needs a decent correction so I got Boston Copper right around $700 last year when I showed divergent strength versus versus a stock market now I look at the primary commodity that has the most potential upside in 2Qs one was the worst performer one in 2H the best performer 2H is the one had the worst performer in 1H and that's gold you just look at the fundamentals first of all the trend gold's been going up for almost forever in terms of dollar value and certainly the last 20 years and then I look at trends QE continue to increase that to GDP increasing I mean just complete and it's had a decent correction within a bull market and that's why I see bitcoin decent correction within a during bull market gold a decent correction when the bull market copper may have peaked, crude oil clearly probably has peaked, lumber's probably peaked soybeans peaked, corn is probably peaked, gold discontinued what you're doing so I like to end with this to me for people are bearish gold why should it stop doing what it's been doing for most of its history in last year's particularly in this period of money printing which is the highest most in history when yes measured in dollars in in the US but dollars measured versus other countries and all legal ten they're all doing the same thing they're not backed on anything but printing money and their government
Bill Powers: Do you think that bitcoin and other cryptocurrencies have put a little bit of damper on gold's luster though in the past year
Mike McGlone: Oh sure well that's the key thing about it is there's been major outflows in gold and inflows in bitcoin now that's someone that's reverting back but that's the way I look at it now Bill I can't suggest risking one or the other let's be diversified in a gold bucket now if you're past investing in a gold in the past you have to have some bitcoin, why take the risk? Anybody who's nay say bitcoin in the last 10 years looks like an idiot so why take that risk just add one two percent and bite the bullet and say thank you I'm not gonna worry about one and two percent and if it continues to doing what's been doing this digital version of gold and world going digital will just do what it's been doing continue to appreciate but also view gold as attractive it's just the old fart you know it's the old analog and I mean I just don't I'm bullish both and for 2H I look at bonds gold and bitcoin is probably the best upside and I've been waiting for a correction in crude oil forever I got a little bit too embarrassed too early but down eight percent in one day is usually outwards up up on the escalator down on the elevator it's got to make it as painful as possible sometimes but I think the big picture is gold, bitcoin and long bonds and all the other anything that's you know industrial metal related like copper, stock market has to go up
Bill Powers: And silver for industrial and monetary reasons?
Mike McGlone: Yeah that's the silver's in the middle I mean I like silver I do but it's stuck kind of with copper, it's not gold and we know why it yeah it's in it's kind of stuck in middle so I'm a little bit indifferent about silver but I like I don't hate silver I like silver it's just it's less correlated to the stock market which is good it's actually you know 50% industrial now so it's almost 50% correlated to copper and gold it just doesn't have the under opinions that gold and bitcoin have
Bill Powers: And last commodity aluminum we use it in cars and all throughout you know in a booming economy what's your opinion on aluminum right now
Mike McGlone: Not much I think it's going to follow the macro with copper industrial metals a little bit overdone in the macro and fall yields lower I just have not between you and me I've always been able to get good sense for copper but not a good sense for the outlook for aluminum it's just less predictable for my standpoint
Bill Powers: Excellent well Mike I know you're busy man I caught you while you're at work so thank you for coming on my show today and contributing to my show I appreciate it
Mike McGlone: Thanks for having me looking for it next
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