Deflation Is Coming — And Gold, Bitcoin & Copper Could All Get Hit

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Mike McGlone (1:29)

This is potentially the beginning of a post inflation deflationary cycle. We're all complete stock puppets. So I think we've put in peaks this year in gold and silver that might last years. And if history is a guide, decades.

Maggie Lake (1:45)

Hi Mike, it's great to have you back on again.

Mike McGlone (1:47)

Well, hello Maggie. Thanks for having me.

Maggie Lake (1:49)

Higher stock markets are inflationary. Government spending shows no sign of slowing down. The AI spend is inflationary.

Inflationary, inflationary. Why do you see deflation coming?

Mike McGlone (2:01)

Because it's typically what happens near peaks, and this is part of the sign when they're yelling. It's also based on a couple of books, Doom, Boom and Bust. Quinn, I think, was author.

Price of Time, Edward Chancellor. It's the way cycles always work. But people need to remember what stage we are. The deflation that we had was the most significant buying opportunity for that, was the onset of COVID. Crude oil got to negative and that bond yield got to 10 percent. I've got to 50 percent, half a percent, 50 basis points. That was your deflation. Now we're getting towards the severe inflation and it'll cycle back down.

Maggie Lake (2:35)

The bond action has been disturbing to some bond volatility indexes. The move index has had a big jump in the last week. What's the bond market telling you?

Mike McGlone (2:45)

Well, I think that's what the green reflects. Yields are going up. It's telling me it's part of a market that's being broken initially by energy.

What it says to me is you're getting that 10-year note above 5 percent. It's getting pretty significant equity-like returns. That's the highest in almost a quarter century. It's also the highest in almost a quarter century is that US stock market capitalization near 82 trillion dollars versus stock market debt. I'm sorry, not stock, public debt near 40 trillion dollars. People using that unstoppable debt spending is the reason bond yields are going up. It's not that really big picture. It's inflation, inflation expectations. The number one source for inflation is the stock market going up. And right now, we have most central banks on the planet's hiking rates in the midst of an energy crisis. And most energy crisis are basically their own worst enemies. They spike things, they break things, and go back down. It's going to be a lose-lose, I think, for inflation and energy price spikes. But for now, as we speak, the Fed Reserve, this is the end of September, September 28th. Most futures are priced for the Federal Reserve to hike four more times a year from now, get to near 5%.

And there's only two major forces that will make that stop, I think. Number one, crude oil collapsing, energy prices collapsing. And number two, the stock market is going down a little bit. Gosh, help us if that helps.

Maggie Lake (4:08)

Yeah, I mean, there's a lot of cross-currents you mentioned there. And we're going to dig into them. Can commodity prices and bond yields both go up?

Mike McGlone (4:17)

Well, they are now, but the key difference is, and they're both, but the key thing is they're both significantly auto-correlated. And when they go up, they're their own worst enemy. So the key thing, reason, the key, let's measure what's really gone up this year in commodities. Right now, most people are focusing on energy. But as we speak, the price of WTI crude oil, $92 a barrel, was first traded in 2007 and 2008 So it's almost 20 years ago. What's really going up, as most people know, is refined products. Anybody who goes to the gas station or buys diesel or heating oil knows, we just hit record highs in those. Now, that's just a matter of time. It'll cycle back down, though, squash that demand and bring on the supply, particularly in the world's largest energy producer and export to the US. But bond yields are part of that. The key thing, I think, for bond yields is that it's inflation expectations. And I think that's the next big opportunity for investors, partly because you look at the price of gold, it's the highest versus a Treasury long bond index in four decades. You have to go back to 1987