The US Dollar has NEVER been in more danger (Uncut) 02-04-2025
The US Dollar has NEVER been in more danger of Collapse – here’s why
I spent the entire day today listening to ideas, forecasts, predictions, thesis, doom and gloom, optimism, all of it. And today I want to wrap the day up by bringing it home a little bit and getting into the portfolio. I’ve invited up three individuals who are going to share some ideas with us today.
Let’s start with this. Let’s start with Macro Outlook 2025. It’s been a crazy volatile decade thus far.
Be pretty easy to assume we’re going to see more of the same in the future. Danielle, I’ll start with you and then I’ll work back to me. Macro Outlook right now, what’s front and center for you? What’s concerning you or exciting you? So I think that we’re a baby step into the current earnings season.
And if you’re picking up on any themes that you’re hearing from one company after another after another, it’s that of pricing power. So the U.S. consumer X the top 10%, maybe even X the top 1%. That U.S. consumer spent more on buy now pay later than they did on their credit cards to get through the last holiday season.
That consumer is going to be reported to credit reporting agencies like Experian and TransUnion here in the next few months if they haven’t made a payment on their student loans since, oh, I don’t know, March of 2020. So that consumer is price constrained. And if I’m hearing one thread throughout so far this earnings season outside of banks and their trading desks, which have been going gangbusters, it’s that their pricing power is no longer there.
And we’re seeing that manifest in inflation. We’re seeing that manifest in companies saying we no longer have trouble getting new employees if we need them. We’re seeing there’s what I think you know, Dave, you said 1.34 million apartments that are in some stage of construction or already complete coming out of the pipeline here.
We had a half a million units each year for the last two years. And we’re seeing rents come down quickly and that is finally after a five or six quarter lag beginning to show up in the inflation metrics. So my biggest forecast this year, and it’s a lot easier after the CPI print came out last week and more importantly after Jay Powell’s spokesman, a.k.a. Christopher Waller, who’s his closest lieutenant, the one who really speaks for him, came out and said it was perfectly feasible that there would be three or four rate cuts this year.
So that is my highest conviction call is that we actually get to four or five rate cuts in 2025. Kind of a flip side of what we would have been considering a year ago today when the market was anticipating seven rate cuts and didn’t get as many. I think that right now, too, is way too low and that what we’re hearing and seeing about the ability to land a new job, you’ve got median duration of employment up at 10.4 last time you had it there.
It was, oh gosh, 08. So if you lose a job, it’s very difficult to get a job. You’ve got continuing jobless claims at the highest level since November of 2021.
And there’s also this thing called inauguration day. So it would not surprise me to see bureaucrats who’ve been holding back on releasing honest data, finding all of a sudden underneath a dusty spreadsheet, finding a whole new religion to try and play defense against the individuals who’ve got them in the crosshairs and want to slash government payrolls. So that’s where I am in my thinking.
Okay. And so a few things there. You’re seeing an incredibly squeezed consumer base.
The evidence of that is in record buy now, pay later numbers. That’s pointing you to reduction in pricing power for companies. General outlook, therefore, is reduced interest rates in response to that, correct? I think consumer packaged goods in particular are going to have a very hard time.
The CEO of Walmart Corporation came out and said about nine months ago that there’s actually discretionary and non-discretionary food. So if it’s absolutely got to have it on the table, but if it’s a packaged good that’s got some profit margin built into it, he was seeing his customers step back from that. So I actually think Staples is going to be an area that’s going to remain under pressure this year because people are actually differentiating between what they need to buy and what they have to buy, even at the grocery store.
And the fastest growing by far category, and you can tell it by comparing Target to Walmart, is do you have a pharmacy or not? Because pharmacy is the, whether you’re talking about Kroger, Albertson, Walmart, pharmacy is where you’re seeing the absolute fastest growth in terms of retailers’ revenues. And is that where the margin is? Is that why? No, it’s not necessarily where the margin is per se, it’s where households have money. So they’re spending it on- Oh, it’s what they can’t cut.
That’s what you’re saying. It’s what they can’t cut. Yes, I’m with you.
Okay. You can’t not be sick. Yeah, I’m with you.
Okay. But that’s why that’s one of the fastest growing areas. And it’s right there for you.
Manifest in their earnings. You’re right there to see. Yes.
Yes. Okay. Thank you, Danielle.
Mark, same question over to you. Macro outlook right now, what’s catching your attention? Yeah, I think overall, I’m pretty bullish on 2025, but not without a lot of danger and landmines that we’ll have to skirt around. Specifically, I think in Q1 is probably the time that I’m going to be paying the most attention, the most caution.
The outgoing administration has left a lot of things to be dealt with. So for example, a lot of what the treasury has been doing is sort of offset what the Fed was doing with their tightening was drawing down the TGA account, which is drawn down pretty well. They were able to negotiate the debt ceiling all the way through until this month that now has to be dealt with.
We have about $3 trillion worth of securities, or I should say bills and treasuries that have to be refinanced this year. And so there’s a lot of problems that are there. Biden just on his way out the door yesterday or two days ago, or whoever’s signing his name, did an executive order to sanction Russian oil, which is another big problem.
So we have a lot of problems that we have to deal with. And on top of that, we just have Powell not really wanting to play ball, and we don’t really have that liquidity that we want right now. On one of Powell’s, maybe it was the last press conference, he sort of seemingly kind of gave a couple jabs to the incoming Trump administration.
We don’t know the dangers that this administration will cause. We don’t know what these tariffs could potentially do. And so there seems to be some animosity there, and so I think it’s going to be pretty sketchy this first quarter, maybe first two or three months.
So I think caution. We’ll talk about portfolio allocation a little bit later. But I think overall, the inevitable is that we need more liquidity.
The inevitable is that I don’t see there’s any appetite that the Fed will allow a treasure auction to go unfulfilled. I don’t think they’re going to want to see the dysfunction in that market. And ultimately, unfortunately, the bad news is good news for asset prices.
And so unfortunately, the bad news in the economy or the recession specifically, and Daniel did a good job pointing out a lot of the problems that we might have, I mean, typically we’ll see tax receipts plunge 12 to 15% in a recession. And we can’t really afford that right now. And so the deficit spending is projected to only increase from here, which I think we just set a new record was at 40%, went up by 40%.
So ultimately, I think that bad news is good news for asset prices. We’ve seen that bifurcation, really, it got exaggerated in 2020 when the economy was literally shut down, but then asset prices met new all-time highs. And I think, you know, we can get into sort of the valuation metrics.
The way that I see it is not so much an asset bubble or bubble in asset prices, but it’s really this asset in the denominator. And so all this government spending that we have, I think now we have an economy, or I should say, well, an economy that’s really being driven by DOD spending, Department of Defense spending. And so I think when I add all that up, I think it’s bullish this year.
I think the liquidity comes. I think it pushes asset prices up to new all-time highs throughout 2025. And we’ll talk about allocations.
I think, like I said, this first quarter, I think it’s going to be dangerous because all those landmines. But eventually, I don’t think there’s an appetite to let the market crash. Okay.
So Mark, to summarize, you see more liquidity initially to flow to Treasury market that has a bit less demand. Danielle kind of outlined the case for a recession. In that case, we generally see a 12 to 14 cent reduction in tax receipts.
That’s a reduction in income for the federal government, increasing their need for fresh liquidity. That’s new money in the system. That’s more inflation of the currency.
That’s good for assets. Yeah? That’s right. Okay.
You got it. Thank you, Mark. David, over to you.
Same question. Macro. What’s catching your eye right now? What’s catching my eye is called a classic case of cognitive dissonance.
So I’m talking about what probably happens this year is what happened last year, which is a recessionary, non-recessionary economy. And you know, a lot of us, me anyways, have been waiting for this recession. It’s like waiting for Godot.
And the reality is that it’s really quite a bifurcated economy. Let’s just talk about the U.S. for a second. We’ve had recession in the industrial sector.
We’ve had recession in the housing sector and a recession in commercial real estate, but definitely not a recession in the overall economy. And I think that some of the comments have already been mentioned. What is the fastest growing component of the U.S. economy is government spending, which is running, you know, we’re three months into the fiscal year already, and government spending is up about 12% year-over-year.
And because of all the chip subsidies and EB subsidies, actually, we’re not in a recession, and government revenues in the United States are down 2%. Ergo, the deficit year-over-year in the first three months of the fiscal year is up 40%. So we’ve had three consecutive years now heading into it of 6% plus deficit-GDP ratios in the United States.
And I guess that’s how we today define American exceptionalism. When you look at the average OECD ex-U.S., the deficit-GDP ratio is 3%. United States is double the average.
So sort of camouflaging a lot of the other underlying weaknesses in the economy is the fact that we have this gargantuan run-up in the deficit, and I don’t think anybody really knows how long it’s going to last, except to know that one thing that Donald Trump is going to do, or try to do, is a lot of fiscal stimulus. And there’s nothing that Elon Musk is going to do on the spending side. There’s not enough fat to trim out of Doge, but you’re seeing the thrust towards more tax cuts and broad-based tax cuts.
So I think that the fiscal side, if you’re going to be bullish on the economy, that source of growth coming from the government sector, and on spending as well, but mostly in terms of taxation, is probably going to keep the U.S. economy afloat for the coming year. I would say this much, that there is a lot of uncertainty out there. What struck me about the last set of FOMC minutes that came out very recently from the December 18th meeting was the number of times the word uncertainty was deployed in the document 12 times.
You go to the Fed base book, just came out, six references to uncertainty. So the one thing that we do know about this coming year is the certainty of uncertainty. And Donald Trump is his last term, and he’s going to shake things up even more.
And of course, he’s got the House by one seat, and he’s got the Senate. But I think that that’s what we’re looking at, is uncertainty over tariffs. Really, there is uncertainty over fiscal policy.
It is uncertain as to what he’s going to get through and not get through. And of course, as I’m talking about fiscal stimulus, the one thing they have to do by the end of the year to avoid falling off a fiscal cliff is ensuring that the 2017 tax cut package doesn’t sunset. It’s just basically, it’s always an uncertain world, but I’d say we’re probably two standard deviations away from what we typically see in terms of this uncertain world.
And in an uncertain world, what you typically want to do is have a cash buffer, and every asset class is going to go through, I think, a widening in risk premia. Much like we have to ask ourselves the questions, whether you’re bullish or not, why is Warren Buffett sitting on a 30% cash position right now? For the first time in his 60-year professional career, he’s sitting on 30% cash. So, I think there is a likelihood more fiscal stimulus, more uncertainty.
Nobody’s talked about Canada, and I think that we’ll find out in the next day or two about the 25% tariffs. And that’s the biggest risk for Canada, whose economy is already contracting in real per capita terms. The economy here is really weak, which is why the Bank of Canada has been cutting interest rates so much more aggressively compared to the U.S. But if you’re looking at a static model, let me just tell you before you fall off your chairs, a 25% tariff on Canada would generate a 2% decline in GDP, which is a big recession.
GDP is not the stock market. A 2% decline in GDP is like a 40% decline in the stock market. That alone, when you consider that we ship more than 20% of our GDP to the U.S., 25% tariff is a really big deal.
It would cost us over 400,000 jobs. It would take the unemployment rate from 6.7 right now to 8%. That’s how big that would be for our economy.
The flip side is that the Bank of Canada is going to slice rates even more, like dramatically. And the Canadian dollar probably goes down to 160. So right now we’re like 145, call it.
So I’d say that if you’re going to go to Florida for the rest of the winter, book your tickets now. But I think that’s going to create winners and losers. There’s lots of parts of the stock market in Canada, the TSX, lots of, there’s more parts of the, which we can talk about, more parts of the TSX will benefit from a weaker dollar and lower interest rates than will be hit by the tariffs.
The economy will suck, but the stock market actually may surprise. Due to increased currency, increased liquidity. A couple of things.
If Trump goes through this, and I think it’s a big mistake, by the way, to say, well, we’re not going to ship electricity or critical minerals or natural gas or oil to the U.S., or we’ll put on countervailing tariffs on the U.S. If we did the same thing to the U.S. that they’re doing to us, it’s negative 0.2% on their GDP. Negative 0.2. All this talk about retaliatory tariffs. Because we’re a small, open economy.
For us, it’s negative 2.0. For them, it’s negative 0.2. So same digits, just the decimal places in a different spot. So I think that the Bank of Canada will slash rates, even with the Fed on hold. Even if the nil is right, then maybe the Fed cuts four times.
I think that we will go probably back down to 1 to 1.5% on the overnight rate, and right now it’s what? It’s about 3.25. We’ll go down probably 200 basis points. Canadian dollar will go down, I think, at least 10%. And the lower rates benefits the rate-sensitive stocks, what I call the bonds in drag.
So that benefits utilities. That would benefit the pipelines. It would benefit, selectively, the REITs.
Telecom. Telecom, very rate-sensitive. And of course, as the yield curve steepens and funding costs come down, the Canadian banks are going to do very well.
Well, the reality is that Trump is not putting tariffs on utilities, telecom. He’s not putting tariffs on the banks. He’s putting tariffs on goods.
So unfortunately for the people in this room, the materials sector, the industrial sector, consumer product sector, they will get hit hard. But that’s basically, call it 30% of the TSX. The stuff I just mentioned is 50% of the TSX, the stuff that would benefit from lower interest rates.
The Canadian dollar goes down, I think it’s going to be a huge antidote. That’s what I would tell the government. Ratify a big depreciation of the Canadian dollar.
That’s how you will fight this tariff, and that’ll be a great mitigating source for people that are in the materials sector, for example, or in the industrials. But it’ll be more like a wash. And so that’s where, you know, I come out of it.
The weaker Canadian dollar, by the way, if you’re in the travel or tourism industry in this country, if you’re in the hotel industry in this country, I think the airlines will do well, for example. So I think Americans are going to see good grief. I’m going to Quebec City for the week, maybe I’ll make it two weeks.
So there will be, you know, like Sir Isaac Newton, every action has an equal and opposite reaction. But I think that the reaction to the detonation of the economy and the disinflation it’s going to create is going to create the conditions for a much weaker dollar, much lower interest rates, and if you are an equity investor, that’s your primary focus in Canada for the coming year. Okay.
Okay. Thank you, David. Now, the parallels that I heard across the panel were effectively stimulus and a decrease in rates.
David, you cautioned Canadians to take the tariffs very seriously. I want to pull on that thread, just because you’re my token Canadian on this panel, and this is a Canadian conference. I’m not a token Canadian.
That’s why it’s called a green room. Look, there’s been a lot of conversation at this conference about that concept, you know, and Trump has a negotiating style. He comes out, he comes into the boardroom and says something crazy.
The idea is to put everybody off balance, get the attention, then slide into real demand. That’s often been his strategy, going back to his book, The Art of the Deal in the 80s. Do you think Canadians should take these tariffs very seriously, though? Absolutely.
So Danielle and I were together a couple of weeks ago at Jeff Gunlock, you know, the CEO of Double Line and the current bond king, were at a symposium, and we had dinner that evening with a few people, and some of them were actually very close with Trump, and one of them said that the difference between Trump today and Trump in 2016 was that back then the mantra was, take Trump seriously but not literally, and today the mantra is take him literally and take him seriously. Apparently, and I wouldn’t think it would be a big surprise, he was shocked to win in 2016. He thought Hillary was going to win, and he was totally unprepared.
He was convinced he was going to beat Kamala Harris, he was absolutely convinced. So he’s been preparing for a while. He’s got his ducks lined up, he’s going to get all his cabinet choices, they’re going to get through the Senate, and even his more controversial ones.
And so I think that he’s serious. When he talks about the Panama Canal, however that happens, you know, it once belonged to the U.S., that’s going to happen. What happens with Greenland, which is a strategic resource, shipping and minerals, that’s going to happen.
Now whether they buy Greenland, I mean, he’s the art of the deal, like how the U.S. bought Alaska. Something’s going to happen there. I don’t believe he’s going to annex Canada, I think he’s just having a lot of fun.
But if you’re going to ask me right now, and I can’t say that I know for sure, but if you went back against the wall and you said, you’ve got to make a call on this 25% tariff. Now maybe there is a report coming out of his economics team that they might just go 2% a month and make it like water torture as opposed to 25% in one fell swoop. I think that, I think if you’re going to ask me, will he go through the tariff action against us, I firmly expect it.
Okay. Okay, thank you. Danielle, I want to pass it back to you.
Any thoughts that you have on what David just shared? I saw you nodding along there a few times, but I’d love to get two things out of you. First of all, the weight of the Trump impact, right? How much of an impact is this guy going to have? He’s a stark contrast from the leader as of today, right? Tomorrow, a new dawn begins, maybe, love to know if you agree with that. And then secondly, walking through portfolio ideas in that environment, defense and offense, and what’s front and center for you? So I think that the person’s name, and I’m sure it’s been brought up many times, that we’re not mentioning is Scott Vessant.
And I watched most of his testimony a few days ago. You could not ruffle him. He was unflappable.
And I think he will be a source of calmness, a source of certainty in this new administration. Because he is unflappable. So I don’t think that Trump is going to treat some of the people who he’s putting in his cabinet the same way he treated others, which was to alienate them and then they would quit.
I think he’s got some legitimately sound actors around him. So if he takes the counsel of Scott Vessant, then we could certainly see a more measured approach. And I think that if you didn’t catch his testimony, just go back and catch it for you.
They asked him about central bank digital currency, and he just swatted it away like a fly. And that’s kind of how he is. He’s like, well, that’s ridiculous.
We have the world’s reserve currency status, move on. So pay attention to him, pay attention to his lieutenants, and see what the Treasury Department actually does. His goal is to take the deficit spending from 6.4% to 3% by the end of 2028.
That’s his stated goal. If Elon Musk has a modicum of success, and Vessant has a modicum of success, it’s all disinflationary. All of it.
And if you start laying off people who have fat pay packages for the lowest level of education in the country, that’s going to be disinflationary as well. These are just the elephants in the room. Again, a modicum of success.
You could see his entire administration blow up in the next six months. I don’t know. But if he’s a more serious leader, Trump 2.0, than he was Trump 1.0, oh my God, I’m shocked I’m the leader of the free world, what am I going to do? Then I think we should be paying attention to whether or not he wants a real legacy, or to go out like somebody who’s as volatile as dynamite.
But the word you used was defense. So I am squarely focused on strong, strong, strong cash flow. I will not cut my dividend type companies.
I will service my debt type of companies. It’s not a figment of our imagination that we’re seeing bankruptcies running as quickly as they are. I think that that’s going to continue.
For the month of January, I think we’re on a 24 run rate for companies worth the 50 million in liabilities. And we’ve seen four multi-billion dollar companies file so far in 2025. So you have to be very careful with where you are in credit.
You have to be very careful with where you are in equities. As long as you’re sure that the dividend, or that the coupon’s going to get paid, go for it. I think gold remains.
You may have a little bit of downside here, but I think gold remains very, very safe. And then start to watch what happens with the tradeoff between cash, as I expect the Fed lowers interest rates, because baby boomers own 40% of the stock market. People over the age of 70 own 40% of the stock market.
If you start to chip away at that interest income that they spend 70 cents of every dollar that they receive, you could see a demographic shift, because they’re no longer the spring chickens who they were in 01 and 07. They no longer have the physical wherewithal to join the workforce for another 10 years to build their portfolio back up when the median age of a baby boomer is 69 years old. So defense.
Play defense. Play defense. Focus on yield, cash flow.
Very similar advice, actually, that Isabel just gave us, for those of you that remember. We had an adorable nine-year-old come out on stage and share her tips. I understand she appreciates cash flow.
She appreciates cash flow. She went right to yield. It was fantastic.
Mark, same question for you. Reflecting on what’s been shared on the panel thus far, any thoughts you want to bolt on there? And then I want to get your portfolio perspectives for the year ahead, defense and offense, as they’re applicable. Yeah, I think I love the point that Danielle made.
I mean, it’s not just Trump there. And I think the big glaring difference of his administration versus running against Kamala was sort of like this dream team that he put together. And he really brought in a really good, talented team.
So I think there’s a lot there. Besent is definitely somebody. And I mentioned some of these landmines that were sort of left for him by the Treasury.
And he’s been well aware of these. He’s been talking about them for a year. So they’re a problem, but they’re not going to blindside him.
So he’s already been thinking about it. He’s already been doing that. To the point that she’s making about the DOGE, whatever Elon’s doing, and a goal to bring down deficit spending, as also David mentioned.
The government spending, the deficit spending, the DOD spending is driving the markets. And you pull that back, that’s going to be a big problem. So I don’t know how serious they’re going to be on that specifically.
I think when it comes to thinking through the outlook of maybe this first quarter or this year, really it kind of comes down to what you’re trying to do and your time frames that you’re working on. So if you’re 75, as she said, and you’re dealing with fixed income, it’s a lot different. If you’re a fund manager that you have a monthly mandate, that’s a lot different.
If you’re somebody like me and you’re thinking 5, 10, 15 years out, so it’s a lot different. So I think it kind of depends on that. But I think when you look back to the president and how they impact markets, if you go all the way back to Clinton, about three years in, the markets are up about 50%.
Every president. And sure, there’s ups and downs, but about, I think it’s three years and three months. And he cut social spending.
Yeah. Clinton did. So about three years and three months in, every single president, the market’s up 50%.
And I don’t think that changes. And so I think there’s bigger things than just who the president is. And certainly it can impact certain different stocks, depending on what sectors he wants to put tariffs on and all those things, certainly.
But when you think about the bigger picture, I think about a couple big shifts happening in the world. So one, there was a panel up here before we came up there, before that cute little girl. And they were talking about there’s this basic regime change in the monetary system.
And so I think what we’re seeing is this sort of rush to commodities, if you will. So the whole world is rushing to commodities. China just announced they have 10 times more gold than we thought they did.
You see even the United States, the DOD just bought a big tungsten mine. China’s obviously been buying up lithium mines. So there’s this kind of return to hard assets.
So I think commodities make up a big piece of what I focus on. And then the other big narrative is about every 50 years, we have a technology cycle, a revolution cycle that we’re in right now. And that’s represented by Bitcoin and other decentralized technologies as well.
I think AI fits into that bucket as well. And so I think those are the two areas that I focus on. So I think commodities, the world’s rushing to that.
And I think Bitcoin and other decentralized plays. And I think regardless of who the president is, those are going to play out. Now, I think, especially on the technology side, it sort of relies on some of this maybe a risk on environment, if you will, which I think we’re going to get plenty of liquidity, not just from the United States, but from the rest of the world this year, again, caution for this first quarter.
So I think I’m not trading around this quarter. If you’re somebody that needs to deal with your portfolio on a short-term basis like that, I mean, you could think about some hedging with some options potentially. I wouldn’t try to trade that.
Otherwise, I think pressing into the rest of this year in the commodities and in the decentralized currencies like Bitcoin, I expect Bitcoin to be the best performing asset this year, like all the other years before it, probably do another 100% this year. So anyway, that’s the way I’m thinking about it. All right.
I love it. Look, thank you so much for joining me this evening to cap up the day. All three of these individuals will be joining me back on stage tomorrow for more features.
So please come back. Thank you so much for coming out today. I appreciate all of you and I’ll see you tomorrow.