Interview: Talking Macro With Guy Adami on Risk Reversal Podcast.
Great to be back with Guy Adami again to talk about a broad range of Macro topics.
Great to be back with Guy Adami again to talk about a broad range of Macro topics.
“Guy Adami interviews Michael Kao (@UrbanKaoboy), discussing the historic moves in gold and silver, the debate over fiat debasement versus speculative positioning, and why charts showing central bank gold eclipsing Treasury holdings can be misleading because much of the change is price appreciation rather than new buying. Kao argues true de-dollarization is unlikely due to the lack of a rival fiat ecosystem with comparable liquidity and deep bond markets, and says a shift from Treasuries to gold as a reserve anchor would imply economic austerity and slower global GDP growth. They explore how geopolitics (including post-Ukraine reserve seizure fears) and Trump-related tariff and deficit narratives have fueled gold, while Kao outlines a contrarian view that Trump 2.0 policies plus AI could be deflationary and potentially restore productivity-driven disinflationary growth similar to the late 1990s; he also critiques CBO debt projections for assuming low productivity growth. The conversation covers AI’s disruptive impact on industry moats and equity multiple compression versus immediate default risk, touches briefly on Japan’s bond market and the yen carry trade, and examines the “sanctity” of large AI CapEx plans and whether AI expands total addressable markets or mainly drives cost cutting. Kao highlights his thesis from his piece on AI electrification: U.S. electricity demand may accelerate sharply after decades of flat growth, creating an energy bottleneck that increases reliance on natural gas (given limits to coal and nuclear), amplified by data center buildouts and LNG exports. He explains his preference for natural gas mineral strategies that distribute cash flow over trading commodities or owning E&P equities due to capital allocation risks, and notes recent oil spikes have often faded since 2022.”
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Show Notes
As usual here is a broad outline of topics covered along with backup and charts.
Precious Metals vs. the USD
Don’t mistake Speculation for a true Fourth Turning / New Monetary Order:
Here is the underlying piece I referenced about Inelastic Supply Assets meeting Demand Bumps creating parabolic price moves, but the Sword of Inelastic Supply cuts BOTH ways:
It’s not going to be easy to put the Fiat Pandora back in her box, because no government will embrace Austerity:
Trump 2.0 Playbook
I have been saying that the Trump 2.0 Playbook is NET DEFLATIONARY from the get-go. Here are my pieces from February and March of last year:
DISINFLATIONARY Productivity-Driven GDP Growth is the Holy Grail that will allow us to grow out of our Deficit and take Debt/GDP significantly lower, especially with the Reverse Marshall Plan allowing us to reverse the Vodka Red Bull economy:
Tariffs have NOT caused Runaway Inflation. The whole point of Tariffs is Demand Redirection and Demand Destruction.
Incidentally, the SCOTUS just ruled against Trump’s Tariffs. While this is a setback to the Trump 2.0 Playbook of using IEEPA Tariffs as a cudgel, I believe the Admin has many alternatives (especially under Section 232) to continue these policies.
In other words, I don’t think we’ve seen the end of Tariffs as a Geopolitical lever at all.
The De-Dollarization Myth
Do not conflate Currency Strength vs. Currency Adoption:
I talked about this in my West Point paper.
In my opinion, the current USD Weakness is due to CYCLICAL factors and not STRUCTURAL factors.
JGB Impact vs. USTs
There does not seem to be any impact from the so-called Yen Carry Trade Unwind.
If anything, USTs have been a SAFE HAVEN recently:
Market Confusion over AI Impact
The market is currently conflating Equity Multiple Compression with Imminent Mass Defaults.
I think while the former is justified, I think the market has way overreacted on the latter, and therein lies the opportunity (CLO Equity being one of them).
I only mentioned it in passing with Guy, but here is a recent piece about CLO Equity dynamics presenting opportunity:
This reminds me of the Dot Com Bubble period where there was severe Equity Multiple Compression without mass Defaults — and industries like Software are historically hard to kill from a Credit standpoint.
AI may potentially pose NET DEFLATIONARY risks, but there is one big wildcard…
The Electricity Wildcard and the US Energy Achilles’ Heel
I’ve been thinking a lot about how to hedge for this one Inflationary scenario that I worry about, because all roads lead to significantly increased demand for Natural Gas in the medium-term:
We talked about the some of the Idiosyncratic Capital Structure and Capital Reallocation Risks of playing these themes via Equities and why I prefer a purer but risk-mitigated full-distribution approach through Minerals.
Crude Oil
Conversely, it’s hard for me to envisage a big bull market for Oil right now because of the significant Spare Capacity in OPEC+ and in non-OPEC. The 2021 mix of Supply Inelasticity meeting a big upside Demand shock is reversed here with high Supply Elasticity and lackluster demand from China.
I continue to think Geopolitical spikes are FADES.
AI Impact on the Global Economy
I’ve been deep in the weeds playing with both OpenClaw and Claude Code recently:
The jury is out on whether such a Deflationary technology will net create TAM expansion or just tear down moats and democratize cost efficiencies. I am admittedly torn on this issue, and the question I keep asking myself is:
Does AI create the same “Winner Take All” dynamics for certain concentrated beneficiaries?
I honestly don’t know, and I don’t think anyone knows.
Final Thoughts
I believe that the US Hydrocarbon Dependency is fundamentally shifting away from Oil to Natural Gas.
I think America has been lulled to sleep with decades of cheap Electricity and cheap Natural Gas.
If AI is the Apex Predator of Capital Light businesses, how much of the Capital Light landscape can this Apex Predator ravage before increased Electricity / Natural Gas prices (the “food” of the Apex Predator) begin to starve out that Apex Predator?
Introducing UrbanKaoberg: The Poor Man’s Bloomberg Terminal
Stay tuned!
Great points as usual. And congratulations on creating 3 apps so quickly. These tools are amazing. I see a few others building alternatives to Bloomberg terminals. Exciting!
Great interview, as you indicated, what good businesses today will benefit from AI expansion. Adam said WM, you like electricity and natgas, so many others too. No need to pay high multiple.