MacroVoices #454 Vincent Deluard: The Five Body Problem

Episode Summary

Executive Summary: Episode 454 centers on Vincent Deluard’s thesis that inflation is secular, cyclical, and policy-driven rather than transitory, with Trump-era populism likely adding inflationary pressure. The conversation also advances his ideas on shadow work/lending/savings as hidden supports for growth, argues recessions are being structurally suppressed by policy, and sees China stimulus, nuclear power, and crypto as major cross-asset forces. Eric Townsend’s post-game adds that Trump’s cabinet choices may intensify political and market volatility.

Main Topics: Secular inflation and policy-driven price pressures (Priority: 5/5): Deluard argues inflation is a multi-wave process, not an event, and that COVID’s policy response—not COVID itself—was the inflationary catalyst. He expects Trump’s populist agenda and a still-tight labor market to sustain inflation above target. Shadow work, shadow lending, and shadow savings (Priority: 5/5): Deluard explains why official statistics may understate real economic activity: gig work, private credit, and household wealth gains create a parallel economy that supports consumption and reduces apparent recession risk. Recessions have been structurally 'canceled' (Priority: 4/5): He frames the macro regime as one where policymakers prioritize avoiding deflationary busts, meaning the economy may rotate among other quadrants but rarely enters deep recession. This reduces the case for long-duration Treasuries. Gold, Bitcoin, and post-election rotation (Priority: 5/5): The guests debate why gold sold off after Trump’s win while Bitcoin surged. Deluard sees a short-term political-uncertainty unwind and crypto enthusiasm, but still favors gold longer term due to central bank demand and negative real rates. China stimulus and international asset implications (Priority: 4/5): Deluard expects China’s stimulus to eventually matter, especially after Trump’s election changes Beijing’s incentives. He argues a successful Chinese recovery could lift international assets and help end U.S. outperformance. Trump transition, establishment backlash, and market volatility (Priority: 4/5): Eric Townsend argues Trump’s appointments signal open warfare with the administrative/intelligence establishment, raising the odds of political confrontation, legal resistance, and higher volatility across markets. Uranium, nuclear energy, and long-term power demand (Priority: 3/5): The post-game highlights a bullish long-term case for nuclear power and uranium, while noting near-term uranium prices have lagged. The discussion links nuclear expansion to energy security, AI demand, and global climate policy.

Key Arguments: Inflation is not an event but a process that tends to unfold in waves; the current decline does not invalidate the secular inflation thesis. COVID was not inherently inflationary; the inflation came from the fiscal/monetary response, especially massive deficits that did not normalize afterward. Trump’s populist mandate and policy mix are likely inflationary because they add stimulus into an economy already running hot. The U.S. economy is stronger than official data suggest because gig work, self-employment, and private credit are undercounted. Household net worth gains since COVID have created a large wealth effect that supports spending and reduces recession risk. Because policymakers are determined to avoid deflationary busts, long-term Treasuries are less attractive than in prior regimes. Gold’s post-election selloff is likely a short-term rotation into crypto and a political-uncertainty unwind, not a final top. Central banks’ actions, not rhetoric, still favor gold over Bitcoin in the long run. China’s stimulus should not be dismissed just because it has not fully materialized yet; Beijing works on its own political calendar and may be timing policy around Trump’s tariffs. If China stimulus succeeds, it could benefit emerging markets and other non-U.S. assets after years of U.S. dominance. Trump’s personnel choices suggest a more aggressive anti-establishment agenda than during his first term, increasing the chance of institutional conflict and market volatility. Nuclear power is becoming more politically acceptable globally, which supports the long-term uranium investment thesis even if spot prices lag in the short term.

Data Points: Episode number: 454 - Macro Voices episode discussed in the transcript Production date: November 14, 2024 - Episode release timing after the U.S. election December S&P 500 futures: 6,016, up 97 bps - Macro scoreboard, week over week as of Nov. 13, 2024 close U.S. Dollar Index: 106.48, up 130 bps - Macro scoreboard December WTI crude oil: 68.43, down 455 bps - Macro scoreboard December RBOB gasoline: 194, down 396 bps - Macro scoreboard December gold: 2,553, down 460 bps - Macro scoreboard; described as quickly retracing about 50% of summer gains Copper: 401, down 565 bps - Macro scoreboard; selling back to August lows Uranium: 78.30, up 149 bps - Macro scoreboard U.S. 10-year Treasury yield: 4.45% (445 bps) - Macro scoreboard Household net worth increase since COVID: $44 trillion to about $50 trillion - Deluard’s shadow savings argument about wealth effect Self-employment tax receipts: Nearly $1 trillion - Used as a proxy for shadow/gig income Implied shadow income base: About $6 trillion - Assuming 20% tax rate on self-employment income Estimated share of U.S. GDP: About 20% - Deluard’s estimate of shadow/gig income scale U.S. growth plateau: Around 3% for 8 quarters - Deluard’s view of sustained nominal/real growth Perceived true inflation: Around 4% to 4.5% - Deluard argues CPI understates inflation Federal deficit after COVID: Increased more than during World War II - Deluard’s claim about inflationary policy response Trump-era deficit context: 7% of GDP - Townsend/Deluard discussion of expansionary deficits Gold price mentioned in interview: Around $2,600 falling toward $2,400-$2,500 support - Post-election selloff and possible support zones Bitcoin level: New all-time highs; path toward $100,000 - Rotation into crypto and measured-move discussion China stimulus timing: Potential policy decisions around late December / after inauguration - Deluard’s view on Beijing’s political calendar Copper support levels: Around $4.25, then August lows near $3.75-$4.00 - Technical discussion in post-game F3 Uranium level: Around 20-21 cents - Townsend cites buying more at 21 cents after retest of September 6 lows Uranium market catalyst: 6 additional countries signed the triple nuclear pledge at COP29 - Post-game discussion of global nuclear policy momentum

Pivotal Quotes: "Inflation is a process, not an event." — Vincent Deluard: Core thesis on secular inflation and why the current decline in CPI does not invalidate the broader trend "The economy just keeps kind of going back and forth between the three other quadrants ... but the deflationary bust will never get there." — Vincent Deluard: Explains his view that policy prevents deep recessions and makes Treasuries less necessary "Trump is not selecting a cabinet here. He's selecting generals to go to all-out war with the establishment, so-called deep state." — Eric Townsend: Post-game commentary on Trump’s appointments and expected market/political volatility

Implications: Listeners should expect a regime of sticky inflation, strong nominal growth, and higher political volatility, with selective opportunities in gold, crypto, cyclicals, and international assets. Long-duration Treasuries look less attractive, while nuclear/uranium remains a long-term thematic trade despite near-term noise.