January 31, 2025 – Did you know that gold is up and hitting new all-time highs against nearly every world currency? Chris Puplava, CIO of Financial Sense Wealth Management, delves into the causes of recent market volatility, from the tech stock dip triggered by China's DeepSeek to the impact of Trump's tariff announcements. Puplava offers a cautiously optimistic outlook, viewing potential corrections as buying opportunities and emphasizing the health of market fundamentals. He also discusses his longer-term view on gold and Bitcoin as hedges against fiat currency devaluation.
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Transcript
Cris Sheridan:
Well, this week we saw a little bit of volatility. Of course, there was an announcement on tariffs. We saw Deep Seek Deep Sixing the tech stocks. A bit of recovery after some more news has come out, which we're going to discuss today, and a number of other factors that we're going to get into moving the markets. Welcome everyone to today's edition of Smart Macro. As part of Our Financial Sense NewsHour podcast, we're speaking with our CIO here at Financial Sense Wealth Management, Chris Puplava. So, Chris, last time we spoke with you, it was about two weeks ago. We talked about the outlook for increased volatility for a variety of reasons. One factor that did cause quite a bit of volatility in the overvalued tech space, of course, was the launch of Deep Seek out of China. This is a side project or spinoff from a hedge fund company called High Flyer Capital Management, which is in and of itself very interesting. And of course, they released their R1 model, gained a lot of attention, but it caused a big dip in tech stocks early this week. There has been a recovery. Any initial thoughts on what we saw happen?
Chris Puplava:
Well, you know, it was a real eye opener and shocked a lot of people in terms of how quickly they were able to catch up. But you know, subsequently there's been reports out there, even from OpenAI, Sam Altman, that it's quite likely that they stole intellectual property from OpenAI's ChatGPT model, which, you know, when you look at China's MO, that's kind of what they've done. You know, they've stolen a lot of intellectual property from us, whether it's the solar industry, EV industry, whatever it may be. China does not respect US Intellectual property rights. And so, you know, if that's what they did, it would not be surprising then that, you know, China is not quite up to speed with where the US AI industry is, but instead is piggybacking on the work we've already done versus kind of catching up with new ways about it. So it's still, you know, it's still early, it's been less than a week. We'll have to kind of see. But it's starting to seem like, you know, based on some thoughts that either they were able to get Nvidia GPUs and got around the ban and or they're not being completely honest about how much money they spent, what they used, or if they stole intellectual property from OpenAI rather than kind of going at it from scratch. So still too soon to say. But given the fact that you had some recovery in USAI related stocks, it is starting to kind of appear that they may not have been as truthful as originally thought.
Cris Sheridan:
Very interesting story that's going to continue to evolve and we may see some congressional hearings about this and things moving forward. So we'll just have to see how that moves. But again, the big story that you were saying two weeks ago is expect more volatility this year. Two things that we talked about right at the top of the list to keep an eye on interest rates, the US Dollar. And of course, now we have tariffs to contend with.
Chris Puplava:
It's been real choppy. I mean, you constantly get, you know, Reuters or Wall Street Journal, they're putting out news releases saying, oh, Trump's going to delay. And then Trump's like, no, that's not what we're going to do. You know, today was a case in point on that. Reuters said that Trump was going to delay the tariffs on Canada and Mexico to begin March 1. And then the White House came out saying, no, Reuters is wrong. We are going forward February 1st. So, you know, we've been seeing this for weeks now where, you know, Trump's going to delay and then the White House comes out and says, no. So there's been a lot of volatility where, you know, you've got news outlets saying one thing. The White House is like, no, that is not what we're saying or plan to do. And today was a perfect example that Reuters came out saying that Trump is going to delay tariffs on Canada, Mexico till March 1st. You saw the dollar sell off. You saw interest rates, you know, reverse. And then the White House comes out saying, nope, we're going forward with February 1, 25% tariffs on Canada, Mexico and 10% on China. And the markets obviously sold off because of that. The dollar rallied, interest rates fell, and you saw gold cryptos sell off as well as the stock market and the volatility index surge. So Trump is a disruptor. And I think that's one thing that we've seen is, you know, the market's kind of all over the place depending on what he will or won't do. So as of right now, based on what the White House said today, the tariffs go into place tomorrow. Now there, it's, you know, Trump has kind of is unclear whether he's going to exempt energy products coming from Canada to the US from that tariff, but it looks like he's going forward with it. So, you know, that's what hurt the market near the end of the day on Friday. But, you know, that's the thing is you don't want to get carried away because, you know, the thought was Trump was, you know, carrying a big stick and, you know, using it more of a negotiating tool. And he still might, you know, those tariffs might be on for a week or two. And then we get basically Canada and Mexico coming to the table with concessions on tightening the border, addressing the fentanyl crisis into the United States, and then he lifts the tariffs. So you don't, you don't want to get flipped around back and forth. And that's where kind of looking at the overall fundamentals really help. And when you look at the overall market health, market breadth, there's really no risk there. I mean, the market's still pretty healthy. We have seen some weakening in breadth, but overall, I would say it's still pretty healthy. And then one of the things that I look at constantly is, you know, what's the measure from the credit markets? I think they do a really good job of giving you an early warning of stress. And when you look at, you know, junk spreads or ultra junk, you know, like triple C relative to investment grade, they're not showing any signs of stress yet. If anything, they're really near their lows and are very tight. So if we do have a correction, a pullback, I think it's just that I don't think it's a bull market top. You know, when I think I last looked at overall historical correction data, I think in any given calendar year, the market has 3.5% pullbacks. I think it's very typical to have at least one 10% correction per year on average. So, you know, stocks are a volatile asset class. You know, you're not investing in T bills. You know, they are volatile. You should expect some volatility. So even if we have a little bit of a wobble here in February coming up, I don't think that's the end of this bull market. So I'm not turning outright bearish. I am cautious, mainly because one of the things I've been looking at is the dollar and interest rates in general. The stock market struggles when interest rates are moving up and when the dollar is moving up. That's what we saw in 2022, and that's something I'm watching very closely. And as of right now, I think we're gonna probably in the next two weeks know which way we're gonna go. The dollar and interest rates broke out in January or late December and going into January and they pulled back over the last couple of weeks here and they're basically coming back into that breakout point. So I think probably within the next one to two weeks we'll know was that breakout in the dollar and rates just a head fake and we're heading lower or was that, you know, genuine? And we pulled back from that breakout. Now we're resetting to go to see the next move higher. So that could lead to a pullback in the markets, which to me I think is still a buying opportunity. I think overall corporate earnings are still growing, you know, still on pretty solid footing. I'm not in the recession camp at all. So I think if anything, when as long as you're not in a recession, as long as there's not a financial crisis, pullbacks in stocks are a buying opportunity.
Cris Sheridan:
Yeah. And again, when we think about these policies that Trump is implementing, these are pro-growth, but the big question mark is tariffs. What are the impacts going to come from that? That being said, as you look at things currently, I think the main message is that from a technical perspective, when you look at the market, market breadth is still relatively healthy. The fundamentals are still sound. Like you said, you're not in the recession camp. So it sounds like maybe there's been a slight shift in your messaging over the past month or two. Because I know you were saying that you were a little bit more cautious about the market. We'd moved to a more neutral posture. Has your view changed or where are things at currently?
Chris Puplava:
No, we're still neutral. When you look at our overall allocation, you know, we did take some money off the table late last year. You know, it's all about time frame. So I'm cautious near term. But when you look at the more intermediate term to longer term, I still think we're in a bull market. I don't think we're in a bear market. But you know, we could have a decent correction and that's why we're not aggressive like we were last year. We've taken some equity exposure off the table mainly because I do think there's a, you know, 10% correction on the horizon. And again, that's normal. You know, you look at any given year on average, from a peak to trough, there's at least a 10% correction. So I'm just talking about a, you know, the market was overbought going into the end of last year and we sold off a little bit and then we, you know, hit new highs recently. But you know, short term, cautious long term, I still think we're in a bull market. I don't think we're heading into recession. So, you know, I think it's important to kind of give some time frames to put things into perspective. So cautious, yes. Even still near term, you know, as long as that dollar and interest rates break out, I think that could be a major or the major catalyst for a correction in the markets. But that's a correction to be purchased, not, you know, a reason to run for the hills.
Cris Sheridan:
Okay, so from a macro perspective, there is a number of things that you had highlighted last time we spoke with you that are of some concern, and that was, again, interest, the trajectory of interest rates, what you were talking about with the dollar. What are you seeing currently when you look at some of these potential risks? Are they moderating? Are they getting worse? Where are things at right now?
Chris Puplava:
Well, as I mentioned, the biggest risk is interest rates and also the dollar. Now, this is February 31st. So we will be getting a fresh set of data. Usually the most important data is in the first week of the month. We're going to be getting January payrolls next month, and within two, three weeks from now, we'll be getting the CPI data. Those obviously are hugely important for the Fed outlook. So those could be a major factor. If we get a weak jobs report, I think the dollar would sell off and I think interest rates would sell off as well. And then if obviously we get the reverse, we get a strong labor report, you could see the dollar, interest rates move higher. So, you know, when Howard Marks, he's the investor that Warren Buffett follows, he's been in the business a, you know, a long time. And when you reflect on his career, Chris, he said basically he only had to make a major decision once a decade where you aggressively went to cash and got defensive. And he'd been in the business for over 40 years. He said, you don't want to run for the hills every single year. You know, when you look at the stock market, on average it's up 75% of calendar years. So when the odds are stacked in the favor of higher stock prices, why are you panicking every year? It's very rare that you should be panicking. He said 90, 95% of your time should be focused on one thing from neutral. Based on what I see, should I be a little bit more defensive or a little bit more aggressive? Not, you know, swinging for the fences or heading for the hills? You know, those are extreme measures. And that's what I'm remarking on is I don't see this as a reason to run for the hills, that we've got a recession or a bear market. This is, you know, what the, you know, it's not a real clear picture. I don't think the odds are stacked all in one direction for the market to head higher or even to head lower. It could go either way. And when that look is a little bit murky, you want to stay right in the middle, which is neutral. And that's what I'm saying is, you know, right now there is a risk that rates and the dollar could move higher. Conversely, we could come in within a week from now or the next time you and I record, we found out the jobs was a little bit weaker than we expected. Rates have sold off, the dollar sold off. Mexico and Canada have inked a deal with the US to beef up the border. And off we go, the stock market heads higher. That is clearly possible. And we could be having something like that within the next two weeks. So, you know, that's why you don't want to make really outlandish decisions in terms of all in or all out. You know, right now I think a very cautious but, you know, stable approach makes sense and if things change one way or the other, then as a firm we'll start to increase or decrease risk. But right now, you know, given the outlook seems a little bit balanced and murky, I think a neutral stance makes sense.
Cris Sheridan:
Okay. And you know, in prior shows we've discussed how we do have an allocation across many client accounts into precious metals, into things like bitcoin. These are anti-fiat plays as we have often referred to them, or as hedges, even against government money printing. Of course, Bitcoin as we all know has done very well and is either at or near all-time highs as we're speaking. But you did send me some interesting charts about gold. So what are you seeing from the precious metals side of things?
Chris Puplava:
Well, I continue to see a roaring bull market in gold. One thing I look at is gold priced in foreign currency and I look at it from one year to one day and it is a sea of green. In fact, when you look at the one-year performance, it's up 74% in the last year versus the Argentine peso. The weakest return that gold has had is against the Malaysian ringgit at about a 30% return. So we're looking from 30 to 74% return across all world currencies. That's a very strong bull market. And conversely, what's really impressive, especially from a US perspective is that the dollar has been, it's kind of the opposite of gold. Where foreign currencies have been struggling to the dollar. So where gold is up against every currency, you've seen kind of the dollar and similarly up against every other world currency, foreign currencies are really struggling to the dollar. So the fact that gold is up even in dollar terms as strong as it is is very impressive. In fact, when we look at gold, it had a huge move last year and it peaked right around October 31, first into October and since then it has started to break out and hit new highs. This month we've seen a new all-time high in Australian dollars. It's about 6% higher than its former high in October. You're looking at the British pound, new high, the Canadian dollar, the Chinese renminbi, Euro, yen and now officially the dollar. It closed at a new all-time high earlier today. So gold continues to be strong. And I think, Chris, really what this is reflecting is in something I talked about in my client letter, you're looking at $14 trillion of G10 debt maturing this year. That's a lot of debt. And when you've got this growing debt problem, you do kind of lose faith in fiat currencies. And I think that's where gold is really coming into the fore here, where it's up against every single world currency. It's because I think a lot of people are losing faith in fiat currencies and this debt problem is not going to go away. Which means I don't think this bull market in gold is even close to being done. So definitely an asset that we're invested in directly or indirectly at our firm and one that we're going to continue.
Cris Sheridan:
To maintain as we close. Just to summarize some of the things that we discussed today, when you look under the hood at market breadth, things still look fairly healthy. You're not in the recession camp. The US economy appears to be in a good position to maintain its level of growth. So the fundamentals look sound, the technicals still look sound. There is the possibility for further correction here. But this would not be a bull market peak or top in the market as you see it, but perhaps a buying opportunity if further weakness materializes. In which case, given your outlook and what you shared with us today, for any of our listeners that would like to come on board and take advantage of this buying opportunity in the market, what would be the best way for them to reach you?
Chris Puplava:
They can email me at chris[dot]puplava[at]financialsense[dot]com or they can give me a call at 888-486-3939.
Cris Sheridan:
Well, Chris, as always, it's a pleasure to speak with you on our show and we look forward to speaking with you in another two weeks.
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