Daniel Lacalle on stock markets, oil, and Bitcoin after the vaccine announcement

0:20been focusing on but if we could kick off the interview with just a brief background on yourself and economics and your recent focuses right now well my name is daniel lacal i have a phd in economics i basically started my career in the energy industry as a as a as an economist and as a trader i moved on to the sell side in investment banking then i

0:51continued my career as a portfolio manager at citadel first then at ecco finn and finally at pimco and have been conducting basically macroeconomic research and but very market driven since very very nice and i want to touch on some of the energy questions as we dive into the interview here as well so i'm glad you have a background in that but first question i want to ask is

1:16about the most recent current events you know the presidential election last week and now the news on monday here with pfizer coming out with a vaccine that has 90 effectiveness and the reaction in the stock market and equities really there was a gap up to new all-time highs in the market and everything seemed you know really optimistic but i want to get your take

1:41on this because it seems like the market may be too optimistic and maybe this is also a sell the news moment where it's actually you know a lot of the higher value investors are actually you know taking profits at this time when there is all this optimism so what do you take of this moment where the you know the president-elect has announced the day

2:03after the moment the stock market closes and when it happens to open the first business day this optimistic news comes in it seems very timely it is surprisingly timely isn't it and one would even start us a conspiracy theory about why this timing has been so perfect but usually when timing is so perfect it tends to be more it's not a causation

2:29but it is basically a coincidence let's let's start with optimism i think that markets in general are starting to sometimes price two and three times the same event remember that when everybody was talking about the v-shape recovery and when people have been buying into the market based on the idea that the worst was over with the

2:56reopening of the economies in the second quarter the vast majority of brokers analysts investors etc were already discounting that there would be a vaccine some at some point in 2021 or a number of vaccines and all of the estimates already discounted that the end of the pandemic would be in the first quarter of 2021.

3:25therefore it sounds almost counterintuitive that the market goes out and discounts yet again the same event and in numerous cases what this provides is a fantastic opportunity to reduce exposure to the more cyclical sectors because the underlying challenges of the economy remain we have been putting everything under the umbrella

3:51of covert 19 and the challenges of low productivity growth of poor earnings growth of low margins the challenges of high debt and weak job creation all of those in the developed economies remain now so i think that when you see an event like monday in which brokers are you remember that broker started the month by saying there's going to be a

4:19blue wave and the blue wave is an opportunity to buy the market then there was no blue wave and brokers tell you that it's an opportunity to buy the market as well then we have a contested election and it's also an opportunity to buy the market and the vaccine we have been seeing new all-time highs on every piece of news flow coming from the oxford or the astrazeneca or the

4:46visor vaccine so when everything is driven by etf and you see that the volumes are huge and those volumes are driven fundamentally to drive the stocks that are most exposed to an etf or that have higher weights in an index therefore it is a good opportunity to look at short opportunities in the more cyclical and the more challenged

5:14sectors that's a really interesting opinion daniel because that right now with all the optimism as you said there's a v-shaped recovery and a lot of retail investors are starting to become interested in the stock market and equities when when they weren't before and there's new players coming in but that's not really the smart money that has been watching the market

5:34for years and decades but with the potential biden presidency having more spending and you know more deficit to help regrow the economy that seems like it's a green light for wall street to continue and having you know the trend is your friend and right now it's going up so it does continue to go up and there are a lot of contrarian economics that are saying you know eventually

6:01there's going to be a retracement or a crash or something like that but a lot of people have been saying that for a long time and right now it continues to go up so i'm curious on your take on in the next few months as we're continuing this upward trend does wall street just continue and you know to at least the end of 2020 in the next two months here

6:22where we just continue to go to new all-time highs yeah i think that it's a very interesting dynamic that we're seeing in the market and there's a there's an ongoing message a consensus message that markets are at all time high yet if you look at for example the european markets they have done absolutely nothing since since 2016 2018 you look at emerging markets they've

6:51done virtually nothing and if you look at the s p 500 about 60 percent of companies that have that are within the s p 500 are not even up in 2010 so i think that it's an interesting dynamic because on one side there are signs that there is this reality is actually and fundamentals are actually working

7:19is that if you look for example at why growth versus value continues to outperform why the so-called value stocks that tend to be value traps traps sorry continue to underperform and we see that it's a very elite very small club of stocks that actually are doing really well in this environment then you actually realize that fundamentals are

7:46actually working that it's not just central banks pumping the market yes the s p 500 is at all-time highs the dow is at all-time highs the nasdaq is at all-time highs and that's basically it you look at you look at markets globally and they're not doing well investors are not making money because they lost money in 2018 2019 was a good year 2020 has been an

8:12atrocious year you have numerous funds out there that have not generated any positive performance and for in three to four years so i think that it's a good moment to step back forget the so-called don't fight the fed rhetoric which is false and think okay what have we learned from these years of financial repression we have learned that growth massively outperforms value

8:41for a reason we have learned that technology is not as expensive as we thought a few years ago we have learned that the cyclical industrials and the stocks that are more exposed to the economic cycle don't perform adequately and we've learned that these types of bounces that are aggressive in form end up generating opportunities to underweight these let's say old economy type of

9:11stocks so i think that we will continue to see all-time highs in some industries for a very simple reason the reality is the debasement of money so as long as central banks are going to continue to pump liquidity in the market and lowering rates and we get into the nightmare of negative rates and more a bigger liquidity trap we will continue to see for example in the

9:38markets in which equities are not performing we will see that as we have seen that bonds are actually performing very well because that's where money the money newly created money is going it's two bonds no but we have to therefore be a little bit more detailed a little bit more granular about our investments and not think that central banks cover

10:05any investment mistake because if you're for example an investor in the european stock market you're basically losing money for a good number of years except in the decks so i think it's an important it's it's important to go and to look at the details and that helps investors make wiser decisions than simply believe that central banks are going to solve

10:31everything definitely now i want to dive into the energy question and part of the campaign when the election was nearing its end was biden talking about potentially banning fracking or moving to renewable energy sources and trump was talking about how that would obviously have a huge impact on the oil industry and you know the oil industry is really

10:53you know the lifeblood of the industrial complex as well and if that does go through and biden starts to focus on renewable energies and take away from the oil industry how do you see the markets shifting you know in the next eight months in america let's talk about the hidden stimulus that joe biden as a vice president lived which was

11:18the fracking revolution the obama administration and its eight year tenure lived an absolutely massive stimulus coming from the development of the oil and gas industry that generated millions of jobs and at the same time made energy prices cheaper for consumers which which was a much more effective stimulus than the massive spending and the liquidity injections of the fed

11:47although obviously the energy revolution came precisely as well helped by low interest rates and high liquidity but what we have seen is that you should not decide between one and the other is that you need to look at energy transition from a competitive perspective the united states is the only big economic agent that has been able to reduce emissions

12:14at the same time as become a global leader in renewables the biggest country in renewable investment in the world with thriving oil and gas industry and become energy independent while bills for consumers have been coming down it's the only country in the developed world in which the development of renewables has not

12:40doubled or massively increased the bills for consumers why because it was the combination of renewables and natural gas there was an absolutely winner combination that helped bills come down competitiveness improve the competition of renewables and natural gas helped shape as well a much stronger environment for companies

13:07and consumers didn't suffer in if we if joe biden decides to undertake the same policies that germany or the european union has followed what he's going to find is that it's going to become a detriment to job creation to growth and to the disposable income of consumers in germany the average household bill of electricity and gas

13:35has doubled in the last 10 years in most of the european countries they pay between 1.5 to 2 times a higher price for electricity and gas than what a household pays in the united states so any any intelligent person and i don't doubt that mr biden is an intelligent person will continue to see that what the united states needs to do

14:03is to continue to develop the removable sector as it is very very strongly with the trump administration that was supposed to be allegedly anti-renewables the united states became the top investment for renewables globally and at the same time keep the benefits of a thriving natural gas industry think about this north dakota has one of

14:31the lowest employ unemployment rates in the world not in the united states in the world if you north dakota decide to ban the oil and gas industry you're going to do two things first it's impossible it is impossible to offset the loss of jobs in the energy industry in the oil and gas industry with renewable jobs we all know that you'd need between less than half

14:59in some cases 60 less people working in a solar panel structure or in a windmill structure than in an oil and gas facility everybody knows that so it's impossible to offset it so what you need to do and what they need to understand is what they understood what obama and biden understood when they were in power is that it's you cannot just simply go out and for ideological

15:26reasons destroy an industry that is going to continue to create millions of jobs while you continue to support which is fine a renewable sector that is thriving because it's not a question of government support it's a question of technology i really like that point and how you also threw it back to the costs for households and their energy costs go you know 1.5 to 2x obviously that's

15:52going to have a huge impact on the states as well and i think that having that transition and the competitiveness and allowing the private sector to you know grow at a rate that it's does naturally rather than through legislation is obviously the right way to go so we are running out of time but i want to ask you one last question about hedged assets in the market you

16:14know the stock market's done really well this year but what's done almost the best returning asset this year is bitcoin and there's been a lot of institutional interest there's been visa and mastercard and chartered banks and you know major institutions coming up and being large proponents of bitcoin i want to hear your thoughts on do you see bitcoin as a store of value

16:36or at least you know a diversification into a well-balanced portfolio i think that bitcoin is becoming a real decorated asset that helps in a portfolio relative to the proportion of stocks bonds real estate that you might own remember that stocks and bonds unfortunately are hugely correlated because of central bank action so to have an asset

17:04bitcoin like gold that works on because it's decorated from traditional assets and at the same time because it works as a at least as a startup of a store of value relative to fiat currencies that actually is something that becomes very attractive and that is why what we're seeing is that now that the face of doubt has ended and that people know that bitcoin is

17:32here to stay a lot of institutional investors are looking at it from the perspective of something that you have in your portfolio maybe with a small allocation whatever but that generates a diversification from the performance of extremely correlated assets and i think that is an important factor one the correlation second is store of value or at least

17:58an alternative to the debasement of fiat currency great daniel and we're at a time i really appreciate you bringing all these insights into all the current events because there's so much going on right now where is the best place for people to follow your work and learn more about what you're continuing to post about i'm not difficult to find you can find

18:19me on my website it's www.dlacalle.com you also can find me on twitter at d-l-a-c-a-l-l-e underscore ia and you can find me on linkedin or on my youtube channel you typing daniel lacal and you can find all my videos where i talk about all of these things in actually two languages so

18:48hopefully we can find each other and continue the dialogue great thank you so much daniel for the time all the best moving forward and let's follow up in the near future absolutely thank you so much for having me and have a great day stay safe you