Capital Flows and Asset Markets

There was a time, not that long ago, when the cheapest provider would be the corporate winner. Remember the days when online shopping was always the cheapest option? Or when streaming was much cheaper than buying DVDs? This was a period when government enforced competition, which has sadly disappeared. These days, particular in tech world, its how much capital you raise that is the most important factor in determining a winner. A good recent example was Netflix, who during the “streaming wars” massively increased its balance sheet which drove up the cost of content.Disney tried to compete for a while, but ultimately Netflix won.And once it won, content prices fell again, and content creators got squeezed. In AI, we are seeing a similar dynamic play out. Masayoshi Son, the founder of SoftBank, virtually invented blitzscaling with an early investment into Alibaba, where he encourage Jack Ma to build quicker, or his capital would go to competitors. In the AI race, we have the hyperscalers, and the AI labs, OpenAI and Anthropic. One of the more intriguing aspects in the current AI boom has been the weakness in some of the AI names CDS. Oracle CDS has been weak.As has Softbank Group.Softbank is really more of a concentrated investment firm, with a number of high profile investments with a mixed track record. Alibaba was a great success, WeWork not so much. In recent years, is has been busy turning itself into an AI focused investment vehicle.As of today, ARM and OpenAI are its two biggest assets.Softbank was looking to raise capital by taking out a loan backed by its share holding in OpenAI, but saw some push back from lenders.Softbank also have about USD 20bn of margin loans supported by its holding in ARM. ARM is one of the more expensive tech stocks out there - trading at 45 times EV/Sales.SoftBank, Oracle, OpenAI some other partners have attempted to blitzscale the AI market with its Stargate project.Softbank is increasing looking like the “soft flank” in the OpenAI v Anthropic battle for AI supremacy. Softbank has USD 130bn of debt outstanding (not including margin loans against ARM and OpenAI). Most is in USD, but there is a fair bit of Japanese debt as well.In line with JGBs, the yield on this debt has risen substantially.Not hard to see why - operating cash flow is poor, but capex is high.One of the reasons I have been cautious on markets is that I saw capital becoming scarce - and we are now seeing that in the AI space - as these huge corporates keep tapping the market for more and more money. The question is when do bond markets break? When do markets stop asking how much do you want to borrow, and start asking when are you going to pay me back. We may be getting closer than you think. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comShowing my age, I am paraphrasing from Monty Python’s “The Meaning Of Life”. For years after seeing this movie, when ever I tried to get someone to order dessert after a big meal, I would put on a French accent, and say “It’s only wafer thin”.Speaking of wafers, paid subscribers to the Substack and Slice will know that I quite like wafer stocks. Like most semiconductor related names, they are up a lot this year. Unlike most semiconductor names, they still look cheap. I detailed the buy case for wafers in February here.If you cannot be bothered to go through the old presentation, I repost the most important part below. Basically ASML said in its January presentation that the new NVIDIA chips were going to need more silicon wafers.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI have preferred gold to bitcoin for awhile. Theoretically, they should be the same - scarce assets that should rise as investors worry about debasement. The debasement trade is easy to understand. The US is forecast to run 7% of GDP deficits for as far as the eye can see.And yet the market is only going to pay you 4.4% a year to lend to the US government for 10 years. Somewhere closer to 10% feels right to me.For the past 4 years or so, since the Russian invasion of Ukraine, and the subsequent freezing of Russian foreign reserves, I have preferred gold to long dated treasuries - GLD/TLT. It has been good, but during the ongoing war with Iran it has fallen some 14%.In contrast while bitcoin has been very volatile over the last 5 years, it has rallied 28% from recent lows. Does it make sense to switch from gold to bitcoin?

One of the markets theories I was taught when I was young was that when oil prices are up over 50% year on year, the S&P 500 does poorly. Oil is certainly up over 50% year on year.But rather than being a bearish signal, markets seem to think its a bullish signal.I had also learnt to be cautious when gold starts to outperform the S&P500 - a sign that capital no longer felt safe in growth assets. Gold WAS outperforming the S&P 500, but not so much now.Why did moves in commodity markets used to be bearish - but not now? In 2022, surging oil price did lead to weakness in US equities. What has changed? One guess is that normally, when oil prices and gold prices are surging, food inflation is also surging. Below is US Food CPI YoY. This is a lagging indicator, but you can see when food prices rise - problems for equities begin.Above is a lagging indicator, but we have a more forward looking one. The CRB Foodstuff index. Here we can see spikes in food prices tend to lead to problems in markets.For the US, I have found the wheat price is a good one to watch (its called the bread line for a reason). It is up from lows, but not much.One argument you could make is that rising oil prices pushes up Urea price, and food prices with it. Maybe. But potash prices are still pretty low.Another big counter argument is that the wholesale price of pork in China has collapsed, which means Chinese grain imports are also likely to collapse. Or in other words, global food inflation looks unlikely.I have looked at agricultural markets for over 20 years - and they are by far the toughest markets to understand. Usually with commodities, supply is easy to model, but demand can fluctuate. With ags, demand is usually pretty constant, but supply can change rapidly. The big question is whether food prices are about to surge here or not? Or will that happen with a lag, as higher energy prices cause food production to fall in a year or two time? Personally, I can not generate a strong view on whether food inflation will surge or not from here, but it does seem to be the missing link between gold, oil and equities. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comTo be perfectly honest with you, I should have lost money this month. If I look at the big macro trades I follow, they all pretty much went against me. The most extreme was GLD/SPX, which finished the month at lows. Big up months for me have been when this spikes, like in April of last year, or January of this year. That it was down 10% this month, should have been a problem for me.When we look at GLD/TLT it also gave me nothing this month - with both GLD and TLT falling the same amount.I also prefer Japan to the S&P 500, which on a relative basis was back at lows. This was also compounded by the fact that Japanese banks just traded in line with Japan this month, so no alpha there.On the short side, private equity names, also bounced hard (as proxied by PSP US, the Invesco Global Equity Listed Private Equity ETF).Despite ALL of that, it was a pretty decent month. How?

I have been engaged in a number of side projects for the last few months. One of them is writing a book about myself. I have written about eight chapters, but I am struggling to finish it off - there is just so much happening in the world today. So I have decided to serialise the book - that way, I am setting a deadline for myself to get my act together. Below is a taste….OUTSIDER TRADERThey were the last big investor, the last hope, and the last chance to keep the dream alive. I was running out of time. The partners had given me a few years to work things out, but I was a loss-making venture; I was running on borrowed time. I had known it would be hard taking over from John, but I had never contemplated failure before. Not really. Now it was staring me in the face. And I was calm.It is live here - OUTSIDER TRADER. I have also added a podcast for those who prefer to listen than read. Also as previously announced, I have been working with a new website Slice. Slice is still a relatively new website - but it does offer competition to substack. They have improved both the front facing and back facing aspects of their website over the last few months, so I am making a renewed effort with this website.With Slice, I think it works better with the “short selling” part of my business. Short selling naturally requires more trading, and by definition can not just short and forget (unlike long investing where buy and forget works). I also know that more trading oriented of my substack subscribers are very keen on short selling (as a rule, people tend to pay more for short selling as it so difficult to do). For that reason, I am skewing my Slice page to more short focused ideas.Another feature I like is the portfolio part of the website. Again I am going to skew this to more short ideas.Slice is more expensive than substack, and does not offer a free option. But if you are interested in trying, I am offering 50% of for the first 6 months - use BRUMBY50 as code. Any problems, drop me a line. With Slice, you get more a stream of consciousness, and less of the considered thought you get here. Find it here.Enjoy! This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

One of the questions I am often asked is surely the US government or the Fed will step in to stop yields rising too much. And usually I answer this question - with yes that true but that is why you need to own gold, as a hedge against exactly that. And that is a nice, simple answer, but could also be wrong. I could see another reason why long dated US yields rise, one that would closely echo the 1970s.One of the more weird features of the current inflationary period we live in has been the total lack of improvement in the US government fiscal position. IMF is forecasting big deficits as fare as the eye can see. The contrast with Japan or the UK is striking.And the yield premium over JGBs keeps falling.But there is another, political, way to think about US treasury yields. Back in the 1960s and 1970s, yields were constantly going higher.But unlike now, debt to GDP ratios were falling in the 1960s and 1970s. That is yields kept going up, even as the “creditworthiness” of the US was improving, while US yields today stay stable, despite the US government ability to pay declining.As we have seen in recent years, the US government has used trade flows (via tariffs) as political weapon, financial flows (via sanctions) as a political weapon, and military dependence as a political weapon. We are also beginning to see oil and natural gas flows as a political weapon. So, logically, we should also see bonds and bond yields as a political weapon. In simple terms, owners of capital demand higher yields from the Democrats. Generally speaking, we tended to see bigger falls in yields in the 10 Year Treasury with Republican presidents, and yield rises under Democrats. Under President Trump, 10 year yields have generally behaved well over his entire term.As mentioned in a previous post, there is a conservative political strategy called “Starve The Beast” which entails cutting government revenue, which then ensure that Democratic administrations must cut spending - a policy that worked well with both Clinton, and Obama - but one that Biden conspicuously ignored. Starving the beast strategy would probably accurately reflect the second Trump Administration - large scales tax cuts, plus the gutting of the IRS would be in line with this. The Democrats recognising that they were getting played, have joined in the tax cutting frenzy.Since the 1980s, until Biden, the Democrats feared the bond market - and have broadly enacted Washington Consensus policies. But as we have seen with Biden, and now with Trump - there seems to be no fear. Or perhaps the Democrats have their own starve the beast strategy - spend aggressively, and let the Republicans be the ones to cut spending. The UK is an intriguingly example. In 2022, Liz Truss announced an aggressive budget, and yields surged, and she was ejected from government. Since then, more conservative budgeting has happened, and yet yields have continued to climb. Is this because Labour is in power? Is it because the Greens and Reform are leading the polls? I don’t know, but I do not think the US political environment is too different - both the Democrats and the Republicans look fiscally irresponsible.I guess what I am saying is that, markets could give up on US treasuries if President Trump announces a fiscally aggressive policy, or, should the Democrats starting doing well politically, bond markets should begin to act skittishly to try and convince them to enact austerity. Either way I cut it, short TLT still looks good politically. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

Yesterday, I gave a presentation to ANU Alumni of UK. It was just a quick presentation on AI, which I am now posting here. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

I have used the red pill/blue pill analogy before. I like using it because it does capture the idea of do we choose to continue to stay in an artificial world, or do we choose to face reality? I also like it as the original Matrix was filmed in Sydney, and in fact in the lobby of UBS. The lobby that they destroy, was indeed the lobby I walked past everyday. I felt cool by association.It goes without saying, I am a red pill type of guy. Bull markets are about dreams - blue pills, and bear markets are about realities - red pills. A lot of people are going to say the AI boom is a blue pill. I disagree, AI boom is straight out of US Business Strategy 101 - spend as much money as possible to try and destroy your competition - exactly what we saw with Amazon, Netflix and other big tech companies. Capex as a moat. Its just with AI, the competitors have more money than any other corporates have ever had before. At some point, someone will lose the AI fight, and cut spending - and when that is, I don’t know. And I am more than happy to make money from AI plays where I feel the risk reward makes sense. So no, blue pill, red pill does not refer to AI. It refers to bonds and interest rates. First of all, plainly the US fiscal position make little to no sense. With Donald Trump essentially withdrawing US security guarantees - why would any foreigner want to own this “asset”?Much of the MMT model, which seemingly the current and former US administration lean heavily on, was driven by the extremely low bond yields in Japan despite large fiscal deficits. The problem is that yields are not low in Japan anymore.Since 2020, the best way to play this MMT approach is to be long SPX and short TLT. This was the exact opposite of how I used to think about markets, and as I like to point out, is an ideal market for passive. Many people say passive distorts markets, but I see the success of passive being driven by a market that is very supportive of passive investing. In recent years, we have seen some sharp reversals in this trend, but so far the trend is still holding. I see this as tremors before a bigger shock - but I could be wrong.Why is the SPX/TLT a blue pill type of trade? Equities are highly correlated to corporate debt markets. The yield of KDP High Yield has rarely been lower in nominal terms.Or another way to look at it, US equities have never been more expensive relative to JGB yields.So going back to the title of this substack, “Capital Flows and Asset Markets”, my expectation is that capital should look to leave the US at some point, which should become a mutually reinforcing shock. As capital leaves, the cost of capital rises, which makes US assets less attractive, causing more capital to leave, so on so forth. For me, the best sign of this happening would be gold beginning to outperform the SPX. Why? Because in essence, US fiscal spending has socialised all corporate risk - so if the US government gets into trouble, everyone is the US is in trouble. And in that scenario, all US assets are unattractive.So the red pill/blue bill analogy here is that gold and JGBs are saying that markets can see yields going higher. High yield debt, and the SPX are saying yields are going lower. Looking at a graph of US 30 year yield, market is in no man’s land. You can believe what you want to believe here - blue pill or red pill.I think red pill from here - but if yields fall, AND gold falls from here - then we know we are in a blue pill world, and the best trade will be SPX/TLT. But it does feel like a pivotal moment for me - markets are confused, trend followers are all over the place. These are the moments when big moves can happen - red pill or blue pill. We will find out soon. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI have an investor day this week, and one of the questions was whether we actually need hedge funds? Its a good question. When I look at markets now, I think probably yes which is why, early last year, I launched Brumby. That being said I can (easily) see the case for why you don’t need hedge funds. If we are just in an inflationary world, asset prices will just keep rising and being passively invested makes sense. When I first got into markets, Japan was already 10 years into its bear market. And I had seen numerous “deflationary” busts, that had wiped out investors. From my perspective - you needed a hedge fund, because the deflationary forces of capitalism made equities perilous. The idea of a 50/50 bond equity portfolio emerged from this era. If you look at how S&P 500 and total return index of US treasuries traded from lets say 1976 to 2016, if equities when too far relative to bonds, they would then correct back. You can see the top in 2000 and in 2007 very clearly.But since 2016, and especially since 2020, a long SPX, short TLT trade has been fantastic, it has generated a near 500% return, with barely a drawdown. In my mind, the obvious driver of this has been the US government, which has been running 7% deficits during boom times, and is forecast to continue to do so.In simple terms, the US government has boosted the economy, by trashing its own balance sheet. Corporate credit spreads have collapsed, because all the money is being transferred from the government to corporates. The bull argument is that the US government cannot go bust, so this situation can continue to forever - which in case, Long SPX or Long QQQ with a short TLT position makes sense - or in other words passive investing is the right answer.The bear argument is that historically speaking, when other governments have tried to enact this policy - bad things have eventually happened to them.

I try not to take absolute positions, but relative positions. In the inflationary world that we live in, I think inflationary assets will do well, UNLESS central banks run tight monetary policy. What that means in practice for me, is that I like Gold (GLD) relative to Treasuries (TLT). GLD/TLT has been good.I have always worked in relative terms - as I always fear political reaction to one side of my trade working. If one trade works (gold goes up, lets say), I run the risk that the Fed suddenly gets hawkish, and gold tanks. This make sense to me. But after the fact, people will say to me : “hey Russell, your short TLT isn’t working, why do you still hold it?” This is always the way - people always love the winning side of the trade, and hate the losing side. For me, personally, I cannot take the GLD side of the trade without the TLT side of the trade - it would be too risky for me. In my career as a fund manager, I have had many client conversations like the above, and a year or two later, even though I have done well, they suddenly redeem. When I ask why (nothing more frustrating that redemptions when you are doing well), the answer inevitably is “we copied your trade, but we left off the hedge as it was not working - and we just got smoked, because you were right, we needed the hedge”. If something is inevitable, just because it did not happen today, does not make it less likely in the future, in fact the opposite is true - but investors and markets will always be backward looking.So the question is, does short TLT still make sense? If I think we are still in a pro-labour era, then yes. Back in the 1960s and 70s, when wages rose quickly, the Fed needed to run tight monetary policy (policy rate above the 10 year yield - the opposite of what we saw in the pro-capital era from 1980 to 2020). In concrete terms, I think pro-labour era policy rate tends to be higher than 10 year Treasury yield, and in a pro-capital era, the policy rate tends to be below the 10 year Treasury yield.For me, the politics of a short TLT trade still make sense. But I was reading through a Chris Wood’s post on substack on Treasuries. I have read Chris Woods for a long time - and he was early on Fannie Mae and Freddie Mac, and the Eurocrisis. I always sleep better when my positioning is aligned with Chris - and he was pointing out the increasing messiness of the US treasury market. I steal some of his charts below. Let me start with some IMF charts The left hand side chart shows the rise of “Other Investors” in the US public debt (read as hedge funds) - who were virtually non-existent until 2022. This makes sense to me as “official” buyers (other countries) stop buying treasuries.There was a time when Japan really stood out for unsustainable debt load - but Japanese debt load is falling as the US is rising - which is what you expect in a rising wage, strong stock market environment. The continuing rise in US debt is very unusual.US 7% of GDP fiscal deficits are very eye catching - especially given relatively strong economic growth.As is the reliance on short term debt for the US. The implication is that if the Fed did raise rates, the US debt dynamics would worsen very rapidly.You can see how much bill issuance has increased in the US. This chart is from Chris Woods.For long time readers, they know I hate the clearinghouse reform. It essentially moves risk pricing in markets from forward looking banks, who can go bankrupt if they get it wrong, to backward looking clearinghouses, which cannot go bust - and then require governments to bail out markets when they get it wrong. Much of the demand for treasuries come from basis trades, which the below article makes clear. The basis trade is run through clearinghouse these days. When margin calls are made, treasuries can and do fall as cash needs to be raised for margin calls, which can then exacerbate liquidity issues. The Gilt Crisis after the Liz Truss budget is an example of this.Probably the most killer chart from Chris Woods is this one. Net Interest and entitlement make up near 100% of government receipts - even though interest rates still look too low to me, and unemployment is low in the US. This is probably why treasuries fall when recession fears arise - there will be no money to pay for treasuries.While this note is about TLT, it also answers one of the questions I have been asked to address in my upcoming investor day. Do we need long/short funds? My read, for what it is worth, is that much of the US growth story is a pure fiscal one. All the extra money that inflation and growth generates the US government is just spent - nothing is now saved for a rainy day. Or in other words, back in 2006, the US was abusing the mispricing of mortgage backed securities, today the US is abusing the mispricing of sovereign debt. The simplest trade might indeed be just long gold - but back in April of 2025, we saw treasuries sell off during the Liberation Day Tariffs sell off.For me, this was a sign that the Treasury market was breaking, and that the growth story for US equities was weakening. When this was followed up with the break out of gold versus the S&P 500, and general weakness in private equity/credit - it felt to me like it was time for a long/short fund, and time for weakness in TLT.All of this makes for a good story, and so far matches up with market action. But I am also aware that it could just be a good story and market moves are just spurious correlation. But all good trades start with a good story - and this story seems to say that TLT should be a good short. Lets see. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comAs predicted, markets would generally speaking look through the current crisis and spike in oil prices. Equities are long lived, and its hard to believe this crisis will be long lived. Already oil majors are rushing to add capacity elsewhere, and countries are turning to coal and other energy sources. For me, this is fundamental proof that the energy weapon of Russia and OPEC is a spent force. At some point, Iran and Russia will need to come to some understanding with the US. And this is in many ways bullish asset markets. I am sure many “analysts” will disagree - but the market agrees with me - and that is all that counts.I have been doing this job a long time (too long maybe?) and I have come to realise that I am good at two distinct things. The first thing I am good at is drawing together lots of different assets classes and ideas to make a single theory. Call this “macro thinking”. Traders tend to love the macro thinking. Why? Because traders love owning things that are going up - but do not want to admit they own it just because its going up - so if I can give them a macro reason - it makes them sound smarter. For example, a trader could say, I own gold or silver because its going up (see Jesse Colombo for example) OR they could say I own gold because no central bank wants to own US treasuries anymore (Russell Clark Macro Thinking).The other thing I am good at is “sausage making”. So once I have a theory, I then need to find assets that are going the right way to make the macro thinking actually look sensible. I call it sausage making, because it is often just me sitting at Bloomberg wondering why an asset is not moving the way it should be, or liking the way as asset is moving, and wondering if it fits in the framework. Its not “beautiful” like macro thinking - but if macro thinking is the recipe, sausage making is the cooking. You need both.I am looking at the bounce in markets, and thinking about whether I need to change the cooking a bit.

I find that AI defies almost every investment technique I have ever developed. When DeepSeek was released last year, I thought we would see some correction in pricing in Western AI relative to Chinese AI. That is pricing for Nvidia/TSMC chips would fall back towards SMIC levels (SMIC makes chips for DeepSeek). Contrary to my expectations, the pricing differential has continued to widen.I then thought the financing troubles of Oracle might also signal signs of a rethink on AI spend. Previous spikes in Oracle CDS in 2022 and 2008, were years of weak markets. The market has happily ignored Oracle weakness.But these potentially negative signals have not worked. If anything, the AI boom seems to be broadening out. We have now seen with the recent surge in DRAM and Nand prices. Or in other words, the pricing of commodity semiconductors are starting to close the gap with the cutting edge Nvidia ones.The broadening out of the AI boom has also including the share prices of electricity generating equipment producers. Doosan Enerbility is one such company - and the share price has returned back to the peak of the China boom.2008 was the time to get rid of your Doosan shares - as this is a VERY cyclical industry. And back in 2008, China was the real driver of electricity generating growth. China did not stop adding generating capacity, but it did grow at a slower rate, from 2008 onwards, and Doosan fell 99% from peak to trough. When I look at Oracle, Nand pricing and Doosan, I do get flashbacks of 2008.If that is the bear case for the AI boom, then this is the bull case. The “idea” of a modern economy has been set in stone since the 1960s or 1970s. Access to constant electricity, a working road network, and various other mod-cons. The US was the first to achieve this modern society, and basically the world has been striving to catch up. Mexico, which is a neighbour and shares many features with the US, was dirt poor in the 1960s, and now inching closer to developed status, we can see its development in its use of electricity. I have used log scale for ease. What you can see is the Mexican growth in energy consumption skyrocketed in the 1960s and 1970s as it developed, and then slowed from 1980s, to stagnation since 2010. The US growth has really seen stagnating growth from 2000. What I am saying, is that in essence, we had reached a lifestyle that did not require more energy (in fact on a per capita basis, energy consumption was falling). Whenever you hear that the US has not built a new refinery, or new power station for 40 years - this is not market failure. This is the market saying that the outlook for power demand did not justify the investment. Obviously this is starting to change with AI. EIA predicts growing demand and supply going forward.The trillion dollar question then, is how many data centres do we need? And how much energy would this consume? If we look at data centres, plainly the US is in the lead. But what we are seeing is that US demand is now constrained by its ability to produce electricity. China has less data centres, but obviously not constrained by energy capacity.Ask ChatGPT how many data centres does the US need and you get an estimate ranging from 100GW to 500GW - so large multiples from what we have today. One of the big problems with this is that the US power grid is constrained by connection capacity. That is, data centre supply is constrained. When supply is constrained, companies tend to over pay and over order. The reason for this is by making them themselves the biggest and most important customer, they are hoping to jump up the queue in getting supplied. This leads to a negative doom loop when supply catches up, as double orders get cancelled. This is why these industries are considered cyclical. That being said, power generation equipment supplier, GE Vernova has powered to new highs even with oil price doubling.I have started to think about semiconductors in a different way. If the post war growth model was built around cars and fossil fuel usage, then this growth was only really constrained in the 1970s, when energy prices surged. Using a Bloomberg analysis, energy costs stayed below 4%of GDP until the 1970s, and then surged to 12%, and this ushered in the era of Washington consensus, and age of energy efficiency. That is total power generation stayed constant even as GDP grew.Lets say we are in an AI age, where the limiting resource is now semiconductors. Can we make a graph like above? Well I am going to try. This uses data from Semiconductor Industry Association. Using a few estimates, I get to a 1% spend of world GDP on semiconductors in 2026, from a 0.4% in 2000s. So the build out of personal computer through the 1980s and 1990s drove the first bull market in semis, which then stabilised, and now we are in a new era of AI. The big bullish argument for semiconductors is that AI is going to permanently increase semiconductor demand going forward, as more and more of our activities require AI and data centres. Could we be spending 3% of GDP on semiconductors going forward? 5% to 6% on energy is normal, and 3% of defence is considered the going rate. Are semiconductors now the life blood of the modern world? Probably, would be my guess. The question is when does supply catch up.Backward looking, mean reversion believers would tell you that we are back at dot com peaks, and we are going to see a crash. But having seen the use of AI in the battlefield in both Ukraine and now Iran, and the various AI related lay offs been conducted by tech companies, AI seems the real deal to me. As also pointed out before for companies like Microsoft, AI is now a life and death issue, so they will keep spending, and this will likely keep everyone else spending too. If I look at Nvidia/TSMC chips, NAND and DRAM, they all seem to reflect this reality. But with the semiconductor stack, I find areas that are not pricing in this future yet. I quite like the wafer business, where pricing has been weak due to slow smartphone and PC volumes, but an increasing share of wafers are now going to AI products. This reminds me of the DRAM set up - but before prices skyrocketed. That is pricing is discouraging capacity expansion in wafers, even though pricing is encouraging capacity expansion everywhere else in the tech stack. I like that risk/reward. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

If you have not heard of the “Gays of the Hormuz”, there is a viral tiktok where an interviewer ask people if they think its unfair that we only talk about the Straits of Hormuz. What about the Gays of Hormuz he asks people. Its quite funny.I feel like I SHOULD be worried about the Strait of Hormuz, but part of me just cannot. When I usually see trouble in the market, I am happy to dive in and try and make money from it. And I am inundated with reports of how we have an imminent, oil, LNG, food and economic crisis. I have friends email me to tell me we are about to run out of helium, which will destroy the semiconductor industry, and another that has likened the market to pre-Covid - irrationally calm. I have also had various investors write to me and ask me what I think - and what I am doing.Here is my take for what its worth - and it is more upbeat or “gay” than most takes. Lets start with the oil market. Brent has surged from USD 60 to USD 110 today - so a big price shock. But it still below USD120 we saw in 2022 and not that much above the USD90 we saw in 2023.LNG prices to Asia, are at about USD 20, compared to a peak of USD 70. This a MMBTU price - so directly compares to Henry Hub prices. Again, a big jump but not at levels we have not seen before.In Europe, we are at EUR 53 per MWh - which is up from lows, but same price we saw last year!When I look at US natural gas prices at sub USD 3, it seems very “Gays of Hormuz” to me.Chinese thermal coal prices is also giving me a very “Gays of Hormuz” vibe too.This is not to say that things could go wrong - but when the main energy source for the US (natural gas) and for China (coal) are not spiking - should we really be preparing for a recession? More likely, growth is okay, and inflation spikes. But what if this crisis drags on you may ask? And here is where it gets complicated. A complete and permanent closure of the Straits of Hormuz today - would probably indeed cause a recession. But lets say, the War in Iran continues for a year as it has done so far. Disrupting shipping, adding political risk to Middle Eastern supply, and then the Strait of Hormuz is closed completely. I would suspect, the world would probably be able to deal with it and move on in a years time. That is the longer that the Strait of Hormuz is an issue, the less it matters. Contingencies are being activated, alternative energy sources are being sanctioned, and deals are being done. And this is just to reiterate a point I made in an earlier post. Iran hurts itself the most in the long run by closing the Straits of Hormuz. Its a short term gain for a long term pain - and probably driven by desperation. To me it explains the conspicuous strength of the Israeli Shekel.Israel does not seem to be suffering from trouble in the Straits of Hormuz. Israel is also the most gay friendly nation in the region. May it is “Gays of Hormuz” after all…. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

I have friends who know nothing of my work life. When they find out I have a social media following of a sort, they ask why do people follow you? It is an interesting question. My best guess is that I really have a holistic approach to the world, and I do think everything is connected, even if those connections are not always easy to see. And then I do my best to explain these connections as simply as possible.These days, in the chaos of the modern world, it is often hard to feel like there is any rhyme or reason to life. I suspect for some people, they feel like things just keep happening to them that are not supposed to happen. Or in other words, they feel like they have done everything right - but are not as successful as they think they should be. When I hear this, and when I look around, I see the same theme. Deinstitutionalisation. An ugly word for a simple idea.I am going to try and talk through the idea of deinstitutionalisation, so hopefully you can understand where I am coming from - and I am also hoping that as I explain this to you I can more fully understand the concept and implications, and go make some money from it (I am very practical man - I don’t need fame, but money helps make life easier).WHERE WE STARTEDIn simple terms, we started with a feudal society. Peasants farmed the land, earned enough to survive, and paid taxes to their lords, and tithes to their church, as these were the two organisations that took care of security, and social welfare respectively. And this system was broadly in place for a thousand years.The industrial revolution upended this system as it concentrated wealth in cities, and moved peasants from working for landed gentry to factory owners and inventors. This placed huge strain on the political systems, and led to the French Revolution, Meiji Restoration and a plethora of other revolutions, which were all about overturning the old social order. The revolutions removed landed gentry from power, and replaced them with industrialists and financiers. WHERE WE WENT NEXTThe industrial revolution also changed that ultimate form of politics, war. War went from who had the most manpower to which nation could produce the most output, would be the ultimate winner. The Japanese, with the Meiji Restoration, and industrialists in charge, were able to conquer large parts of China in 1900s, an outcome that would have seemed ludicrous in the 1800s. You could almost argue that War was necessary partner to the industrial world to offset the naturally deflationary tendencies of industrialisation. Mass war required mass production, which in turn required mass mobilisation . And so nations, needed to form institutions to organise mass output. This required mass education (compulsory schooling), mass labour (unions) and mass communications (government broadcasters). In fact success in life from the 1940s onwards was driven by joining a large institution and rising to the top.What this meant, especially lets say from 1940s to 2000s, is that people generally judged you my your institutional association. You are a judge? You must be wise and successful. You work for Goldman Sachs, you must know about finance. You were a government minister? You must be a great person. You are a doctor at a hospital? You must know about health. Another way to think about this, is that information was siloed, so if someone worked in an institution with access to that information, they must be better informed than you - and hence you should be deferential to them.This “institutionalisation” of society, meant that success was driven my entry into an institution. We still see remnants of this today. Why do people work so hard to get into an Ivy College - because it grants you institutional access. And having access to an institution was the only way to get things done. Despite the wide and varying quality of UK Prime Ministers over the years, since MacMillan, only Major and Brown were not graduates of Oxford (yes even Truss went to Oxford).WHERE WE ARE TODAYBut from 2010 onwards, I would say society has steadily but surely deinstitutionalised. Now some people will read this as society is falling apart - this is NOT what I am saying at all. What I am saying is that access to large institutions are no longer necessary for success. The availability of information, and the ability to directly access people have destroyed the need for most legacy institutions. Do you really need to go to Oxford to learn about the most cutting edge ideas? Maybe. More likely there is an online forum that will be just as good somewhere.I see this theme of deinstitutionalisation over many different fields, but often they are different from field to field.FinanceThere was a time when you needed to be in a big institution, not only for the credibility, but for the sales and distribution. Merrill Lynch brokers were the thundering herd, for their ability to drive clients to products. Fund managers needed access to analysts to tell them about new companies and prospects. All of this has been deinstitutionalised. Online forums can drive stocks, fund managers can reach clients directly, and star fund managers can operate on the back of their own name, not an institution.MilitaryWar in Iran and Ukraine has shown that clever individuals and smart strategy can thwart the institutional might of both the Russian and American military . We have even seen the rise of distributed intelligence, where amateurs study publicly available intelligence to to comment on military matters. In Ukraine, we have seen commanders stream combat action and gain social media following. We are a long way from the shroud of secrecy that covered all military activity in the past.PoliticsThe legacy idea of political parties is largely being destroyed by the rise of social media. Why join a party when you can directly connect with a leader? And why create a manifesto, when you can float a political idea on social media and gauge the positive or negative reaction in real time?Judicial MattersYou would have to be wilfully blind not to see how the power of social media can overwhelm the judicial institutions. Whether this is good or bad, will depend on context and your political leanings. Controlling a social media narrative is probably more important than the evidence that can or cannot be presented in court. In some cases, this undoubted righted a wrong, and in others, created an injustice. But it is hard not to see how judicial institutions have been challenged by the social media.HealthThe ability to self diagnose will greatly reduce the prestige of the health care sector. This in turn, will lead the health sector to be profit driven, and broader questioning of all features of public health. Something that is very clear in the US.EmploymentThis has been apparent to me for a long time. Institutional reputation is no longer enough to guarantee success. Success is now individual driven. People care far more about your social media profile than your CV - at least in my experiences.When I hear the word “viral” what I hear is that an individual has managed to bypass traditional media institutions to achieve success. And now with Twitter, Substack, Instagram, we can directly contact the individuals without need for a institutional middleman.The positive part of this transformation is that anyone can now be successful - without the need to go to the right school, or know the right people. They just need to be clever. The negative part of this transformation is that people who have followed the institutional pathway are finding that job opportunities are not offered to them in the same way. That is “professional” jobs are seeing stagnating wages, while more manual jobs that are not tied to any institutional access continue to do well.One feature of this “deinstitutionalisation” is that people that would otherwise be deemed untouchable in the institutional age, thrive. Most of the current White House cabinet probably fall into this category as do most “populist” political leaders. Elon Musk is very different in his attitude and demeanour than Bill Gates. What is important to understand is that this “deinstitutionalisation” is not driven my political currents - but by technology. By moving information out of siloes, institutions lose their natural advantage. In other words, this is a structural change, that will not be reversed.WHAT DOES THIS FUTURE LOOK LIKE THEN?The US is by far the most advanced in this deinstitutionalisation process, and so offers the most likely outcome. And the Republican party is probably closest to a deinstitutionalisation party. Below, I best sum up the political logic as I see it.If government is not the driver of mass organisation, then corporates must be the driver. If corporates are the driver, then governments should do their best to allow them the most leeway possible - deregulation and no tax. If corporates are not to be taxed, then to pay for essential government activities (mainly military in this case) then tax revenues should come from workers (who will benefit from strong corporate hiring anyway) and foreigners (tariffs - although workers also pay tariffs).There are some extremely frustration aspects to this deinstitutionalisation of society. Extremely social media popularity seems to offer almost total immunity. Large parts of crypto are indeed fraudulent, but remain popular and hence relevant. The need to drive social media following drives people to commit to actions or opinions they would not normally hold, purely to drive interactions.The problem with looking at the negative issues of the deinstitutionalisation of society is that ultimately you are saying that society has a choice. It does not. Society is reacting to technological change, and that is change that cannot be reversed. And despite some conspicuous counter examples, it drives power and prestige to those with the most natural ability - and away from those that have some how mastered institutional politics. CONCLUSIONThe deinstitutionalisation of society is unavoidable, so no point trying to make a judgement call about it. But it does make building a social media profile imperative for all people. If you are not visible in the public space of the internet, then generally speaking most people will assume you have nothing interesting to contribute. Institutional reputation is now largely irrelevant.The big question, and the one I most worry about, is that the deinstitutionalisation of society naturally places more power with the rich and influential. Will this naturally blunt the inherently democratic nature of the mass communication involved with social media? Or will only those capitalists that move with mass opinion be the ones that can survive and prosper? On this, I do not have a conclusive opinion. But all I can say, is for the young and up and coming, building a social media profile is vital. You can no longer rely on an institution to bring you fame and a success - you need to go out and get it. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comSorry guys - you need to be a paying sub to watch this one. It’s about what I am trying to do, how its going, and whether market moves in March invalidated or validate the thesis.

There are many reasons I like gold - but I am not a gold bug. To me its just an asset choice among many. One thing that definitely disturbs me about gold is that it has become very popular among retail investors and second rate macro analysts. I also find the recent popularity of silver also a big warning sign. Below is a graph of silver.The tops in silver in 1980, 2008 and 2011 were also tops in the gold market. It has just been that gold has been much better than silver.I liked gold, because I thought it would do well if the Federal Reserve was too dovish. The US 2 Year Treasury is a good measure of “dovishness” - it has recently spiked - so not oil that is pulling down gold, but changing market views on Fed dovishness. Looking at the US 2 year - there was a brief spike in the 2 year in 2024. Was gold weak then? Less weak - but stagnant. The biggest drawdown you had to wear was 6%.Obviously gold has become much more sensitive to changing views on interest rates. Also back in 2024, interest in gold was much less, which we can see from shares outstanding in GLD. In 2024 it was at a low, but today it has risen, but not that much.So is gold going to get the Bitcoin treatment? Bitcoin since peaking at USD125,000 USD has dropped back to USD67,000.The most bearish signal I found on Bitcoin was surging shares outstanding in IBIT US - which have yet to fall. That is investors remain committed to bitcoin despite the fall. This is never a good sign. Bear markets tend to end when everyone has given up.One reason I preferred gold over Bitcoin, sliver, copper or any other physical material was that there seemed to me a committed buyer - namely central banks. If China is running a USD 1 trillion trade surplus, but also does not want to buy treasuries - which is what official holdings data shows, then the only option is gold. (Brad Setser argues Chinese commercial banks are now holding treasuries instead - which may well be true - but does not affect the argument for gold).There are other central banks, and much has been made of Turkey lending out gold to prop up its currency - but China is really the big daddy here. If China had felt it had enough gold, and it stopped buying, then we would really have a bear market in my view. How likely is this? Official Reserves of gold in China are about 2,300 tonnes - which is about USD 350bn at todays valuation. US official reserves are closed to 8,000 tonnes - which I think it a reasonable target for China. Assuming some undercounting by the Chinese, and lets say they are at 4,000 tonnes, this still leaves some 4,000 tonnes to buy, leave USD 650bn of buying. This is greater than current ETF holdings of gold, and this also ignores other nations potential diversification away from Treasuries into gold.Ultimately the problem with gold is that is has been a great trade, and it has run ahead of other assets. I like gold on a “relative” basis. Gold versus TLT has been great, but it is still a long way from its 200 day average. I also prefer gold to S&P 500. But has the same problem - its a long way from its 200 MDA.Lets assume I am mindless technical analyst - and we assume TLT and SPX do not move, how much could gold fall? Gold could fall 10 to 15% and still be in relative bull trends. I am of course bearish on both the S&P 500 and TLT - so we could get another March, where gold falls more than TLT and SPX - which could mean golds fall more like 20%. That type of thinking then puts gold at USD 3,800. If TLT and SPX falls further, gold could also fall further. All of this implies I should probably just go massively short the market. And there is a time when I would have done exactly that - but as you, I and everyone else knows, President Trump has a habit of managing to markets. When I think about an investment strategy - it has to past the “sleep test”. The sleep test is basically can I run that strategy and still sleep at night. The corollary of this is that if I am not sleeping at night, I need to cut risk. Naked short does not pass the sleep test.What would the above thinking mean for silver? Well lets say gold falls 20%, and silver correct back to a ratio of 80/1 that has be the average of the last few years (it is at 65 now) - then that would imply a silver price of USD 48/oz, basically putting it back to the price in November. This feels relatively likely to me - mainly judging by the “quality” of the silver bulls. I am tempted to short silver miners like WPM US and PAAS US - I suspect it would be a lot of fun, as they are widely held names these days. But I also know I would have no holding power in these shorts - that is if they rallied I would probably cover. To really have conviction on shorts like this, I would need to have clarity on the War in Iran, and on a much more hawkish Fed - which I do not. These are both Trump trades now.Ultimately, what I am think I am saying, is that we could finally be in the bear market that I have wanted for a long time. In this bear market, I expect the S&P 500 and Treasuries to decline, and gold to decline “LESS” than these assets. My worry, is that in the short term gold MIGHT fall more that treasuries and the S&P 500, but I think it is too big “political” risk to not have gold to offset bearish positions.To answer my original question - yes - gold could do a Bitcoin. But if gold is doing a Bitcoin - then other assets will likely be doing much worse! And ultimately, I think the Chinese will be buyers of gold, even if it is a bit lower than where we are today. Bitcoin (and silver) does not have that backstop. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comMarch was as tough as January and February was easy. It was a volatile month, and I put a number of trades on intra month. My best guess of performance is we gave up half of what we had made this year. This is disappointing - although still well up for the year.Months like this tend to really tempt you to move away from your core strategy. Or in other words, what you thought was important has now been superseded by something else more important in the market. While I would like to say that suddenly changing strategies is foolish and that you should always keep to the plan, there have definitely been times when listening to market volatility and changing plans has be the right thing to do. For me, late 2007, as the GFC started to take hold, a long EM strategy (predicated on a weak dollar) was winning but did not make sense anymore. At the time Fed rates cuts were seen to supercharge emerging markets, did it really make sense to be buying cyclical assets as the US went to a deep recession? Of course not.Then again, in early 2009, Chinese fiscal stimulus of over 10% of GDP meant a deflationary strategy which worked so well in 2008 no longer made sense. And again in 2016, the First Trump Presidency was a time to flip from a deflationary strategy to an inflationary strategy. Early on in my career, I used movements in bond markets and currencies as signals to when to flip - and this worked well. But since Trump in 2016, this has been a failed strategy. What has worked much better is reading the politics. And so I now put politics above all things. So the question to ask is whether the War in Iran is another key moment? A moment when we should move from an essentially inflationary position to a deflationary position? The key question here will be whether policy makers in the West try to shield consumers from the effects of the War in Iran, or are willing to allow market forces to do their work. In other words, will governments respond with a fiscal push, or austerity? With populists still holding the whip hand in most countries, I see governments spending until they are forced to stop by bond markets. That is , I see no real change in the idea that long dated yields are going higher. I still think US yields go to 10%. Fed fund rate was nearly 10% in the late 1980s, which does not feel that long ago to me - but I suspect feels like another planet for most people.

The say the key to happiness is low expectations. I thought my expectations of central bankers were low enough - and yet I still find myself unhappy with them. There have been many reasons for central banks to tighten monetary policy over the years - rampant asset prices (Bernanke would argue it better to cut rates to cause this outcome - moron), surging oil prices, rising wages, collapsing currencies (again Bernanke thinking is a falling currency is a good thing - moron). So market thinking is that no matter what, central banks will want to cut rates it they get the chance. And it is hard to disagree with market thinking - central bankers are a pretty sad bunch of losers. But there is one think that does seem to wake this group of bureaucrats from their slumber - food inflation. If we take Japan, a nation that introduced the world to QE and ZIRP, it had no food inflation for nearly 20 years, but is now dealing with severe food inflation.The BOJ has responded to this inflation push with the higher interest rates since the early 1990s - although overnight rates are barely 0.7%.And the 30 year JGB market has correctly noted, this is not enough. Rising food prices guarantees rising wages, which guarantees rising inflation. You don’t need a PhD from MIT to understand this.If that is the Japan story - the US is even more egregious. Unlike Japan, the US has never had stable or falling food prices since leaving the gold standard - except briefly after the GFC. Or in other words, QE and ZIRP never made any sense in the US - except to the deranged mind of Ben Bernanke.Even with my low expectations of the Federal Reserve, I have been surprised at the keenness to cut interest rates.A lot of my surprise of central bank dovishness stems from the fact that agricultural commodities, which have deflationary trends, have not fallen like they did during the 1980s and 1990s, or in the 2010s. Agricultural commodities spiked in 2022, and have stayed high. For me, this would point to the need for much tighter monetary policy.As many of my fellow substack writers have pointed out - closing the Strait of Hormuz does affect the price of fertiliser - namely Urea. US Urea prices are up a lot.Even if there is some resolution to the Iran War, which remains my base case, it seems pretty apparent to me that ANOTHER round of food inflation is coming down the pipe. One thing about food inflation is that it directly feeds to rising wages. You can car pool or get the bus when oil prices are high - but when you have to cut back on food - people get angry. When we look at the US 2 year v the Fed Fund Rate, its starting to think the Fed might need to raise rates.Best place to look might be the wheat market. The movement in wheat seems to offer a good guide to monetary policy. In simple terms, the 2 year yield moves above Fed fund rate when wheat is going up, and 2 year moves down when wheat is falling. Today wheat is going up.Where urea prices are now, wheat looks like a buy. And if wheat is a buy, I would expect yields to rise. Will the Fed raises rates or not? Well I am going to lower my expectations further and assume they cut into a food price spike. That would be on a par with the uselessness of this institution since Ben Bernanke showed up. But if history is a guide, the bond market will not like this at all. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

The founding idea of Iran is conflict with the US. In some ways, it has been surprisingly successful. The Soviet Union only became enemies with the US post World War II - if you mark the beginning of outright hostilities as the beginning of the Korean War in 1950, to the collapse of the Soviet Union to 1991, this was only 41 years. Modern Iran was founded in 1979, and survives today, 47 years later. This is despite far less industrial might, and population. Why has Iran survived so long? Well for most its life, the US needed to import oil, and confrontation with Iran was just not worth it. But in 2020, the US became a net oil exporter and the calculation changed.Of course Iran survived because it threatened all Middle Eastern oil and gas production. But with surging US production, it has been losing market share. North America is nearly a larger producer than all of the Middle East.Closing the Strait of Hormuz was supposed to be so traumatic, that this would stop the US or anyone else attacking Iran. But with changing energy dynamics, the US has called the Iranian bluff here. The problem Iran has is that Russia already tried using energy as a weapon and failed. When it stopped sending gas to Europe, natural gas prices in Europe surged from EUR/MWh 20 to 350. This is well over USD 400 a barrel equivalent.Germany, which has built an economic model on cheap Russian gas, has seen unemployment stay at levels on part with boom times. That is the energy weapon did not work.What is extremely problematic for Iran is that surging oil prices only affect nations that are diplomatic allies of a sort (Europe and Asia would prefer a peaceful resolution). At least the Russians use of the energy weapon was directed at the nations funding Ukraine. The Iranian energy weapon can only cause collateral damage. In fact, by drawing in other regional players, it makes the Iranian endgame of regime change even more likely. If they cannot be relied on to keep the oil flowing, the Saudi and other nations will also come to see the need for regime change. Generally speaking the markets are saying the same. When I look at long dated US natural gas futures (January 2030 in this case), you can see when the Russians turned off the gas in 2022, but you struggle to see the closing of the Strait of Hormuz in this price graph.While it is easy to think the US is heading into a quagmire like Iraq or Afghanistan, in this case other regional powers are also keen on regime change. What exactly is going to stop Israel from attacking Iran while the IGRC are still in charge? How can Saudi tolerate a nation that closes the Strait of Hormuz? With Donald Trump, the IGRC have a US president that could cut a deal, and enforce a deal. The longer they wait, the more likely that US politics changes, and then they face a long war of attrition which they can not win. And all the time, the Middle East becomes seen as an unstable supplier of oil, and their market share fall further. All options now for the IGRC are bad - but there is an incentive to try and make things worse to get better terms on a final deal - but the outcome is the same - the end of the IGRC has a regional power. Either this happens through regime change, and the Iranian people are finally allowed to prosper, or IGRC digs in, and leads the nation to be destroyed as happened in Syria and Afghanistan. From an investing perspective, this makes things tricky. The short term outlook gets messier and messier, but the long term outlook gets better and better. No matter what happens, the energy market will become more stable. If Iran capitulates, then the region becomes safer. If Iran does not, then more and more energy production will move to politically stable regions like the US or Australia. But what the War in Iran does do, it accelerate the trends that were already clearly visible - a rising cost of capital. 30 Year JGBs have resumed their sell off, with yields back to near highs.Maybe oil goes to USD 200 a barrel, or maybe it doesn’t. That is in the hands of the Iranian leadership, who probably know the gig is up, but don’t know what else to do. But for me, rather than bet on an unknowable actions, I think I would rather focus on a rising cost of capital - a trade that is driven by western politics - and much easier to track and follow. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

Its funny talking about interest rates. Whenever I say I think long bonds are going to 10% - people with mortgages look like I basically said the world is going to end. I will keep this short - as it is a very simple analysis. Essentially, I think we are in a pro-labour era that sees the back end sell off until political change comes. We are at 5% now, I could see an Iran war sell off drive that to 6%. This is NOT unreasonable in my view.Back in the 1970s, short term bond yields tended to trade ABOVE long term yields. That is central banks had to work HARD to keep government driven inflation in check. When governments have deflationary policies, central banks just need to raise short term rates to where long term bond yields are to create deflation. When government have inflationary policies, short term rates need to be above long term rates. We have seen this inflection already, when the yield curve became heavily inflected in 2023, and every macro strategist screamed recession - but none came.Just like in the 70s, the 2 - 30 spread is moving lower again - and in my view back to be 100 points over the 30 year. So as I said, I think the 30 year heads to 6%, this implies 7% for 2 year treasuries. Is the market ready for that? Absolutely not! Fun times for short sellers beckon. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

Most, if not all, of my big thinking is based on watching the markets, and wondering why something you expect to happen does not happen, and what does that mean. In the earlier part of my career, I looked at JGBs, and wondered why they never sold off despite every major macro thinker being bearish on them. I made a career out of working out why JGBs were strong. When JGBs did start to trade bearishly during COVID, I knew something had changed, so in the end I took a break to work out why that was, and then used those ideas to set up Brumby. A changing political view of the world let me to invest with the idea of GLD/TLT, and the rising cost of capital as the driving principals behind the fund. Exceptional performance of the fund has been in no small part driven by the exceptional performance of GLD/TLT. This month will likely see the first meaningful weakness in this trade since late 2023.I have a strong incentive to brush off the weakness in GLD/TLT as positioning led. That is the oil shock has meant winning trades get sold to raise cash. The problem is that even if that was true, an oil shock really should be bullish for this trade, not bearish. And even now, three weeks into this shock, gold is still negative correlated to oil price. I think the “problem” with this trade this month is that TLT is focused on the long end. The reality is that the cost of capital is rising again. The US 2 Year treasury yield has risen nearly 60bps in March so far.The long end, where short TLT would make money, has moved a tamer 30bps - to be back where it was in January. If the 30 year had sold of 60bps, then the drop in GLD/TLT would have been far less precipitous.What I am saying is that GLD/TLT worked, but the oil shock has been more pronounced in the short end rather than the long end, which means the short book has not made as much as the long book has lost this month. But I could also say, I over earned in the preceeding months, as short TLT did not hurt me as much as it would have if has been short the shorter end of the Treasury market. So where to from here? What this whole episode has made clear is that European and Asian allies of the US need to spend, and spend aggressively. Japanese and German inflation outlooks (to me) are much much higher than the US, and yet their bond yields are below US yields.This of course reflects the much more savings focus of European and Asian investors, but the market knows this as well. I have bored people with JGB graphs for years, so will use the German 30 year graph to tell the same story. It is at cycle highs.Everywhere I look, the demand for capital is rising. AI investing, energy investing, defence spending. The cost of capital is rising. And this has become apparent in problems with private credit. When capital was free, no problem. But put a cost on that capital, and its not so great. The temptation and advice I get from markets is that short Europe and Japan as a trade on higher energy costs. I feel like this is foolish. The time to short is when people DO NOT know they have a problem. Once a problem is known, its normally better to be long. It contrary to human instinct, but very typical of human experience. Japan knows it has an energy problem. Japan closed down most of it nuclear power after Fukushima in 2011. This is when its problems began. But Japan has come to realise this is creating an energy insecurity problem, and is trying to switch is back on. Japan probably will not get back to is 1993 highs, but maybe 200 Terrawatt hours.What is curious about this chart, is an energy secure Japan used to have a strong yen, and energy insecure Japan now has a weak yen. If Japan gains energy security again should we expect a strong Yen?Japan has been slow to restore nuclear energy, for understandable reasons, but the direction is clear. And as we are all aware, renewable energy is also much more feasible than it used to be. The step change from 2022 is obvious. This equates to about half of peak nuclear generation.In reality, I am turning more bearish on fossil fuel. Once you weaponize it, you reduce demand for it. This is the same argument for gold over treasuries - once you weaponize US payment systems, you naturally kill demand over time. All of this may seem overtly political to you - particularly for a fund manager. But as we should all know now, politics is everything. Politics makes me think GLD/TLT is still good, and its makes me think the relative outperformance of the rest of the world versus the US is likely to continue. Why? Well I suspect energy security will return to Asia and Europe, but at the cost of a rising cost of capital. And a rising cost of capital should be bearish for the US. Or in other words, I am long Japan, which knows it has a problem, and short the US, which is oblivious to its future problems. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

For the first time in years, the market has presented me with another option to the rising cost of capital trade. As we all now, the War in Iran has seen oil prices rise precipitously.Given the lessons of the 1970s, you would think GLD/TLT would do well. This has not been the case. The long term trend of gold higher versus treasuries remains, just that the reaction to higher energy prices is odd.The rising cost of capital trade was driven by rising wages, and the need for higher interest rates to keep inflation in check. It was also driven by the knowledge that the US could not be relied on militarily, so Europe and Japan needed to spend to rearm. I also saw the breakdown of Treasuries as a reserve asset, so saw gold doing well. I imagined US equities doing poorly as cost of capital rose. All of these trades worked well until this month, when spiking energy costs saw most of these trades reverse.Lets assume, there is a “security” trade here, rather than a cost of capital trade. What evidence is the market providing for a “security” trade”? Perhaps bond yields are rising in the regions that are at most risk of getting dumped by the US government? Security here mean both militarily and energy supply in this discussion. Japan is obviously highly exposed, and has seen yields rise a lot.Switzerland, which has a policy of armed neutrality, has seen its bond yield diverge from the US, and are quite low. It also has a strong domestic hydro system for its energy supply.Likewise, China which has always sought to be independent of US influence, has seen domestic yields stay low. Perhaps even more unusually, India bond yields look relatively well behaved. India also has strived to maintain some independence.So the market is now providing evidence for two different macro regimes or trades. Both rising cost of capital and energy security trades are bad for JGBs, Bunds and Gilts. It should also be bad for Treasuries, because why would anyone own them when the US is not providing security in return. So short TLT makes sense from both perspectives. Energy security trade should be theoretically good for gold, but unlike the rising cost of capital trade, is not necessarily bad for US equities. A trend change in GLD/SPX would probably tend to support an energy security trade. It has reversed recent big moves this month.So would a SPX/MSCI World trade - which had looked to have inflected lower - but is back through the 200MDA average again.The thing is, when I think back to the 1970s, it was also an era of energy insecurity - its just happened that the US was the economy most exposed at that time. I think this really is the fault line between the cost of capital trade, and energy security trade. Cost of capital trade should see Europe and Japan outperform the US, energy security would see US outperform the rest of the world. I prefer the cost of capital trade - as it matches up with what I see globally. The energy security trade - really only benefits a narrow group of US industrialists. The problem is that energy security is now a play thing for Donald Trump - so who knows which way he will turn. From a historical perspective, forcing Japan and Germany to rearm, and then pointing out their lack of access to natural resources would seem to be quickest way possible to awaken the worst possible instincts in both these nations - a problem I am sure that will be left to future administrations.In practical terms, I would much prefer the cost of capital trade to be correct, as it would much better suit my skill set - short selling, Japanese equities and if investors found the S&P 500 to be an unsafe asset, would drive business my way. But what I prefer and what is the truth are two different things. I suspect the market will tell us one way of the other in next couple of months. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

First things first - I am not a gold bug. In my career I have been both long and short gold. In fact, if gold is done, gold and silver miners are excellent shorts here, as I can guarantee there is a huge number of investors who will be buying it all the way down.I like gold as I saw wage inflation taking off, something I still continue to see. And I envisioned something like the 1970s, where inflation becomes entrenched, UNTIL we get a political change, and central banks that become pro-active rather than passive. Like the 1970s, I expect soaring gold prices, and long term bond yields of 10% or so. This is the long term graph I look at - and yes that small dip in 2026 is including today’s move.On a smaller time frame, you can see that Gold v Treasuries are back to the 200MDA for the first time in 2 years. That is, if you had this trade on for a while, yes you are giving back some gains, but you should be well up. I suspect most money came in near the top.Late last year, and early this year I was asked why I did not like silver or gold miners. The answer was that silver was too speculative, and gold miners are very very poor way to play gold. In my experience, whenever you get an “analyst” or “fund manager” telling you that gold miners still look cheap versus gold, you should run a mile the other way. Gold mining is a terrible business and will always be a terrible business and over any long term horizon will underperform gold. This is the NYSE Arca Gold Miners Index, relative to gold. Whenever you tell a gold bug that gold mining is a terrible business, they will then spend next hour to half hour telling you about cost curves, and how this mine they own is “special”. Anyway, I digress. For gold mining to work, you need gold to rise without energy costs to rise. Which is what we had until this month. If this trend of oil up and gold down continues, expect gold miners to get destroyed.Silver was the precious metal that I really did not understand peoples excitement. Why would anyone want to be involved with a commodity with a price history like this? Bitcoin would probably make a better speculative asset than silver. I was aware that gold was becoming popular - and when I was at the pub on Saturday, I had a number of people ask about it - which is always a worry. But Bloomberg keeps a tally of all known ETF holdings, and to my mind, this does not seem excessive.Where I did see excess was in the shares outstanding of the SIL - Silver Miner ETF. Shares outstanding doubled in a year. Silver miners are also terrible businesses. I assume SIL US will open down 10% today, will open somewhere around 70 - or around where it priced in 2011. As mentioned before, precious metal miners are NOT long term investments, and anyone advising as such is not a serious investor.My road to gold was built on a “pro-labour view” which means I prefer real assets to financial assets. I don’t like treasuries, as I see long dated treasuries going to 10%.And I don’t like the S&P 500 as equity valuations make no sense relative to where interest rates are going in my view. Gold had turned higher against the S&P 500.Even with today’s fall gold is trending higher against the S&P 500.So what are markets telling us? Obviously they are expecting monetary policy to tighten (correct in my view), so inflation trades like gold and silver which had done well need to be sold (fair enough). But what the markets are saying to me, is that with gold weaker, the attraction of other assets is also weaker, especially the S&P 500 and Treasuries. While all the talk is of gold and silver, which shot up and then shot down, the S&P 500 has quietly broken is 200 MDA.Likewise so has TLT US.As has HYG US.What all this says to me, if that markets believed central banks would keep the party going, so felt okay holding physical AND financial assets. Now central banks are stepping away, physical AND financial assets are falling. But I do not see austerity on the horizon, or deflation. I suspect physical assets outperform financial assets. With gold and silver looking weak - then the next step will be for financial assets to get destroyed. I do not know where precious metals go from here - but the outlook for financial assets is poor. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

Since I first came up with the GLD/TLT trade, its having its first meaningful drawdown. To be fair, it has been on a blistering run.The idea behind GLD/TLT was that we are in a rising cost of capital world, not because things are bad, but conversely because things are good. Governments are focused on demand management, full employment and rising wages. This means “systemic” inflation will be much higher going forward, UNLESS central banks stop being the natural born losers they have become in recent years and raise interest rates to keep asset prices in check. In 2022 central banks grew a pair, and declining asset prices checked rising inflation, but since then they have returned to type and have been desperate to cut interest rates. Intellectually, central banks are trapped in a world that no longer exists, but politically they are on the hook for the inflation that current policy settings are producing. The market has been clearly telling them that the world has changed. 30 Year JGBs have continually sold off.But central bankers, like many fund managers, are very keen on backtesting. That is they only want to do what worked in the past, so are reluctant to raise interest rates. The GLD part of GLD/TLT was meant to capture this reluctance, which it has done. It seemed to me that if the market started to think Central Bankers were not totally useless, we would begin to see gold outperform equities. And starting in early 2025, that has been the case.Plainly the much tighter energy market is causing the market to price in much tighter monetary policy.If there is a problem with GLD/TLT it is the TLT side. US 30 years have been in a range for three years now. This should be surging higher in my view.Also Japanese banks have diverged somewhat from 10yr JGB yields. Over the long term there is a very strong correlation.But this month has seen a divergence.You could make the argument that surging oil prices will lead to central banks tightening, and we then get a recession. This is what happened back in 2007 for example. In that case, you want to sell gold and equities and be long bonds. But talking a look at UK 10 year Gilts, and JGBs, the market is pretty clearly saying that politics will more likely lead to governments spending what they can. Clearly that is what happened during Covid and the energy shock of 2022, and what the voting public expect. It is also my expectation.For me, the GLD/TLT trade still looks good, it just looks more likely the “negative” side of this trade needs to give more - that is weak equities and bonds. I suspect that is coming - just a bit of a sequencing issue. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

When I first started looking at the GLD/TLT trade, I really liked the long term graph. It suggest as some point a crisis would send gold to the moon, and treasuries into a tail spin. The peak in the late 1970s was around the time of the second oil shock.Foolishly, I had assumed War in Iran, and a spike in oil prices would provide the same time of move. On the contrary, GLD/TLT is going to be down 9% this month when the US opens, and nearly 12% from the highs seen in January. I am surprised by this - and trying to work out what it means.A weak gold price could make sense if short end bond yields in the US were soaring higher. They have had a pretty small move so far, and nothing like we were seeing in the late 1970s.Maybe its just gold has done so well, it just needed a breather. And the shock of war meant that trend following funds de-gross which leads to gold selling. This is possible.Another possible macro reason is that surging oil prices will reduce the buying power of China - that is it will cause its trade surplus to shrink - reducing the need for China to buy gold. The problem with that is back in 2022, spiking oil and gas prices did nothing much to reduce the trade surplus then. Energy prices would need to go much higher for this to come into play.The best reason I can come up with for the failure of GLD/TLT to perform during the Iran War is that soaring energy prices have much obviously affected Europe and Japan more than the US, which has led to dollar strength. In 2025 and early 2026, short US dollar seemed like a slam dunk trade - with President Trump demanding it, and also attacking the Federal Reserve, this was a very popular trade. In mid 2025, according to CFTC data, the market had never been longer Yen than at that time.With the Euro, CFTC data still points to long position that has not washed out yet.Most currency trades are a version of “tomorrow will look like today”, and with the Euro only just breaking through its 200MDA, trend following strategies will be selling Euro positions aggressively now. That is weak dollar trades will be getting replaced with strong dollar trades now - obviously bad for gold and other similar trades.The big question is will 2026 look like 2022 when Russia turned off the taps? Tricky - as most of the middle East wants to sell its oil and gas, but they are being stopped by Iran. Back in 2022, both Russia and Europe knew the relationship was over. Is this going to be the same? Can Iran indefinitely stop the oil and gas trade? Politics would suggest not, but as the US and Israel kill more Iranian leaders, I wonder if their is still a political infrastructure than can actually cut a deal in Iran anymore. Against that, the temptation for a ceasefire, to cool prices and allow for a possible uprising in Iran must also be a factor in political calculations.It is easy to see GLD/TLT as a weak dollar trade - although at its heart it is not - not the way I understand it. I see GLD/TLT as the breakdown of the US led economic system - and the Iran War seems very much in line with that. I also see it as governments willing to spend whatever it takes to keep growth going - which is a political observation - which I also think it correct.The more I think about the Iran War, the more I think we are heading for another huge macro economic change. Back when shale production started to get going, for decades US oil priced above Brent (European) oil. Below is a simple chart of the percentage difference between WTI and Brent - which now trades at a significant discount. This big macro change was a precursor to the political changes we have seen in the US.What the Iran War, the Ukraine War and the Liberation Day Tariffs has made clear is that the US will no longer act as a guarantor of energy, peace or trade. Obviously, the mainland US is unattackable, can survive on domestic trade alone, as it is energy self sufficient - so we (the rest of the world) are cast off to fend for ourselves. China is obviously by far the most self sufficient having never fully trusted the Americans, perhaps followed by the French. The defeated powers of World War II, Germany and Japan, are by far the most exposed, as politically they had no choice but to be vassal states. The big macro change that I think is coming is that German Bund yields and Japanese JGB yields need to price above US yields. Both nations cannot afford to not spend anymore - but to build, build, build. As above, the oil market gave a hint that change was coming, with spread between WTI and Brent falling between 2003 and 2009, before inverting, bond markets are also giving warning of such a change. JGB yields have been rising as US treasury yields have gone sideways.With Japanese wages maybe one third of the US, a severe energy shortfall, a need to build out a defence capability and the need for data centre buildout, the outlook for Japanese inflation would seem to me to be far above that of the US, which is what bond markets are saying.GLD/TLT is not working, in part because it was caught up in a weak dollar trade that the War in Iran has disrupted. But the politics of the War in Iran makes rising bond yields even more likely in my mind. But one of the ways I work is always to have two parts to any trade - Long Gold and Short Treasuries. I have had many clients over the years who always take the winning side of the trade (long gold in this case) and ignore the hedge (short Treasuries), because they just see it as a cost. But as I always say, the hedges are there for a reason! This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI like to think I am smart - and I am smart enough to know that I am not smarter than the market. Generally speaking, I like to get an idea of where we going, and then bet WITH the market on that direction. So before I get to individual trades (and the paywall), let me look at the overall market trends. As mentioned in an early post today, I still like ROW v S&P 500. This is back at 200MDA - so corrective reversal - implying good to short US, and buy non-US.GLD/TLT has been a phenomenal trade - but is at least back to its 50DMA. In a rising oil market, hard to see this fall too much.It looked very overbought in January, now looks more reasonable. This is the MACD function on Bloomberg. Lower chart gives an idea of how far from trend you are.Gold is still outperforming vs S&P 500. It is still a long way from 200MDA.That being said, on a long time horizon, when this breaks higher you don’t really want to get too cute with it.Finally, my lodestar - Japanese 30 Year bond yields still look to be moving higher.So what trades have I put on?

President Trump is the first “social media” president. You can see it in how he looks to not only dominate the social media narrative, but remains heavily influenced by it. If a policy gives good traction on social media, you should expect him to run with it. But ultimately, all his policies seem to be advancing an “America First” agenda. The Liberation Tariff day sell off was all about giving Trump leverage over US trade partners - which he largely achieved. Selling markets on the “Dump Trump” theme then was a disaster, as markets surged 40%. A better trade was to trade the reaction of allies who understood there was no alternative but to push the fiscal spend button. I liked Japan for this reason, which has been good until this month. Up 70% from the lows.Even when you think Trump has decisively turned against someone - as he did with Elon Musk in 2025, Tesla has been a bad short. This is even with 2026 EPS forecast falling from USD 8 to USD 2 - the stock has held up. I hope I have mentioned that short selling is not for the overly logical or faint of heart (there is a decent argument that short selling is for no one).Given this history - lets start from a “Smart Trump” assumption, and work from there. First of all, getting rid of an Iranian nuclear weapon program is an admirable objective. Various agreements to stop nuclear proliferation have obviously failed with India, Pakistan and North Korea all now in possession of nuclear weapons. And given the weakness of Iranian proxies, and Russia being tied down in Ukraine, if you were going to wage war on Iran if not now when?The “Dumb Trump” argument here was that that there is a risk that this turns into a quagmire - but perhaps that suits the US. I can see three reasons this would be the case. Firstly, if the rest of the Middle East is pulled into conflict, this would make the whole area an unreliable partner for fossil fuel, which would suit US producers, who would be poised to take market share. Secondly, a prolonged war would likely pull China into the Middle East. For all their build out of military might, no one has actually seen the Chinese military actually do anything for nearly 50 years. Can the Chinese navy secure oil supply? And if the Chinese navy is pinned in the Middle East, would they also have the capability to attack Taiwan? You can see how this would be a positive for US policy makers. And finally, it enhances US leverage over its trade partners. If Europe and Asia build up their own military, it is US interest to replace military reliance with energy reliance. In other words, the War in Iran actually helps Trump advance an America First agenda. As pointed out before, if the War in Iran was really going wrong, I would not expect Israeli shares and currency to be doing so well. The stock market is near all time highs.And Israeli Shekel is strong, even what has been a conspicuously strong dollar environment. Down is strengthening here - i.e. you need less Shekels to buy a US dollar.What does this mean? Perhaps a quagmire actually suits Trump - as far as an America First agenda concerned. This will give the US more power over energy markets ultimately, while making the Middle East a Chinese problem. If we assume this is the case (and I think we should until more information comes forward), then what is the reaction? As I have mentioned many times, I prefer trading the reaction rather than the action, as its tends to be safer. Chasing oil prices here risk all sorts of losses. The most obvious reaction is that European and Asian nations will realise that the US is trying to create leverage in the energy markets, to replace the defence and trade leverage that Trump has used up. The most obvious options for Europe and Japan are to beef up domestic energy sources. Market is ahead of me on this one - with the GS EU Renewable Index at all time highs, and doubled over the last year. The strength of this index this month is conspicuous.That being said, I do wonder if wind energy stocks that have been pummelled by Trump’s anti renewable energy policies might be worth a look. Orsted is one stock that comes to mind. It had lost 85% of its peak value.As a policy agenda, reducing reliance on energy suppliers such as Russia and Iran is not really a bad agenda. The problem is that is totally feasible for the US, but less so for its allies. But as the market shows, policy makers in Europe are at least aware of this. So what am I thinking? Well there are two stages to a crisis. The first stage is when things are going wrong, but you don’t know they are going wrong. And the second stage is when you know they have gone wrong, and are now trying to fix. The crisis for Europe and Japan was phasing out of nuclear power without having a suitable replacement at hand. But judging by the performance of nuclear power stocks - governments and companies know this. One stock I owned from 2006 to late 2007 was a company called Doosan Infracore - now Doosan Enerbility (yes - I also don’t know how they choose these English names). What I loved about this stock is that one of its key business lines is to refurbish old nuclear power plants. The stock price tells you business is good. Is it still a buy? No idea - but you should be aware that shares outstanding has increased 4 fold since 2006, and revenue is flat from that period - so you are not getting a bargain…. and its Korean.So what am I seeing and thinking? The War in Iran, like the Liberation Day tariffs, are meant to shock US allies out of the reliance on the old world order - reliance on the UN and treaties. This system no longer works for the US, and the US is trying to get their allies to free themselves from this system too. My best guess is that this will be successful, and markets are indicating this. I put the chances of recession very low - governments will spend whatever it takes. I see the cost of capital still rising - and I see Europe and Japan reforming. The market has been signalling a long Rest of the World versus the US for a year and a bit now. The War In Iran has shaken that up a bit - but it still looks valid to me.On the longer time frame its still seems to have miles to run.If I make the argument that Europe and Japan are at a turning point to my American and Israeli friends, they generally like to list all the reasons these nations are useless. But knowing you are useless is what happens at turning points. I think Europe and Japan still look okay to me - and strangely this is what Trump wants, in so far his agenda is to break apart a multilateral world, and encourage Western Allies to adopt their own Europe First and Japan First agendas. For fans of history, I am reminded of Admiral Perry and his Black Ships (Kurofune) who forced political change on Japan. They arrived in 1853, and from a starting point of a feudal society, a furious pace of industrial change was ushered into Japan. So much so that a mere 50 years later Japan beat Russia in a major war and secured control of Korea and Manchuria. Politically and more importantly in the equity market, I see a similar change underway. Rather than Admiral Perry and his Black Ships, perhaps we should talk of President Trump and his Orange Wave. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

Unlike almost anyone else I know, my route to finance was via a currencies. I was working in HK in 1998, when the currency peg came under attack, and was fascinated by the way it affected interest rates and stock markets. I went back to university and wrote my thesis on private currencies (HK is last place in the world where private banks issue banknotes) and applied for a job at UBS. I then built a successful hedge fund business basically arbitraging currency risk via equities, and at the time I imagined the crowning glory was to be heavily short into a massive Chinese devaluation in 2016 - but this was not to be - and ever since currencies have traded in ways that they did not do previously. I will give some examples, and then go into how I think the riddle has been solved.The Australian dollar used to follow its terms of trade pretty closely. Commodity prices up, Aussie dollar up. From 2016 this relationship has broken down.This breakdown between the currency and terms of trade led Australia to book huge trade surplus - something never really seen in Australia before.For many years, Yen was seen as a safe haven currency - doing well as when the S&P 500 was weak - but in 2022 it weakened ever as the S&P 500 fell.The market was so convinced of this relationship, this led them to record long positions in Yen last last year, which has disappointed again. I refer to long Yen as the new widowmaker trade.Korean Won used to be highly correlated to SOX Index (a measure that tracks the performance of semiconductor stocks), but in recent times Korean Won has weakened even as semiconductor shares have been on an astounding bull run.Similarly, Taiwan current account surplus has ballooned.And yet the Taiwan dollar remains unmoved.I have been brooding over the markets for the last few days. Something that always happens when I my hedges don’t work quite as expected. And I think I have an answer of sorts. I have previously described the period from 1980 to 2016, as a pro-capital era, when “globalisation” policies - free movement of capital, labour and technology did much to create pools of capital, and a broadly deflationary environment. Politically, was this a grand bargain between the West (Europe, Japan and the US) who were all major oil importers. They all agreed to disinflationary (pro-capital) policies to bring about lower oil prices. By the late 1970s, all three regions were large importers of oil, so politically this was possible.But around 2016, the US became energy exporter as shale production surged. Currencies stopped working the same way. If pro-capital globalisation policies were designed to give the US access to cheap energy but shale made cheap energy possible, then the US no long needed pro-capital policies, which is exactly where US politics has moved to. The problem, which the Iran War makes clear, is that while oil and natural gas prices are problem for the rest of the world, is it not such a big deal for the US. This is particularly true for natural gas. If you start thinking about currencies as a play on energy security - it gets very hard to be bullish on Yen, Won or Taiwanese Dollar. They are all exposed to natural gas supply issue.This also answers another currency riddle - while Japanese Yen no longer acts as a safe haven - Switzerland does. Switzerland generates a substantial amount of energy from hydro electricity and nuclear power plants. The Swiss Franc has been very strong.Thinking about currencies from an energy/geo political point of view also seems to work for currencies like Brazilian Real, which is now energy self sufficient. Historically this has not been a strong currency - but it has been surprisingly stable in recent years.When I think about currencies politically - I see two outcomes coming. One is a bifurcation of the energy system - where Middle East and Russian output largely flows to China and India, while US and Australia output flows to Europe and American allies in Asia. The second is a huge focus on building domestic power sources - from renewables, batteries and nuclear. A secure energy system is now the route to wealth. Iran War makes this even more obvious. China probably leads most of its Asian peers in having a secure energy system - which probably explains why its currency is is much better shape than anyone else’s in the region.This probably explains why the “weak dollar” trade has been such a bust. The big currencies like the Euro, Yen, Won and Pound have relatively poor energy security, making sustained dollar weakness difficult. But the relative lack of energy security in these nations probably also helps explain the strength of gold. Ultimately the implication is that Europe and East Asia need to launch huge investment programs to secure energy supply. Cost of capital should keep rising - but that does not mean the US dollar needs to fall. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comIt has been plain that a war with Iran has been coming for awhile. The question was what would it look like? Would it be a Venezuelan style coup d’état? Or would a popular uprising sweep away the ancien régime? Or would it become a quagmire. Two weeks in, and the likelihood of the first two outcomes, which would have been ideal, are looking less likely, and a quagmire is becoming more likely. In market terms, this can be seen in the 12mth oil future is now beginning to break out.Even US January 28 natural gas futures are starting to look a bit perky.Both these signals are important as they will guide non-middle eastern producers to whether it is worthwhile to increase production or not. As said above, it was clear that some sort of conflict was coming between the US, Israel and Iran, but it was not clear what the result would be. A civil uprising, would mean the world would be awash with Iranian oil in a few years, while conversely a quagmire is plainly bullish energy prices. I generally assume my portfolio would do okay - but the first two weeks has seen some surprising correlation breaks.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comAfter I closed my last fund, and spent a few years thinking about how the world works, I realised that politics trumps macro. And even when it looks like macro is winning, it just that the politics is allowing it to win. First of all, I recognise that all the doom scrolling headlines on Iran could be true. And maybe its USD 200 a barrel going forward. But politically, Iran looks cooked, and so I feel like taking some shorts off here.

When I look at the Israeli stock market, it is hard to see any signs of war pressure in this market. In fact it is at all time highs.The Economist has a good article on why Israelis would feel so secure. Iranian offensive ability has been severely degraded, with not only the amount of munitions being launched by Iran falling, the numbers actually making through falling precipitously. They have also resorted to mainly drones from missiles, which are far less powerful.Israeli does import oil but is self sufficient in natural gas production. The Israeli market fell in 2022 after Russian invasion of Ukraine and spiking energy prices, so market action today seems to reflect a much better security position for Israel. But if Iran is a spent force - why is oil up another USD 12 today?Clearly, Iran is still able to disrupt shipping in the straight of Hormuz. The question is how long can it do so? Tricky question, but there is some precedent. When Russia invaded Ukraine, it effectively closed off Ukrainian grain exports via the Black Sea. Eventually Russia agreed to some exports, but then withdrew and promised to target any ships carrying grain. Ukraine was still able to export grain through the use of drone and missile attacks on Russian assets. Wheat spiked when the invasion started and then collapsed.The point of this analogy, is that assuming that the Straits Of Hormuz will be closed for an extended period seems to me to be a very poor bet to make, if Russia was not able to stop Ukraine from exporting grain, why would you think Iran would be able to close this Strait against the military might of the US and Israel for a prolonged period of time?What I am far more concerned with is that the oil spike creates GFC conditions again. Spiking oil from 2006 to 2008 caused monetary policy to be tightened.Which then caused credit market to implode and credit spreads to blow out.Which ultimately created a “DEFLATIONARY” event, which ultimately means the only safe asset is government bonds. That is the question I really worry about. And even post GFC, long bonds and short equities worked well in various deflationary events, like the cratering of the Shale patch story, or fears of Chinese devaluation. But since Covid, the market has said that government policy is set towards inflation. So far 30 year JGBs continue to indicate is an inflation market.Japan 10 Year JGBs are saying the oil shock is less of a shock that the Trump tariffs in April last year.To my mind, and as Israeli stock market shows, inflation still is the main trade, which is not necessarily bad for equities. I certainly have a mixed views on equities. But the one assets class that still looks wrong is government bond yields. Why lend to the US government for 30 years at 4.7%? Or Japan at 3.4%?I am not sure how other people are positioned, but I still can’t see a better way to think about things that seeing a world of rising cost of capital. I think the big problem that Iran has with closing the strait of Hormuz is that it ushers even more “non-carbon” and non-Middle Eastern energy supply on stream, which weakens their strategic bargaining power even further. The OPEC shock proved the power of the Middle East and Soviet Union in the 1970s, I cannot help but feel feel that the 2020s oil shocks are likely to prove the exact opposite. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comIt was a war we knew was coming, but had no idea how it would start or end. Would it be one and done like Venezuela, or would somehow this be a new Iraq, a quagmire with no end? The problem with prognosticating on the war today, is that so many players have an interest is spreading disinformation. This mean basing any view on what you hear from other people is a waste of time. Anyone who really knows what’s going on will not be talking anyway. That being said, markets have a way of knowing the truth. So what are markets saying?

Japan and Korea have been by far the weakest markets since the war in Iran started. Nikkei is down 8% this month - but as any day trader or amateur market technician would tell you, so far not even a correction in an uptrend.Kospi 200 is a meatier 20% this month, which meets the definition of a bear market - but again still in an uptrend.No prizes for guessing the catalyst. Asian LNG prices have doubled in the last two days.Kospi VIX is now at 80, which is a level ABOVE Covid shock levels, and in line with GFC levels. No doubt some issues with autocallables are at play here, but that is a very elevated level.To me it still looks more like a degrossing or margin call issue. Popular/momentum longs get cut, and popular/momentum shorts get bought. With Korea, the big driver has been memory prices. No weakness yet.In Japan, at least for me, the driver has been a weak yen and rising yields. Yen is still weak.And 10 year JGBs are still in rising trend.What you could argue is that Japanese and Korean equities are indicating that the Iran war is going to drag on, and energy prices are going to sky rocket back to 2022 levels. That could be true - but when I look at Israeli equities - they seem to imply that the war is going pretty well.Israeli shekel is also very strong. In the fog of war, these seem pretty good indicators, as I strongly suspect Israeli knowledge of the war far outpaces knowledge anywhere else.One lead indicator I have liked for a while is the relative performance of Japanese banks. Again price action here looks corrective more than anything else. And this indicator has regular corrective moves.Fog of war is the correct term here. But war tends to be inflationary - so not necessarily a negative for what I am positioned for. Also AI which is a big driver of markets can be seen as strategic military asset - so that driver of the market would be unchanged, which also positive for Korea.For my autocallable obsessed friends out there (you know who you are) - Nikkei divided futures have barely fallen. A real autocallable crisis needs these to tank.Right now the risk is the war gets worse but there is a risk it gets better too. The Trump game plan is to obviously keep decapitating Iranian leadership until he gets someone who will play ball. Looking at markets - degrossing is killing winning trades this year. But I dont see any trend changes. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comThe current catalyst for a market shift is the war in Iran - and as it is a crisis, the market thinks all moves are temporary. For me, crisis tends to accelerate what the market is doing anyway. In the 40 year bull market in bonds, there were always crises, which would drive yields lower, but that was just an acceleration of what was an obvious trend. In hindsight the deflationary crises of the S&L Crisis, the Tequila Crisis, the Asian Financial Crisis, the Dot Com Bust, the GFC, the Euro Crisis, the Emerging Market Crisis, the Covid Crisis and ever falling yields were two sides of same coin. Economic crisis was welcomed (in a way) as it drove deflation and lower yields.What I am arguing is that we now have had a political shift from pro-capital to pro-labour shift. What that means is governments intervene to make sure that employment and wages do not fall. And with the obvious increase in defence spending that is required by every government, the political motivation and physical ability is there. That is government can and probably should mop up any excess labour to build out defence and AI infrastructure. This is the new world, and what is exciting about the current “Iran Crisis” is that bond yields are rising, not falling, just as this thesis would predict.We have now seen this new dynamic in bonds a few times. Under Prime Minister Truss in the UK, and during the Liberation Day sell off under President Trump. To me the old world of falling interest rates and deflation is dead. What is interesting, at least to me is that markets are taking their time to price in this world. Or as I explain to investors, in the old world markets constantly mispriced currency moves. In the new world, markets constantly misprice yield risk.There are lots of ways to look at this shift, but one of the most profound ways is to think about where pools of capital sit. For 30 or 40 years now, big pools of capital have formed at institutions - be they endowments, retirement funds, sovereign wealth funds or corporate balance sheets. These huge pools of capital drove the cost of capital lower. Central banks acted to encourage this fall. During the worst of the Ben Bernanke led QE mania, central banks literally printed money to give to corporates. This represented the pinnacle of the idea that corporates and corporate managers are the best people to decide how money should be invested. The irony, which almost every man on the street understood, but was seemingly lost on the Central Bankers, was that corporates took all this extra money, and mainly used it for share buybacks as this was a risk free route to wealth, rather than actually risk money to invest. If you look at US durable good orders, the entire QE era was marked my minimal investment. Donald Trump may want a Nobel Peace Prize, but for me giving Ben Bernanke the Nobel Prize in Economics was a true travesty and devalued its worth forever. Not only did his economic ideas directly contribute to the GFC, his ideas led to huge growth in wealth inequality and the rise of populism. I struggle to think of greater failure in public life than Ben Bernanke. I digress. In recent years, as pro-labour policies have take over, investment has surged again, just as QE has receded. And more and more capital should be pooled at households, rather than in institutions. So if QE did not lead to investment, what did it lead to? Well clearly it led to the “de-equitizaition” of markets. I found this good graph in a Blind Squirrel presentation, so have pilfered it (to be fair, it looks like it was pilfered from Hussman, who pilfered it from S&P. No honour among thieves!).So with long and short book, I look for ideas that respond well to this new pro-labour world. I think I have found a couple more shorts.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comOne of the problems with getting older, is that you see similar market set ups, and you start thinking “uh-oh” I have seen this before. I am certainly getting 2007 deja vu all over again in February. Before I get into all that, let me tell you how we did in February.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comNo doubt this will confuse my American readers. I can see themselves saying “Why is this guy talking about a failed short?” Generally speaking my American’s friends advice to me is to talk about how awesome you are, and never show weakness. I have spent enough time in the US to understand why that is sound advice in American cutthroat corporate culture. But my brand, if that’s the right word, is to be straight with people, and to write about what I am thinking about. So here we go.I shorted a company, because I could see it was involved with CLOs and corporate debt. Generally speaking companies in this area have traded poorly this year, but amazingly, this company has now managed to solicit competing bids to buy it. A bid for a company that I am short is not necessary a failed thesis. You often see bids for companies at the top of the cycle as CEOs can see earnings growth is weakening, and hope to offset that via an acquisition. This almost never works by the way. That is why often an acquiring company can make a good short - and that what we are going to look at today.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI suspect in a special hell just for hedge fund managers, they are forced to run net short all the time. Making money shorting is tough - and even when it goes well, it can so easily reverse. While stocks can surge higher every day without a correction, I have never known a short not to bounce with perhaps one exception back in the GFC era which just fell 90% in a month.This year, despite the US being flat year to date, the short book has made money. Should I just cover?

I have a lot of time for Brad Setser. In a recent FT article he claimed that China was still buying treasuries, but just via policy banks rather than as official foreign reserves. He provides this chart to support his view. Not the most intuitive chart, but basically the red line goes up when the Renminbi goes up, showing that banks in China buy more treasuries when the Renminbi goes up. The implication is that the banks are trying to slow the appreciation of the Renminbi.His article claims state banks bought USD 170bn of treasuries in December and January. This is a big number. For context, reported official holdings of US treasuries by China fell by USD 600bn over 10 years, and these number would suggest 25% of this fall was reversed in two months.To be fair, China is running a USD 1.2 trade surplus, so if they choose to sterilise this flow, then there has to be a LOT of buying of something. Given the freezing of Russian foreign reserves in 2022, I would have assumed that China would not buy treasuries, and just gold. This has been one basis for the GLD/TLT trade - which has worked great.The FT article is a shorter version of an article that Brad published earlier this year. The most interesting chart would be this one, which basically says that China is back at peak net foreign assets.I always find China a funny place. Its definitely not an open western democracy, so knowing what exactly is going on is not always easy. But these days, trying to fully understand US economic policy is also not that easy either. But one thing about China is that the government generally tells you what it plans are, and then does it. So I think China is still trying to get out of it US assets - its problem is that it runs a huge trade surplus, and these trade surpluses are controlled by corporations and individuals. When they see the Renminbi appreciate, they want to bring money back to China, which forces the State banks into offsetting trades. And the Renminbi has appreciated this year.The problem China has is that its currency does look cheap now. If we ignore the US, China’s trade surplus with Europe is at record highs.But the EURCNY cross rate remains at close to 10 year highs.By comparison, China runs a trade deficit with Japan.But the JPYCNY cross rate is at 30 year lows. That is CNY is strong.To my mind, China might be buying treasuries to offset retail and corporate buying of Chinese Yuan. But this is in part driven by the much bigger macro mystery - why are other Asian currencies so weak? Yen has been weak, but so has Korean Won even as Korean exports of semiconductors surge.For me, the Chinese numbers I understand. And the Renminbi is strong in an Asian context. But why is the Korean Won or Japanese Yen not stronger? Korean official holdings of treasuries are at new high.What I think is happening is that big nations of the world - US, Europe and China have turned pro-labour. Which means they want a strong currency. But Korea and Japan, remain pro-capital, which means they want a weak currency. Both have surging stock markets as well. If Japan and Korea ran pro-labour policies, I am sure their currencies and the Renminbi would be stronger too. To my mind, Chinese government has not changed policy - they do not want treasuries - but with such a huge trade surplus, when the Renminbi does appreciate it forces treasury buying by the banks to offset retail flow. The more interesting feature will be when Japan and Korea get serious about raising real wages. Then I think the real fireworks in the Treasury market will begin. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI have seen various short selling markets in my career. The first one, the dot com bust, was driven by over investment in a huge variety of internet and telecom assets. The second bear market I saw was the GFC - which at its heart was overinvestment in the housing market. The third was the commodity and emerging market sell off, which again was driven by overinvestment. By then, myself and markets had learnt that overinvestment was where stock markets went to die, and so began the great private equity, buy back market. Investors wanted companies to raise prices, cut spending to the bone, and return cash where ever possible. Large corporates did this, and so did private equity. To be honest, I hated this model, particularly in the tech space - how can a tech company not invest? But companies like Broadcom, which were serial acquirers and cash strippers did fantastically well.Broadcom has kept capex at a ridiculously low level, even as operating cashflow surged.But when I look at markets now, I think an interesting change is taking place. Companies are getting punished for NOT spending enough in my view.

It is remarkably common to hear 50 something investment managers and strategists to compare the current AI boom to the dot com bubble. For those too young to remember - the dot com bubble burst in 2000, and the S&P 500 had three down years in a row.There were many poster childs of excess from that period, but perhaps the best was Cisco. Everybody needed to build an online presence, and a thousand start ups were buying equipment. When the bubble burst, the starts up ended up selling their equipment, and there was a huge over hang of equipment. Cisco shares imploded.Back in 1999, the growth in demand was driven by a surging IPO and equity issuance. That is companies were taking advantage of the high valuations to sell shares and to go buy equipment. When the market tanked, demand tanked with it. While share count of the S&P 500 has risen a bit, it is far less than in 1999/2000.Alternatively, if I steal a chart from the internet, equity issuance is not driving the AI boom.In fact, we know that the AI boom is being driven by relatively few companies.We can and should throw OpenAI and Anthropic into the spenders here as well, but what we know is that these will be big numbers too. In the dot com boom, once investors tired of buying speculative IPOs the capital spigot turned off. But for the AI boom to turn off, you need the CEOs of Oracle, Microsoft, Google, Meta and Amazon to turn off the taps. How likely is that? For a company like Microsoft, and with market views on software, the questions may well be existential. For the first time in a long time, I can see a world without Microsoft in it. That is Microsoft can no long afford to not invest. And this makes it true for all the other players.In fact the problem for the hyperscalers is that there is not a winner yet. Much like the streaming wars, they all need to spend big until a winner is set. Even though Netflix and Disney shares have been poor, they are still fighting over content. Witness the bidding war for Warner Bros Discovery.In essence, what I am saying is the dot com bust was driven by a lot of established firms rushing into the internet without knowing what they were doing, and so equally quickly rushed out. The AI boom is being driven by companies that know what they are doing, and cannot afford to lose. I expect the spending to keep coming. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

During my formative years in finance, I learnt to be a “currency first” investor. Basically, I noticed most equity fund managers tended to get currency risk totally wrong, so if I got that right - I should outperform. It has taken a few years to shake off this “currency first” mentality. But I was going through some slides from my friends at 36 South (full disclosure, I am their landlord in London - but I was friends with their head of trading George Adcock, before they became tenants), and was reminded that if I was still a currency first fund manager, I would probably be shitting the bed at the moment. First of all, most currency options are trading cheaply. This implies people are not worried about big moves, just at they were in 2007, 2014 or 2020. (If you would like to see these slides - they are available on Youtube. Link is here.)People are also bullish.And cash balances are very low.And credit spreads are tight across the board.One graph I liked a lot showed that we are probably at peak dovishness when it comes to central banks. Looking at the top table, the only way seems to be up from here.And something I have seen many people flag - energy sector is threatening to turn.From a currency perspective, cross rates like AUDJPY are at levels that would make me worry.What to make of all this? Well in a free market world, currency led investing works well. But in a government dominated market, currencies are not “free”, and growth is fiscal spend dominated. The question is working out which regime we are in. I still like JGBs as a signal - and even though the 10 year is not above recent highs, it still seems to be speaking to inflation - or a fiscal dominated growth environment.So what is the bear p@rn then? Well in the final 36 South charts, rather than a bear market, they talk of rotation. Below is signalling short tech, long energy.And this one is signalling short bonds and long energy.In currency first regimes, I liked to think about second order affects of currency moves. To me, and looking at 36 South charts, in a fiscal first regime, we should think about second order effects of bond moves. Thankfully, I am already positioned for it. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI have been bearish on private equity, partly because they stopped returning cash to investors even though markets are at all time highs, and partly because I thought the cost of capital rising would be bad for them. For corporates, cost of capital has not really risen. Over the last couple of years, high yield costs have fallen quite a lot.Despite falling capital costs, private equity stocks have been pretty weak. KKR is representative.So what is going on? Well partly, the market has been radically reassessing the credit worthiness of software investments. Like with all things private equity - its not that transparent, but we know there are problems out there. We have had shenanigans in EA bonds, with private equity investors trying to shaft debt holders. Since this purchase, games and software stocks have been hammered.So is there anyway to judge if private equity really is in trouble with its software exposure? I think there is.

The reason I was known at the most bearish fund manager on the planet back in the day, was that I ran the emerging market bull market all the way up from 2002 to 2007, and was pretty sure emerging markets were going to be a huge waste of time going forward. This view was correct as MSCI Emerging Markets has only recently surpassed the highs of 2007nearly 20 year later. Are Emerging Markets worth chasing from here?Back in 2007, MSCI Emerging Markets were dominated by banks, commodity stocks and mobile phone stocks. Today, the top five stocks are tech related, with TSMC being by far the biggest constituent. While back in the day emerging markets may have offered some diversification benefit - these days you are making the same bet you are with US stocks - which does reduce the attraction.The boom in emerging markets from 2002 to 2007 was also driven by spread compression. The Asian Financial Crisis of 1998, the Argentinian and Brazil devaluation crisis of 2001 and 2002 had caused investors to shun EM debt - by 2002, you were getting 8% over treasuries, which fell to 1.5% spread in 2007. Today, EM spread is 2.25% - outside of 2007 the tightest spread I have ever seen.Some parts of the commodity cycle has boomed but it is extremely narrow. If we look at the Australian Terms Of Trade - we can see very little recent improvement. While we are all aware of the boom in precious metals, major industrial commodities are still very weak. Chinese steel prices, which was a great proxy for Chinese commodity demand remain at prices first seen in 2003.Chinese pork prices which drive surging agricultural commodity prices in 2021/2 remain at levels first seen in 2007.On the currency side, the appreciation of the Chinese Yuan recently does make a positive background for EM assets.But Chinese interest rates are not sending a confirming message. 12m SHIFOR remains at lows.Also old currency pairs that have moved with commodity cycles before are back at levels that suggest caution. AUD/JPY is at levels seen before the Asian Financial Crisis, the GFC and China devaluation scare.Long Emerging Markets does not seem like a slam dunk trade to me. But if you like the argument that AI is shifting spend from software to hardware, then long EM versus S&P 500 makes sense - but that is very different to a traditional emerging market bull market. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comAs mentioned in my last post, Eurohedge nominations often happen at inflection points in the market for me. So the recent nomination, has made me nervous that my theory that we are in a world of rising cost of capital could be played out, and it is back to deflation trades. On top of this, an investor I respect wrote to me to say he was going short QQQ, Long ZROZ (QQQ is the Nasdaq 100 ETF, and ZROZ is an aggressive long dated Treasury ETF). Further more, the Blind Squirrel is going long Africa. My first boss back in 2000 told me that when people buy Africa, we are getting near the top. So my anxiety is compounded. The biggest risk I think at the moment, is that I am not wrong, but we have a huge counter trend rally. First of all, we have to recognise that GLD/TLT has had a big move.It has to be said in recent times, the vast majority of the move above has come from GLD being strong, and not TLT being weak. I was expecting weakness in TLT, but my friend who is shorting QQQ and going long ZROZ, says no one is positioned for a bond rally.

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comI am bearish bonds, and I have built a portfolio around the idea that we will have rising inflation, rising yields and a rising cost of capital. The fund has had a good move last year, and a good move this year. So the question that has to be asked, is it done?Firstly, in my experience, Eurohedge awards can mark the end of a trade. It has certainly been the case the three times I have been nominated before. This is a point of discomfort.Secondly, the flagship trades for this fund HAVE done well. GLD/TLT has been good.And Japanese Banks HAVE been good.So lets sit down, and look at some of the reasons we could think the inflation trade could be over.

I am surprised by this. Performance has been good - but not that good. My nomination probably comes from maybe not that many funds launched last year or I have a great sharp ratio having not had a down month last year. Two other funds have been nominated.Hunters Moon website says they specialise in financial stocks - so should have done well. Orgueil is run by former colleagues at Horseman, Stephen Roberts and Patric Slama. They had a good year. My only chance of winning will be a superior Sharpe Ratio. More on that later.I have a long history with Eurohedge. My first fund - the Horseman Emerging Market Opportunity fund was also nominated and won best new fund for 2007 with an 80% return over 15 months (it launched late 2006) and can only be described as concentrated beta rocket. Beta gets a bad rap… but sometimes you want it.The award ceremony was held in February 2008 and by that time, I had sold my beta rocket positions and started shorting some of them. I remember listening to the other EM fund managers that had won awards saying it was lucky January numbers were not included as many were down hard after big years in 2007. As it turned out 2008 was a very hard year for EM funds. People were very long EM in 2008 and when the credit market froze, the dollar soared and EM credit spreads blew out. 50% losses where common. I had gone short and made 15% that year - and was one of three emerging markets funds that made money that year. I won the Eurohedge award for best Emerging Market fund for 2008. If I had followed my strategy of reversing positions at the end of the year I would have made a fortune and would probably still be running that fund and writing this from my own private island. But it was not meant to be.That year, I took over the Horseman Global Fund. And with a lot of work got it nominated for best long/short fund in 2015, only to lose to another fund on Sharpe Ratio. What's the deal with the Sharpe Ratio? To win a Eurohedge award you need the best performance - but cannot do it with leverage. So if your Sharpe Ratio is much lower than other nominated funds you won’t win. I feel like the Sharpe Ratio tells you more about the underlying volatility of your markets rather than the skill of the manager… but rules are rules.Does being nominated for Eurohedge mean anything? Like above - should I be reversing my positions? Short gold and long treasuries - a depression trade again? Probably not - but there are a couple of similarities to 2008. First corporate bonds spreads are at very tight levels - just like in 2007.Also EM bond spreads are also at very tight levels.For me January and February 2026 performance has been so far so good. But if commodity prices continue to rise - the risk is inflation returns and bonds sell off - and its 2008 or 2022 all over again.Anyway - thank you Eurohedge for the nomination. And this time, if I win, I will stop my mate from putting the trophy down his kilt at the drinks after ceremony. Good times. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

This is a free preview of a paid episode. To hear more, visit www.russell-clark.comThe Nikkei has been on an absolute tear over the last year or so. I don’t have many longs, but over half of them have been in Japan.

A few years ago, I looked at the rise of populism as the rise of “pro-labour” politics. I saw the return of industry policy, tariffs, unions and fiscal spend as all designed to raise the share of wealth going to workers and to reduce the share going to the owners of capital. To me it meant inflation would be entrenched, UNLESS, central banks acted to tighten monetary policy. So I put on a long gold, short treasury trade. It has done well.Now if I was a typical fund manager or substack writer, I would just say, “hey, I am a genius - pay me tonnes of money please” and leave it at that. But I am not typical. I thought an environment where yields were rising, and gold was rising would NOT be a good environment for equities. Owning the S&P 500 has been absolutely fine for investors - although recently you have lagged gold.I could make an argument that I was right about gold outperforming S&P 500 But I did not see the Korean market breaking out to new highs in this analysis.Or the Nikkei for that matter.How can we make sense of all this? What is becoming increasingly apparent, to me anyway, is that the corporate world has been underinvested for the surging demand created by “pro-labour” policies. Insourcing or friend sourcing and various industrial policies have created huge demand back in the developed world. But many developed world corporates, there has been such a focus on building moats, raising prices, and returning capital to share holders, we have become chronically underinvested. If you look at shares outstanding in the US, they have only just started to rise. A rising share count implies selling equity to raise capital to me.China, which does not have the same focus on share buy backs, seemingly faces less of the capacity constraints that faces US corporates.In a way, what I am saying is that when markets reward share buybacks over investing, at some point you will get a surge in inflation. Japan was like China until 2020 or so, and now looks like the US in 2012 to 2018 era.As Mark Wilson over at GS points out, the market has rewarded capital light businesses for years now. Or in other words, markets have rewarded companies for not investing. But that is beginning to change.The market is screaming out for companies to sell equity to fund growth. But so far, corporates remain constrained in their equity issuance, despite the market signals.So I am now left with two possible reasons for the movement in GLD/TLT. One is political, that we are shifting pro-labour, and wages will rise dramatically. Or a second one, that years of share buy backs and “pro-capital” policies have left the western world (or everywhere but China), chronically underinvested. From this interpretation, looking at relative government bond yields, the market decided that the US was underinvesting in 2021 relative to China. But if you look at China, it has surging production in almost all good, and electricity, while the rest of the world faces backlogs. The market seems to imply China still over invests.So GLD/TLT could well be moving because the world (outside of China) is chronically underinvested. That would chime with the surge in capital heavy stocks. The question will be when will we have invested enough? Or alternatively, when do politicians act to restrain demand? Looking back at the “pro-capital” era that ran from 1980 to 2016 or so, it was driven by a US that felt it had no real rivals. Both the Soviet Union and Japan, both seen as military and economic rivals, were beaten back in this era. A US that feels safe in its own position, could then revert to its free trading ideal I think. But for the US to feel safe today, it would need to feel it has defeated China, or at the very least engineered some sort of regime change in China. For me, the US and West missed their opportunity to change China in 2015. Then the economy as in freefall, with capital fleeing. If the US has instigated tighter fiscal and monetary policy at that point, then an Asian Financial Crisis style disaster would have befallen China - and regime change would have followed. Instead we chose more QE and negative interest rates. What GLD/TLT tells me now, is that the price of regime change will be much higher. But I guess that’s politics.And to answer the original question, pro-labour policies have created capital scarcity - they are two sides of the same coin. Now we just need to wait for much higher interest rates. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe

I have like gold as a part of a pair trade - long gold short long dated treasuries, or GLD/TLT (using the ETFs codes that capture this trade). GLD/TLT has been a great trade, but I am old enough to know that nothing lasts forever, so have to wonder if we are near the end on this trade?I did manage to create a very long term GLD/TLT charts, which suggest we still have a ways to go.Clearly, GLD/TLT is a “debasement” trade of some sort. But if this is working, why isn’t Bitcoin working? Bitcoin is basically back to levels first seen when in 2024, and before Trump basically “decriminalised” crypto.As I wrote a few months ago, Bitcoin worked best when people were “bearish” on it. The problem is that despite the absolute “beasting” that Michael Saylor’s Strategy has taken recently, short interest is subdued. No one wants to short it. Bad bad sign.I have not wanted to short Bitcoin, because I look at Tether as a liquidity guide to Bitcoin. Tether market cap has continued to climb - suggesting liquidity is not a problem.However, it has come to my attention that Tether is better described as a gold bug than a hodler. As of the 31 December 2025, Tether held USD 17.4 billion of gold, compared to USD8.4 billion of Bitcoin. Reserve breakdown is below.For my own interest, I tried to tease out the movement in volume in Bitcoin and Gold holdings at Tether over time. It is curious to see that the stablecoin allocation to precious (read gold) has increased substantially in 2025, while bitcoin has been largely flat. Trying to adjust for price changes - I think they invested USD 5bn into gold in 2025. They now have over twice as much in gold than they do in bitcoin. In Mid 2024, the value of the bitcoin holding was larger than gold, so its quite a turn around.Tether also have a gold stable coin Tether Gold - I read this as Crypto Gold ETF. Its current market cap is USD 2.4bn, so pales in comparison to GLD US with USD 172bn of market cap. But we can see that they have doubled their ownership of gold in 2025.I suspect Michael Saylor is on the phone to the guys at Tether pounding the table to sell some gold and buy bitcoin. Especially as the word on the street is that the Strategies average entry point into Bitcoin is $76,052 - or above current price of $70,687 or so.The problem with Bitcoin, as far as I can tell, is its transparency. Ever since Russia’s access to it’s foreign reserves were frozen, foreign reserve holders have to think hard about where they put their money. And as China has by far the biggest trade surplus, its their views that dominate the most. And they do not like Bitcoin. In fact the problem for China is that they have excess US treasuries and not enough gold.The other thing is that President Trump in his ardour to “make a deal” has slapped tariffs on friends and foes alike. Not just China, but democracies like Brazil and India probably are keen to get rid of their treasuries as well. It is this “switching” that drives gold demand I think. I have seen a number of charts saying that gold holdings are now worth more than Treasury holdings. This one looks at all official holdings.Looking at the above, the old powers of the US, Germany, Italy and France are around 70% of reserves. So may be we are getting close? Or if I just look at China, it needs another 4,000 tonnes to get to a holding commensurate with its GDP, which is about USD 70bn of buying. If I had to guess a number - maybe US 10,000 for gold?The problem here is that I think it suits China greatly to see the gold price surge. It adds to a narrative of the US being a power in decline. And they still have USD 680bn of treasuries to get rid off.As well as trying to figure out what to do with annual trade surplus of US1.2 trillion.Of course there is one answer to all of this. And that is to MAKE TREASURIES GREAT AGAIN. MTGA would require the Fed to raise interest rates to at least 7% and the for the US fiscal deficit to be reduced from spending cuts - or pretty much what Reagan and Volker did in 1980. This is possible of course, as anything in politics is possible, but I would say unlikely. The politics of the world, makes me think gold keeps outperforming bitcoin. Strangely Tether seems to agree. Sorry Michael Saylor - you chose the wrong debasement trade. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe