MacroVoices #291 Jeroen Blokland: Inflation, Bond Yields, Portfolio Allocation & Bitcoin Unpublished

Episode Summary

Executive Summary: The episode centers on a late-2021 macro regime shift: risk assets weaken as rates and the dollar rise, while oil remains firm, gold attempts a reversal, and the Fed’s tapering path is parsed for implications. Guest Yarun Blockland argues inflation is likely to stay above average longer than the Fed expects, driven by sticky housing costs, supply-chain disruptions, and energy underinvestment, though not necessarily runaway inflation. The post-game interview with David Garofalo explains how gold royalty/streaming businesses have become a dominant financing model because they insulate investors from mining cost inflation while preserving upside.

Main Topics: Market risk-off rotation and equity weakness (Priority: 5/5): Eric and Patrick discuss the S&P 500 losing momentum, with distribution returning, growth and FANG names under pressure, and sector rotation into financials as rates rise. Dollar breakout and higher yields (Priority: 5/5): The hosts see the U.S. dollar finally breaking out of a long consolidation, while Treasury yields jump, especially in the 2-year and 5-year maturities, signaling a macro regime shift. Oil strength despite broad risk-off tone (Priority: 4/5): Crude corrects near resistance after an inventory build but remains structurally bullish due to strong products, lagging WTI catching up, and expectations of a breakout above prior highs. Inflation: transitory vs persistent (Priority: 5/5): Yarun Blockland argues the Fed’s transitory narrative is partly valid for flexible items, but sticky CPI, rent lag, prices-paid data, and supply constraints point to above-average inflation for 6-12 months. Fed tapering, dot plot, and rate-path interpretation (Priority: 4/5): The discussion frames tapering as short-term hawkish but medium-term still dovish because policy rates remain low relative to inflation, implying negative real yields for years. China Evergrande and contagion risk (Priority: 4/5): Blockland views Evergrande as a serious China property problem but not a likely Lehman-style global crisis, given PBOC liquidity support and limited evidence of broad contagion so far. Gold royalty/streaming model and mining capital formation (Priority: 5/5): Garofalo explains that royalty companies have become the preferred financing vehicle in mining because they reduce operating and capital-cost risk, create diversification, and provide top-line exposure to gold.

Key Arguments: The S&P 500’s failure to hold key moving-average support suggests the recent dip may be more than a routine taper tantrum. Rising rates are causing a clear sector rotation away from duration-sensitive tech, utilities, and REITs into financials. The dollar’s move above 94 looks like a potential breakout from a multi-month consolidation and supports a more risk-off macro backdrop. Crude oil remains bullish because inventory data were far less supportive than expected and broader energy products are already at new cycle highs. Gold’s reversal is constructive, but it must reclaim higher moving averages and the 1800-1815 area before the short-term trend improves materially. Blockland argues inflation is not just a used-cars/airfare/hotel story; housing rents, sticky CPI, and supply-chain disruptions should keep pressure elevated longer than the Fed suggests. The Fed may taper soon yet still keep rates so low relative to inflation that real yields stay negative, which is structurally supportive for risky assets and gold. Evergrande is more likely to be contained by Chinese authorities than to trigger a true global financial crisis, though market volatility could persist if uncertainty drags on. Gold royalty companies remove operational and inflation risk from mining exposure while preserving commodity and exploration upside, making them more efficient than direct mine ownership for many investors. Royalty and streaming firms are consolidating the sector by providing cheaper capital to junior miners and acquiring royalties at scale, which changes how mining projects are financed.

Data Points: Macro Voices episode: 291 - Episode number of the podcast Recording date: September 30, 2021 - When the episode was recorded SP 500 futures level: 43.12 - Intraday level cited while discussing the market break below the 100-day moving average SP 500 100-day moving average: 43.38 - Reference support level on the S&P 500 futures discussion Dollar index: north of 94 - Used to describe the dollar breakout and stronger risk-off tone WTI crude prior cycle high: 76.98 - Level Patrick and Eric discuss as the next breakout target EIA crude inventory change: +4.7 million barrels - Unexpected build that caused the pullback in crude Cushing crude inventory change: -131,000 barrels - A small draw that did not offset the bearish headline build Gasoline inventory change: +193,000 barrels - Part of the across-the-board product builds in the EIA report Distillates inventory change: +385,000 barrels - Another bearish inventory build in the EIA report Gold futures level: 1759 - December gold price at the time of the interview Gold resistance target: 1800 - First level Blockland said gold needs to reclaim Gold 100-day moving average: 1815 - A stronger confirmation level for a bullish gold turnaround Previous gold resistance: 1833 - Next resistance level above the 100-day moving average 10-year Treasury yield range: about 1.3% to 1.5% - The jump in yields discussed on the show Threshold where bond market concern rises: 1.7% - Eric’s line in the sand for the 10-year yield Fed median target rate for 2024: 1.75% - From the dot plot discussion, still implying negative real yields if inflation remains above 2% Fed median target rate for 2023: 1.0% - Blockland’s read of the dot plot Used cars price change in August: -1.5% - Example of a flexible CPI component peaking and easing House prices: up almost 20% - Used to argue owners’ equivalent rent will keep rising with a lag Owners’ equivalent rent weight in CPI: 25% - Explains why housing inflation has large CPI impact Median CPI monthly increase in August: 0.34% - Highest monthly gain since February 2007 per the guest July median CPI monthly increase: 0.30% - Also elevated and near the August reading SP 500 drawdowns since 1980: median 11% - Blockland’s reminder that larger drawdowns are normal historically Equity flow concentration: no other calendar year comes close - Describing the scale of year-to-date flows into equities Gold royalty company holdings: almost 200 royalties - Garofalo’s description of the combined company portfolio Royalties at IPO: 17 royalties - Starting point before M&A expansion Royalties after acquisitions: 191 royalties - Expanded portfolio after acquiring three other royalty companies Market cap growth: from $200 million to $800 million - Garofalo’s description of the company’s re-rating and growth

Pivotal Quotes: "If they could get back up above 1800 and particularly above 1815, where the 100-day moving average is, then I’d really start to get excited." — Yarun Blockland: Gold technical conditions and what would validate a short-term bullish turn "I think that the odds of this happening are rising pretty quickly." — Yarun Blockland: His view that energy crunch and supply-chain problems could persist longer than markets expect "The royalty business provides you leverage to the commodity, leverage to exploration success, but completely insulates you from operating and capital cost inflation." — David Garofalo: Why royalty/streaming is attractive versus direct mining equity ownership

Implications: The near-term macro setup favors higher volatility, a stronger dollar, firmer yields, and sector rotation away from long-duration growth. Inflation may stay elevated longer than policymakers imply, supporting real-asset and inflation-protected positioning. In mining, royalty/streaming models appear structurally advantaged as capital becomes scarcer and cost inflation rises.