Is the stock market walking off a cliff and investors don’t see it coming? Macro investor Kevin Muir, author of the MacroTourist Newsletter, joins Maggie Lake to break down why we’ve entered a new economic era—one where tariffs, trade deficits, and fiscal tightening could reshape markets in ways most investors aren’t ready for.
- Is the market dangerously overvalued?
- How does the trade deficit secretly drive stock prices?
- Why do retail investors actually have an edge over Wall Street?
- What assets (stocks, bonds, gold) are best positioned for the shift?
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Kevin Muir 0:00
In the past, stock markets like to climb a wall of worry. Now, instead, they’re, you know, walking along a cliff of indifference and or overconfidence. We are just days away, maybe it’s weeks, and worse, months, from Trump getting up and start talking about currencies. And so I expect there’s going to be a lot more fireworks there. There’s going to be some, you know, huge volatility.
Maggie Lake 0:28
Hello and welcome to wealthion. I’m Maggie Lake, and joining me today is Kevin Muir, author of the macro tourist newsletter. Hi, Kevin. How
Kevin Muir 0:35
are you on? Great to be with. You always enjoy this. So
Maggie Lake 0:38
inflation and tariffs very much dominating the headlines lately and Fast and Furious. How are you thinking about portfolio allocation in Trump’s second term? Are you shifting based on anything you’re coming out of DC? Oh,
Kevin Muir 0:53
wow. For sure. I think that everyone needs to wake up to the fact that we have transitioned into a new era, and this new era is one that we will have tariffs, even though a lot of people think that it’s just a negotiating tactic and that he’s not going to actually do it, but I happen to believe, take him on his word, that he will eventually do tariffs. And if you go look at a chart of tariffs over the last 200 years, you’ll see that it’s a chart, you know, that goes used to be a large portion of the US economy was the tax was raised through tariffs, and then it was lowered to basically zero in the 1950s and 60s. And so everyone in the investment industry is, in essence, can’t remember tariffs. We can’t remember a period where it was increasing, it was it was free trade was a dominant theme. And now all of a sudden, we’re faced with having to deal with a world that’s actually much different, and there’s going to be a huge amount of opportunities from this. My joke is, well, instead of, you know, make America great again, and we can change that a little bit to make macro grade again, because I do think that we’re going to have this period where it’s going to remind us of the kind of 1980s with the Michael steinhardts, the George Soros, when we had these huge moves in terms of different asset classes, in in foreign exchange and interest rates. And it’s just it’s an exciting time for macro. It’s
Maggie Lake 2:20
an exciting time for macro. Is an exciting time for individual investors, because I feel like when the kind of you know, Masters of the Universe are wielding their power in three steps ahead on the chain of what might happen in very complex, technical markets, I’m not always sure that that that’s an environment where individual investors, who are kind of worried about, you know, building their wealth, do well, can, can the average investor do? Well, in that kind of circumstance,
Kevin Muir 2:51
well, first of all, in terms of the average retail investor versus the institutional investors. I’ve been saying this for a while, and I think it more so every single day, the retail investor is at a huge advantage, and the advantage that they’re at is that they don’t have career risk. They can step away when the game no longer makes sense, when the risk rewards are no longer attractive. If you’re sitting there and you’re an institutional manager and you’re seeing the s, p and the mag seven scream, and all your peers are long these things and making fortunes you can’t afford but to be in it, whereas a retail investor can look at this and say, Okay, I know that maybe over the next six months, I’m going to underperform maybe a year, but I suspect that over the longer term, I will be benefit. It will be beneficial to reduce risk here, which is something I definitely believe that retail investors and all investors should be doing, but it’s much easier for the retail investor to do it because they don’t have that pressure of having to perform on a monthly or quarterly basis like most institutional portfolio managers. That’s
Maggie Lake 3:57
such an interesting way to look at it, Kevin, because, you know, the thing I worry about is, you know, you’re, you’re competing against people who have an advantage, but your point is that you don’t have to have action. So, yeah, am I? Am I? Should we relate that to like, don’t be afraid to sit in cash. Don’t be afraid to take profits. Sit in cash and keep your powder dry. Is that 100%
Kevin Muir 4:17
I think that that is the, that is the retail investors. Big advantage is that they can go and underperform and be less you know, have a portfolio that’s less risky during periods when the risks are higher. And I think that’s currently what we’re experiencing. We’re at a stage where the stock market has been rising for a long time. We’re trading in almost 23 times next 12 months earnings on the on the US stock market. Everyone’s overweight, everyone’s, you know, excited about stuff. But if you kind of step back and think about this, you know, I, one of my lines that I like to, you know, use is that, in the past, stock markets like to climb a wall of worry. Now, instead, they’re, you know. Walking along a cliff of indifference and or overconfidence, and that’s, in essence, where we’re at. So if I was a retail investor and I had been lucky enough to be participating in here, I would see this exuberance and say, Yeah, okay, you know what? Maybe it’s going to go up another six months. And I don’t deny that it could keep going. It could be very, very exciting over the next six months, I’m reminded of the 1999 period, which I’m old enough to remember Maggie, where the NASDAQ, I think, went up something like 60% in the last quarter of 1999 and then it ruled over a tiny little bit in January of 2000 and everyone thought that was it. And then it proceeded to go up another 50% or 40% of some big number. And so we had these very just extreme, volatile moves. And that was the kind of the market move, if you remember back the famous Stanley Druckenmiller story. And this is a perfect example of how the institutional investors, they have this pressure to get involved in this trade, even Stanley direct, Dr Miller, the goat of all traders, the absolute best guy. He couldn’t stand watching everyone else make so much money. He ended up going back into the stock market, buying the.com bubble at the very top. And I can’t remember the number. He says, within two months, I had lost $3 billion or something. It was one of the worst losses in his career. So I very much think that that’s the kind of emotional, supercharged environment that we’re in. So you need to be aware of that and kind of think to yourself, Okay, well, if the stock market goes up another 20% in the next quarter, am I going to be able to sit through it and just make sure that you do a little gut check? Because that is what will what we very much could have. Yeah,
Maggie Lake 6:40
and to that point we, we, you know, we hear people all the time. I’m sure you’re asked this all the time, should I take profits? Is it going to go higher, but, but every time people do, we see things rocket higher, yeah, tax flying as we speak. You know, right now, in real time, i Everyone was worried about tech stocks, and I think Facebook just went on this March where it like gained 17% in six days or something. This is the problem that people see that, and then they’re and then they’re missing out. And those are substantial moves. That’s substantial money to be left on the table. What do you see going wrong? Why are you aside from the feel like you feel sentiment is a little overconfident. Okay? What do you see that worries you so much about stocks?
Kevin Muir 7:23
Well, first of all is the valuations. So I see a situation where the s, p is when one of the highest valuations that we’ve had in a long, long time, I think the only time it’s been more expensive is being in that.com bubble, one that I mentioned. I see concentration in terms of the amount of the top 10 stocks, in terms of how much they make up of the index. And then ultimately, I also believe that the market is mis understanding what the effects of Trump’s policies will be for stock prices. And ultimately, if you listen to Trump. He believes in getting two deficits down, the fiscal deficit, you know, the the amount that we spend, the budget deficit, and also the trade deficit. And I think both of those have been contributors to the US stock market’s outperformance of the past, you know, many years. And I know people, it’s very much kind of counterintuitive to what they believe. In terms of they all think, oh, you know what, if we got into a situation where we actually stopped spending government money, that must be good for the economy? And I, although I do understand that argument, a lot of times, they’re basing that on periods when we had a situation where the government had spent, been spending for much too long. And one of the things that I kind of, I find people are always shocked at is that when I tell them the US deficit, meaning the budget deficit, and I explained to them that it’s 7% and then I asked them what the rest of the world is, they’re shocked to find out that Canada’s two, Japan’s two, European Union is three, and that money is what, what a lot of people kind of don’t really put two and two together in terms of understanding the kind of accounting of it the government’s deficit is the private sector’s credit. So we can sit here and we can argue whatever we want in terms of what the best kind of long run decision about how much government spending and how much government deficit we should have in terms of making a decision about how our economy is going to be set up for the long run, there’s no doubt, you Know, that is a kind of a political, a society decision, but when you’re thinking about just pure accounting, like when we’re just starting thinking about what’s driving the stock market, there is no doubt that fiscal deficits drive the stock market higher. And if I’m listening to Trump, he sounds like he’s going to go on to get the fiscal deficit down and. And I don’t think it’s going to be as good for the economy or the stock market as everyone thinks. Now, listen, everyone’s going to be like, Oh, no, you don’t understand. We’re spending too much, and this has got to end. And I’m not disagreeing with you on that at all. But for if you think back to 2022 late 2022 when Biden announced all the spending, you could have said, Oh, this is going to crush our economy. And yet, what happened? We just had two of the best stock market years that we’ve had, you know, in a long, long time. So I’d rather be right in terms of where stocks are going and look at the facts and about what’s driving those prices, than focusing on the politics and what’s going to work over the next 1020, years. Because those are two very different you know, discussions. If
Maggie Lake 10:44
you have any questions on how to navigate the current environment, wealthion can help connect you with a vetted advisor to get a free portfolio review, just click the link in the description below or head to wealthion.com/free Yeah, that’s right. So, so longer term, you may be getting yourself in better shape financially, but you’re sucking money that was in the economy and going into the stock market. You’re sucking it back into the coffers of the US government as you try to get yourself back in, you know, into some sort of discipline. It’s like if you cut up all your credit cards, right? You’re gonna walk around feeling frugal, and you won’t be able to do anything for a while. A while, while you restore your, restore your credit score. I mean, it’s a great analogy, Maggie, I’m gonna steal that. Yeah, it’s a, it’s a period of sort of, you know, yeah, so that that’s a great point. What about this idea, though, that by writing the fiscal ship right, by getting your the sort of us credit score back into something that looks reasonable, that you’ll be rewarded by the bond market. Okay? You know, it’s that old, that old tale, supposedly, that you know, Bob Rubin sold to Bill Clinton, who said, I, you know, I’ve got to leave it all up to the effing bond traders. What about that? That argument because lower rates would be powerful, right?
Kevin Muir 11:58
No doubt about it. So I’m not going to dismiss that lowering the bond rates would create more private sector credit creation, and that’s ultimately, there’s two ways you can create credit. One is you can let the government, you know, banks, lend money into existence. And the other is you can actually get the government to spend it into existence. Ever since COVID, we’ve been relying on the on the ladder, you know, in terms of spending more than, you know, spending that money into existence. And what folks are trying to do is say, let’s look back and let’s go back to do what Clinton and Ruben did. And you you know, highlighted that the fact that they said, Okay, what we’ll do is we’ll pull back on our spending, and then we’ll get interest rates down, and when we get in the budget, we’ll be rewarded right in the bond market will get interest rates down, and therefore, then people will be able to borrow more. There’ll be more private sector credit creation. And listen this, he could get the bond market, you know, like higher and lowering yields. I completely agree with with that portion of it. But what he’s what they’re missing is that in 1995 when Bob Rubin took over as Treasury Secretary, the two year was seven and a half. The 10 year was seven and a half. And when you go look at actually inflation, it was, it was roughly what we’re what we just experienced. So we had high real yields. We had an inflation of two and a half with a bond market of seven and a half. So we have 5% real yields. Today, we’re at, you know, two and a half, or whatever, maybe three, with the bond market of four and a bit. So our real yields are much lower. The other thing is, there’s something called term premium, which is kind of the amount that the bond market demands for the risks that there’s going to be more inflation in the in the future, and the term premium, although it’s up from the kind of post GFC, pre COVID period, it’s still very narrow. At the Bob Rubin period, it was over 200 basis points. Right now we’re at 65 basis points. So I won’t disagree that if Besson goes and gets convinces Trump to go and cut back on spending and pull back on everything, that we are going to get a lowering of bond yields, I just don’t think that it’s going to be as much as everyone expects. And I think all you have to do is look at this latest CPI number to see that inflation is still stickier than we expected. I don’t think it’s going to be as low as everyone expects. And then, not only that, don’t forget that the amount of debt in the system on the private sector side was less in the Bob Rubin Clinton period. So therefore it was easier for private sector to lever up. Now i i Actually, I’m going to say something that’s kind of the opposite here, in terms of, I do think that financials have been repressed since the GFC, meaning that they’ve been kind of told that they can’t lend, and that this deregulation is going to help, and there’s no doubt about it, that we’re going to see. See more private sector credit creation, and Scott Besson is correct to try to get low rates lower to truly encourage that, I just don’t think it’s going to be enough to offset a big decline in the fiscal stimulus. So we’re
Maggie Lake 15:14
so we’re painting a pretty worrying picture for stocks. Before, I want to ask you a little bit more about bonds. But are we looking at a sort of, you know, a sell off to to get valuations down to something that makes more sense, and then we carry on. Everything’s been V shaped when we’ve seen it lately, in the last, you know, even decades, stocks fall they, you know, they cleanse out valuations, and then they snap back. Are you expecting something like that again? Is it just a matter of getting valuations, and are we looking, if we’re in a different era? Are we looking at the prospect of, if you see that sort of retracement or sell off, that you then linger at those levels for for a while? Is do we have a sort of down and sideways, where if you didn’t get out, you have a hard time recouping the gains.
Kevin Muir 16:04
So I do think it’ll be more down and sideways, and with a lot of volatility, all you have to do is look back at the 70s. I think 70 to 82 the Dow Jones went between, can’t remember what the number was like, 600 and 1000 for what it bounced up and down there for a decade? Yeah,
Maggie Lake 16:21
that’s why I’m asking. Because if you, if you you know, you, if you, you know suffered recently and you got caught in you could, you could make it back, right? But if you’re closer to needing that money, there’s no guarantee that we don’t just bounce along a bottom here, which is a very different environment than what we’ve just come out
Kevin Muir 16:40
of, oh, 100% and I’m with you, Maggie, that’s what I expect. And the other problem that we’re going to have is that we’re going to go and you’re going to look at the rest of the world, and think about the rest of the world in terms of their overweight of US assets, like I just did a quick little study here before we started, and I when looked at the 10 year returns of the US stock market versus everything else, and it’s shocking, like the NASDAQ is like 19% the S, p5 100 is 13% and then when you go look at international indexes in US dollar terms, it’s like seven and six. This is over the last decade on an annualized basis. So if you’re sitting there and you were a French pension fund manager or a Japanese Life Insurance Company, and you didn’t own a whole bunch of US assets, US stocks in particularly, you don’t have a job anymore, like you’re you’re gone. So we have this situation where the whole world is overweight US assets in a big, big way. Now, one of the things that I think is interesting to think about in terms of Trump is that Trump’s going around, you know, telling everyone, hey, you know, the days of us paying for everything are gone. And I always say, You know what, let’s put aside the politics, and let’s just trade what the market we have in front of us, and let’s put no judgment in terms of whether that’s right or wrong. So he’s just, he’s forcing the rest of the world to step up and do spending. Now I’m just going to speak. I’m a Canadian, and I think that Canada is a great example. We have gone and we have relied on on Americans a lot in terms of our economy, and now all of a sudden, we’re faced with this threat about these tariffs, and we’re sitting here and we’re like, holy smokes, this is actually this is disturbing, because we’re now at Mercy to our biggest trading partner who’s threatening us with tariffs. We better do something about it. And so why look at our response, and I can tell you that we’re going to now be making pipelines to the coast. We’re going to be making LNG plants, whereas before, we were trying not to spend like we were going to be forced to spend more in our military and actually do what we have promised to do, and we’re not going to be afraid to go and spend more in terms of against on a deficit, because we are forced to this is like a threat to us in terms of existentially, you know, a worry to our economy. And all you have to do is look at Europe’s going to be the same way. China would be a perfect example. So I look at this, and I see a situation where Trump’s decisions about how he’s dealing with the rest of the world is going to kick start a huge amount of fiscal stimulus throughout the rest of the world. And so we’re going to see a situation where, for the first time, that, you know, instead of worrying about trying to balance the budgets, because, you know, while US was running 7% you know, deficits in post COVID Europe’s been trying to balance their books. Now all of a sudden, Europe’s gonna be like, Hey, wait. You know what? I think we got a bigger thing to worry about. Let’s go spend and so I could see growth actually springing up throughout the rest of the world. And now, all of a sudden, if you have growth springing up throughout the rest of the world, everyone’s overweight the most expensive stock market in the world. Okay? Okay with the currency that is also the most expensive currency in terms of all you guys. You know, like, every one of my American friends that go out that wherever they go, they’re like, holy smokes, this place is so cheap. Like, the whole world is cheap for them, right? Like, it’s like the Japanese in the not in the 80s or whatever, when they just went around, everything was cheap. And that’s how, you know, that’s how it is. And so we’re going to see a situation where if all of a sudden, money just kind of goes back to benchmark. And this is the part that everyone always misses. They always ask me, like, well, you know, Europe stinks. Why would anyone invest in Europe? And I go, all you need to do is get people going back to benchmark, and you’re going to get the US dollar going down. You’re going to get other European indexes going up, or whether it be Japanese indexes, so there’s going to be a huge shift, you know, from the US into other assets. And so one of the things that I would say is that if you’re a long term investor, and I know this has been a painful trade to own non US assets, it’s, it’s like every single smart kind of quantitative guy has been saying this for a long, long time, saying, You know what, you should diversify outside the US, diversify outside the US, and it is not paid. Well, I think it’s about to finally pay. And I just think that it’s one of those things. It’s like, when everyone’s finally given up on, it is when it’s going to work.
Maggie Lake 21:19
Yeah, you’re right. It has not paid, even though the arguments have been, have been great. What about the fact, though, that so many of the companies in the US, stock markets listed in the US, are really these multinational, global, their reach is global. Wouldn’t they just benefit from fiscal spending everywhere? Sure,
Kevin Muir 21:40
and there’s no doubt about that, that they’re that you’re going to find that. But don’t forget, they’re also the most expensive ones. So if you can go and all of a sudden, the French equivalent is trading, you know, instead of like, let’s just take the French market, or the European market, is trading at 12 or 13 times, earnings us is trading at 23 times, right? So like, why wouldn’t you go and just bring some money back and or, Why didn’t you go and invest in the 12 times? And this is my worry, is that just all these things are just so overpriced, because we’ve kind of mistakenly assumed that there’s going to be no growth outside the US, and it’s going to be all attracted to the US, and the US dollar is at a point where it’s very difficult for manufacturing, which is something that Trump talks about all the time, for manufacturing to come back to America with $1 at these levels. And so ultimately, one of the things that I truly believe is that although he’s talking tariffs and trying to fix it with tariffs. That really the end game is a US dollar that needs to be lower, like a Plaza Accord, or they call it the MAR a Lago accord. That’s the only real way you’re going to get manufacturing back. Like I saw this great kind of video, and it was about John Deere. John Deere, farmer, you know, factory in Mid America. And it was with case as well, which is another manufacturer. And they were talking about Trump threatening tariffs of 100% if they closed the factory, moved it to Mexico or wherever, Europe, wherever they’re going to move it. And in this thing, I watched this documentary about it, and they talked about the mathematics, like, the kind of the accounting of it. And they were like, We need, like, even at 100 100% tariffs, it probably still made sense for them to go outside the US, and ultimately, for manufacturing to be competitive in the US, the currency has to be a lot lower. And I encourage everyone to go back and go read the Bloomberg Business Week article that Trump gave in the summer before he was
Maggie Lake 23:48
elected. He said everything he was going to do right, but also
Kevin Muir 23:51
he says something that he hasn’t done yet. He did talk about the dollar, and he talked about how the Yen was too high, the renminbi was too high. And so I think that one of the huge, big opportunities that’s about to occur is we are just days away, maybe it’s weeks, and worse, months, from Trump getting up and start talking about currencies. And so I expect there’s going to be a lot more fireworks there. There’s going to be some, you know, huge volatility. And I think that owning long, dated option. You know, volatility on currencies is the great trade for 2025
Maggie Lake 24:25
Yeah, when that, when they move, they move fast. And, you know, it’s, it’s often very dramatic, especially if the market tries to resist, and you have a battle between a, you know, a treasury and a and a market testing their will. It creates for a lot of for a lot of drama. What would be the consequences of a lower dollar? What would happen if the Trump administration were to pursue a policy of devaluation? What does that mean for assets? What does that mean for inflation or bonds? What would be the knock on effect of that? Well, I think
Kevin Muir 24:57
that ultimately it’s going to mean lower. Financial asset prices for all US assets. Because ultimately, the kind of the the implicit thing that’s happened over the last few decades is the America is willing to run a huge trade deficit, and in doing so, the kind of the other side of the coin has been that the foreigners leave their money in US dollars, like, if you’re, you know, when Americans buy, you know, let’s just take iPhones. They go, you’ll buy and I buy an iPhone. Sure, Foxconn, the company that sells the iPhone, is going to go and try to transfer that money back into renminbi so that they can pay their staff. But the reality is that the People’s Bank of China is there keeping the currency cheap. And so what they’re doing is that they’re reinvesting that money in US assets. And so that trade deficit has been recycled into US financial assets, and it’s been part of the reason that they’ve been so elevated. So if you get the trade deficit down in terms of lowering it. I think that at the same time, there’s going to be less design need for money to stay in the US financial markets. And so I expect it to be a lowering of the prices of all these things. I have this great chart Maggie, that shows the I think it’s the one year return of the NASDAQ versus the one year change in the trade deficit. And it’s shocking how similar it is. It’s just, it’s mind boggling, like someone showed it to me, and I was like, Nah, that can’t be. I’m gonna go like, I’m gonna do the old Reagan, trust but verify. Because that’s how, that’s how, like, I didn’t believe it. I was like, Oh no, he’s that’s wrong. He’s done something wrong, and I did it. I was like, holy smokes, it’s really there. So I think that you should be careful about trying to get your trade deficit down, and ultimately it might be better for society. And this is the thing, again, I am not judging whether Trump should do it or shouldn’t do it. It doesn’t matter what you or I think matters whether he does. And so I do believe that if he ends up being successful in lowering the trade deficit, implicit in that will be lower stock prices and lower kind of financial us, financial asset prices. I guess
Maggie Lake 27:17
the question, and I know none of us are in anyone’s head. So it’s a bit rhetorical, but is, has there been a decision about what they’re willing to sacrifice in order to achieve these goals? Because they want low rates, they want low inflation, they want a lower dollar, they want lower energy. They want, you know, the sort of average american to have better prospects, and we know how exposed everyone is to the stock market here. Not everyone owns individual stocks, but a lot of people are exposed to their 401, all of those things seem very difficult to achieve at one time. Do you? Do you think that there has been a decision that maybe has not been disclosed about what they’re willing to sacrifice in order to put the country on the track to eventually achieve all those things.
Kevin Muir 28:10
So, Maggie, you’re so right. They want all these things. And they kind of seem paradoxical, a lot of them. And like, they want all these things. It’s just like, the same, like, I want to be six foot four with a good set of hair, but it’s just
Maggie Lake 28:21
40 we’re all on this thing. We’re all wishing for
Kevin Muir 28:24
not going to happen
Maggie Lake 28:26
in the bottle, and I can have anything. So
Kevin Muir 28:29
I’ll tell you when I when I kind of came up with this, you know, realization about how important the trade deficit was to the to the price of US stocks. I tossed it around with some of my buddies that were, you know, hedge fund guys, and one guy in particular that I really respect his opinion a lot. And he was, like, full on with me. He agreed. He says, Yep, you’re absolutely correct. If he gets the trade deficit to zero or get or lowers it, it’s going to mean lower stock prices. But then he said, I don’t believe he actually wants that. I don’t think that he is willing to take the pain of a lower stock market to get it so that the John Deere plant in the middle of America is competitive again. And that was his point. And I don’t even know if Trump knows. I don’t even know if Trump understands this relationship
Maggie Lake 29:25
bluffing like not on purpose, but he thinks he’s bluffing that when push comes to shove, he won’t go through with it. So I’m not so sure, because I actually think that’s what he thinks your hedge fund hedgehog, yes. So my hedge fund buddy market is pricing that right? Like the 100% is pricing that this isn’t all going to happen. That’s why we’re not seeing the reaction right now in stocks.
Kevin Muir 29:48
No, you’re 100% right, Maggie, and that is the consensus. Overwhelming sentiment is that although he talks about all these things, they’re just negotiation practices being uh. A negotiation kind of measures, and we’re going to see a situation where, if he sees the stock market go down, he’s very good and quickly going to change his rhetoric, and he’s not prepared to go through it. I’m not so sure that that’s correct. If you go and you look at what they’ve been saying about tariffs, it’s been very clear that there’s been two timelines that they’ve been operating on. One is this timeline where they’ve been trying to push both, let’s say, Canada and Mexico, to do changes to the border. And they’ve been very clear in terms of that this is a political negotiation tool to exert maximum pressure on Canada and Mexico. And if you go watch Nick when he was getting confirmed by the Senate, you’ll see him very clearly outline these kind of the process. So he says, we’re going to do two things. One is going to be this kind of political thing where we’re going to try to get some changes done at the border. We’re going to try to do some things, and that is going to be a Feb one timeline, but then he talked about this other timeline, which is in April. And what’s happening there is that there’s been all these different parts of the government that have been gone off to study in terms of how tariffs will work and what is the effective and the most kind of optimum amount of tariffs. And ultimately that decision is still being negotiated or being hammered out. And when I listen to Trump, the one thing that he is consistent about throughout his entire career, like from the 80s, I think you can go find him talk about these things, is tariffs. I truly believe him when he says he wants to be the tariff president. Now, do I think he’s going to do 25% on Canada, Mexico? No, I think he’s going to end up at 10% and then that this was all part of it, having said that 10% is still a big number, and it’s still going to change a lot of different things. And so I agree as well with you that the danger is that, like my hedge fund buddy, that assumes it’s going to be a zero and that every this is all just a negotiation. The market gets shocked when he comes in April, and he actually goes and institutes some of these things that will be surprising. And like, you know, I, I worship at the idol of Stanley Druckenmiller. And I always listen to that guy, I think he’s the smartest guy out there. And if you go listen to what he’s saying, you’ll see a slight shift in his attitude about tariffs recently. And I thought, Oh, here’s a guy that you know is friends with Scott Besant, will know all these things. There is a definite change in attitude in that much of Wall Street is the really smart ones are starting to kind of consider the possibility that there is going to be those tariffs. Now, I agree with you that the majority of them haven’t, but the really smart, shrewd ones are starting to think about maybe there is going to be 10% because it’s important to balance the budget.
Maggie Lake 33:00
Yeah, I’ve heard a shift as well. When I’m talking to people who are really sort of, you know, trying to do three chess moves out about what this might look like, right? And I agree with you on that. And the reason that it’s important to talk about it is it’s because it’s what’s the trade, right? You can, you can. There are going to be lots of academics and policy people and all sorts weighing in on is this the right thing? Is it the kind of disruption that’s needed? Maybe it, you know, resets the global trade picture. There are all these kind of conversations about the merits and the disadvantages of taking that approach. The question for investors, when you’re looking at your portfolio is, what’s the trade if that is the case, then what? Where should I be overweight? Should I be you know, raise cash? Should I get defensive? What do I do here? I think that that’s, that’s what we’re all trying to figure out, right? So already looks like painful for stocks. Be careful. Really gut check, check your the amount of time you need when you need that money, what your risk tolerance is. What about bonds? Like, where do you where do you go in an environment like this? So this
Kevin Muir 34:04
is the really difficult part, and it’s because if you think about a tariff, it increases the price of things, but so you have less money, so you spend less, so the economy slows, but yet prices are higher. So I could see a situation where it is, it is, in essence, I don’t like using the word, because it evokes the 70s, and people think it has to be extreme, but it’s stagflation. It’s, it’s economic, you know, contraction while we’re having expanding prices, and this will be what we’re doing now, the question is, for bonds, which one works? Does the does the does the bond market look through and say, this is a one time price increase in the you know, that we’re going to experience, and then from there, there’s actually less demand, and therefore it should slow down. So I should buy bonds. I don’t know. So it’s difficult. You could argue that you could do steep nerves, meaning that the front end of the curve does better than the long end of the curve. As kind of a sophisticated play, one of the things that I, I happen to believe on in terms of fixed income is that the volatility is very high. And the reason the volatility is very high is because we had probably one of the most extreme tightening cycles we’ve had in a long, long time, right in decades, when, when we had this situation where Powell went and raised rates from zero to five and a quarter or whatever it was. And people forget now, but there was lots of folks that when we were rallying like when, when the when the Fed was raising rates, the thought it was going to end at two, like, I still remember Goldman Sachs was entering, and all you needed to do is go look at a chart of the peaks and valleys of the of the Fed funds through from 1982 all the way to 2022 and you’ll see that every single high and every single low was lower. So meaning, like, you know, the first time they raised they lowered rates post 82 they lowered them to seven, and then they raised them back up to nine or 10, okay? And then the next time they lowered them to five, and then the next time they they only went to seven and a half. So that these we had this situation where we kept going lower and lower and lower. This was very unusual in that this was the first time in a hiking cycle that we got to a new high that we went instead of going because the previous high was 2% or whatever that Powell had raised them to before he was forced to stop her raising rates this time, it blew right through it, it went to five and a quarter. So we have this situation where there was a lot of pain. A lot of people got that trade wrong in terms of the bond market, and there’s a lot of volatility. So the move index, which is like the VIX for bonds, is elevated. So people are very, still very, very concerned about bonds in terms of they think that that’s where all the damage and where they’re really scared because they’ve gotten hurt so bad, I think that that move index is probably overpricing things, although I understand the argument that there’s going to be a lot of volatility in the economy, there’s going to be a lot of volatility in terms of policy, the move index is still really high. So to me, I look at this and I think, okay, I would love to own the volatility that nobody is, you know, that is cheap, that nobody owns, that everyone’s not worried about, which I think is fx volatility. And I’m willing to sell a little volatility. And the way to sell the move index is to buy something called mortgage backed securities. And when you buy a mortgage backed security, there’s an embedded risk in there that you can that the the holder, or, sorry, the issue, the the originator, or the kind of the homeowner on the other side prepays the mortgage early. So the buyer of that of that security is actually, in essence, short volatility, and if you look at the mortgage back spread versus the treasuries, it is some of the widest that we’ve seen in ages. And Harley Bassman has this terrific product called the mtba. And the reason you have to go with Harley’s is because you need something called the current mortgage backed one. You need mortgage backs that weren’t issued back in 2022 you need mortgage backs that are issued today. And that’s what this mtba is. And so when I look at fixed income strategies that I like, I think that this is a great way to do it. This is a good place to hide. I expect that even though I there’s going to be some volatility, that the move could very well come down. There’s no credit risk, because there’s basically the government’s underwritten these things. There’s just volatility risk, and I think that’s a great way to play it. That’s
Maggie Lake 38:50
really interesting. Harley at simplify, Harley also created the move index. So yes, that’s true. Yeah, it was the thing or two about this part of the market. That’s really interesting. What, how are you thinking about gold here? Because, you know, when I’m listening and I know this is what will be on the minds of a lot of people, it’s like, okay, stocks are risky bonds. Tough one. You just picked a spot, but hard to say how this is going to play out, because there’s some competing forces for bonds. In fact, we just talked to Michael cow, and he said, Honestly, I just don’t know it could go either way. I’m just not sure, right? And you know, he’s very experienced as well. So then, of course, you’re thinking cash we talked about. But also, what about gold? What about good old gold hitting record highs? How you feeling about that?
Kevin Muir 39:32
So I love gold. I feel like Austin Powers Gold member. I love gold, and I’ve loved it for a while now, and one of them, when I really got bullish on it, was when Russia went and invaded Ukraine and the US government, and along with the Western Allies, basically zeroed their their balances. And to me, I was sitting there thinking, well, if I’m China. Yeah, and I’m the People’s Bank of China, and I own just gobs of US Treasuries. I’ve just looked at this and said, Holy smokes, they could do this to me as well, right?
Maggie Lake 40:10
They weaponized Swift. And it’s just, you just put yourself
Kevin Muir 40:13
in their shoes, and you don’t really have a choice. You have to be, you know, diversifying the things that you own as foreign exchange reserves. And ultimately, gold is going to be it. And one of the things is the gold market is tiny compared to the foreign the Treasury market. And this is a problem I think that China is having is that they’ve been trying to accumulate it very quietly. And that’s like, it’s really tough because,
Maggie Lake 40:39
and it involves physical Kevin and I are both on substack. You can check out. I did a great piece with Noel Atchison, who did a deep dive into some of the irregularities that are happening in the gold market, all kinds of crazy things. Because I think of what you’re talking about, the sort of, you know, the the need, it’s hard to execute. It’s not like a liquid market, like some of the other as liquid and deep, say, as a treasury market, right? So, yeah, so it’s kind of creating some really interesting dynamics, and it’s getting a little complicated.
Kevin Muir 41:11
I was lucky enough to go out, and I was with a famous trading commodity house. I met some trader, and we were out for dinner, and I was talking to him about gold, and I was like, Okay, so do you guys know when it’s like, the People’s Bank of China says, Well, no, you don’t actually know, because they’re, they’re doing it through a broker. But he said, the way you can tell is that it’s going to China, like it literally,
Maggie Lake 41:33
literally, yeah, literally. And this is part of the problem, is the physical delivery has gotten really It sounds like a heist movie, when you think about it, just this gold moving all over the place, because it’s very difficult, by the way, which is how some people part of the conversation is about Bitcoin, of course, because you know very different mechanisms for delivery, but that’s part of what’s fueling that. But do you think gold? Two questions will so that seems like a kind of permanent feature now, correct? Well,
Kevin Muir 42:02
yes, yes, a secular, a secular, secular change tailwind that’s going to be at your back for gold for many years to come.
Maggie Lake 42:10
Do you feel like you can still buy? Because a lot of people seen that’s at records, and thought I missed it. It sounds like
Kevin Muir 42:18
I’m still hugely bullish. I think that the reality is that the People’s Bank of China and all the you know, they’re not going to go away. Listen, could we get two $300 move down? For sure, one of the things that I do worry about is that it’s on the US Treasury books at $42 an ounce, something like that. There is no doubt that there is a possibility that the US government looks at this and says, Hey, listen, we’re getting all this, you know, pressure to balance our books. Not only that, we promised the Bitcoin guys that we were going to, you know, make a Bitcoin strategic reserve. How about we revalue gold to whatever it is. Now we sell some, and with that money, we buy bitcoin. So it ends up being a win win. And I very much could see that situation occur where they sell a little bit of gold, they revalue it at the same time. So it ends up being this huge kind of positive for their balance sheet. Yet it also frees up some money to buy the Bitcoin. And all I will say to you about that is, if that happens, buy more gold. And so one of the things that I’ve been advocating, I’ve been talking about foreign exchange vol. I think that gold vol is also another one, like it’s you would think that, given the excitement in this asset, you would think that it’s an all time highs, and that every you know it’s doing well, that they would be just reaching for this. You think that the skew, meaning the amount that they pay for the calls versus the puts, would be at the like, the highest that it’s been in for a long time. But none of that’s happening. The volatility is still cheap. Nobody cares. It’s one of these things, like, I have a good friend who’s he has a gold fund, and he tell he laughs all the time. He says, nobody wants to talk to me, like he literally, you know, they nobody’s interested. And part of the reason that that’s occurring is because it’s really getting bought by non North Americans, right? It’s not us buying it, so therefore very few people are long and so if we do get into a situation where we also end up being buyers, meaning, let’s imagine the US dollar starts to go down in my scenario, then we could we that we end up being the fuel on the fire for the gold to keep going. And so I could see a situation where the you know, the moves end up getting even stronger and more violent. And that’s also part of the reason I like buying the volatility, buying the call options, as opposed to doing it. And also, going back to the you know, this Bitcoin thing, there’s no doubt if. Announced they’re selling some gold to buy bitcoin. It’s down that day. It’s down big time you wake up and it’s, I don’t know what the number is, 250, 300 bucks could be more. There’s like, depending on how much they’re
Kevin Muir 45:10
selling, parabolic like, for the reasons we just discussed, but, but if they’re selling, if
Kevin Muir 45:15
they’re selling that gold, that’s you want to buy, that’ll be like the Bank of England selling gold at the bottom, like the like central banks or governments, when they sell stuff like that, you want to be on the other side of
Maggie Lake 45:26
their trade, yeah, the opposite of power block. Two quick things as we wrap the fact that you are seeing those central banks basically de dollarize is, do we have a steady seller? Of US Treasuries now, is that a problem in terms of supply and demand in the in the treasury market? So I
Kevin Muir 45:46
don’t think it’s a problem. Because, you know how I discussed earlier, the fact that the term premium is 65 basis points, the yield curve still pretty flat. So I look at all these people freaking out about the bond market, I’m like, You guys ain’t seen nothing yet. Like, if we actually get problems in the bond market. It’s not with the 10s at four and a half or five. It’s with the 10s at like seven, seven and a half. That’s the that was the level with rubenomics back in the 90s. I’ve
Maggie Lake 46:12
spoken to people who think that’s where we’re headed, by the way, not a lot, not a lot. But a couple of the you know, chess players I talked about, yeah,
Kevin Muir 46:20
and I could see that I depending on the policies that Trump chooses, and it could be that he doesn’t end up cutting anything, and he spends even more, and all of a sudden, now there’s this, all this problem within trying to get the trade deficit down so there’s less money getting recycled in the US, you know, financial market, and At the same time that there’s record amounts of deficits and the record amounts of bonds coming to market, very well, could that could happen, and that is part of the problem with with the bond market, is that there is still a lot of risk, and I guess that’s why the move is still much higher. I don’t think that’s going to happen. I don’t think that that’s the thing that you should really worry about right now. I just And ultimately, it comes down to I actually take them at their word that they’re going to be cutting the fiscal a lot, and I expect there’s going to be a good chance the economy rolls over because of the amount of cuts that they’re doing on the fiscal side. But it doesn’t make me a bond bull for, like, all the reasons that we discussed. And the other thing I tell people all the time in terms of this is that if we think about, you know, let’s just take the start of this easing cycle for the Federal Reserve the Fed Funds were five and a quarter. Now, we used to say to people, what do you think the Fed cuts rates to? Like, where is the trough in the in the rates, and they’ll say three, two and a half, something like that. Meaning that’s where the Fed will get it down to. And they’ll stop there, like, okay, so you take three, two and a half, and you go, look at what the yield curve does in a typical easing cycle. And it generally goes from an inverted point of view to, you know, plus 150, plus 200 on two tenths. So we get a situation where the Fed cuts to, let’s say, three or two and a half, and then we have to add 200 basis points. It still means 10s at like five and a half, right? So
Maggie Lake 48:12
above where they are as we currently speak, yeah. So
Kevin Muir 48:14
it’s, it’s tough to get too excited about bonds, even in a situation where they stop, or the the economy is rolling over and the Fed is cutting, and that’s ultimately why I think the mtba is a better way to play it. And, you know, at the other the same time, if we go, look at this, you know, even if they stay there, let’s say they do go from four and a half to five or five and a half, your total return now isn’t going to be that bad. It’s not going to be like in the past, like in the past, you were buying a bond at like, you know, 1% and the move from one to three was really painful, because you didn’t have any cushion. There was no real, you know, current yield nowadays, with the current yield that, you know, four or whatever the handle is, it can help a lot. So to me, bonds are just way less exciting than they used to be, like, I was a big short guy for the longest time. I just, like, I hated them. I thought that they were going to go a lot lower. I kept telling people this could be a bond bear market likes you’ve never seen before. And ultimately, that did basically happen. But I think that now, to get too bearish on them here, you have to be really, really right. And I’m not discounting the possibility that that occurs, but I don’t think it’s, it’s as sure a bet as the like, you know what I mean? Like, I keep my mind open to it, but I’m not that’s not my base case.
Maggie Lake 49:37
Yeah, yeah, which you can understand based on all we just talked about Final thoughts for folks, what would you like to leave people with? Kevin,
Kevin Muir 49:47
what do I want to leave people with? That’s a great question
Maggie Lake 49:50
to unpack, right? It’s like
Kevin Muir 49:53
so I guess you know, one of the things I’d like to leave people with is this, I saw. A study or not a study, a graph from Goldman Sachs the other day, and it was the amount of people that they thought that it was one of their conferences, and it was a January conference, and they talked about the amount of people who thought that US stocks were going to outperform the world. And they got a survey, and usually, you know, for the up until 2023 it was kind of the situation where they’re 30 or 40% that was kind of the average. And then in 2023 after that horrendous, horrendous 2022 remember that period, it was down to 18% 18% thought that, you know, in the January of 2023, right before this, this past two years, of two of the best years that the stock market has ever had, they thought that this is kind of what there was. Only 18% of people thought that that stock, US stocks, were going to do great contrast that to January of 2025 it’s now 58% and it’s the highest it’s ever been. And so although it might feel all warm and fuzzy to be involved, you know, in with the crowd, and you know, be real bearish in 2023 when everyone was bearish, and be real bullish in 2025 when everyone is, you know, bullish, it didn’t actually serve your, you know, your performance. And one of the most difficult things about trading slash investing is realizing kind of the the better the opportunity, the tougher it’s going to feel. Because if it wasn’t an opportunity. You know, if it didn’t feel tough, it wouldn’t be an opportunity. And I, it’s just, I, that’s kind of what I’d like to remind people of, is that, you know, it’s, I always say the hard trade is, is often the right trade. And ask yourself, what the hard trade is here, and it’s not to be, you know, mega long US stocks because they’re going to keep going up. It’s
Maggie Lake 52:04
often the lonely trade too. That’s great because you’re because you’re early to it. Kevin, so great to catch up with you. So much good things for us to think about. And I also think wonderful to take it out of the context of maybe the US political lens, and just think about it more globally. Because, you know, the so much is coming out of Washington, it is kind of center of the universe right now, but it’s easy to get sucked into the politics of it all too, and we’re got to try to protect our money. Fantastic stuff. As I said, both Kevin and I are on sub stack. You can find us there. In the meantime, we’ll see you again soon. Thanks, Kevin. Thank you. If you have any questions about how to navigate the current environment, wealthion can help connect you with a vetted advisor to get a free portfolio review, just click the link in the description below or head to wealthion.com/free there’s no obligation, and it will just take a few minutes of your time again. That’s wealthion.com/free thanks so much for joining us. We’ll see you again next time.
