The ‘Everything’ Crash: U.S. Debt Crisis Leaves Nowhere To Hide | Brett Heath

Brett Heath (0:00)

The long end is the foundation for the price of money.

So this affects everything. 30-year mortgages, real estate market's gonna go down, the affordability for the whole economy is gonna go up. That is going to filter through all of the cost across everything, just given that most of the world's goods are moved by ship, and most of those ships are moved by diesel, you're likely never gonna default. So, you know, I think for at the moment, you can kind of rule that completely out, but ultimately, it comes at a cost.

David Lin (0:29)

Welcome back to the Labor Day Weekend. It's Tuesday, September 8th, and as markets open, everything is down. The stock market is down, the S&P 500 is down 32 basis points, and NASDAQ is down about 30 basis points as well. Gold is down almost 1%, Bitcoin's down half a percent, the dollar's down 1%.

Interestingly, yields are flat to down along end of the curve. Oil is up this morning as the Saudi oil facilities over the weekend were attacked by Iran-backed Houthis. And the escalation between the Iranians and the Americans in the Middle East continues to move up. And we have a situation where the Fed Watch Tool, the CMA Fed Watch Tool, is now predicting a 58% chance of a Fed rate hike by next week. This is up from only 50% a few days ago. Brett Heath, CEO of Metalla Royalty, is going to go over today's market action. More broadly, what the trends are currently that investors need to be paying attention to right now. Brett, welcome back to the show. Very good to see you.

Brett Heath (1:32)

Yeah, thanks for having me.

David Lin (1:34)

The biggest market concerns for you right now is not just CEO of a royalty company, but somebody participating in the markets and investors, so to speak. What concerns you the most?

Brett Heath (1:49)

Well, we continue to get volatility across the markets, whether it's the commodity markets, the equity markets, now the bond markets. As you noted in your intro, it's the same story a different day.

The Iran conflict is not ending. The US is in a really tough spot. They've got really no ability to exit. Iran is not backing down. I did see that the US also attacked some of the Iranian oil tinker. So what does this mean? What does this mean for investors and in the markets in general? It means more supply disruptions. When you look at the lead time on some of these different commodities that are involved, some of the lead times are a bit longer than others. And so I think what investors should prepare for are major supply disruptions across a bunch of the material commodities that mainly run through the Strait of the Ormans.

David Lin (2:44)

What does higher oil price have to do with the higher interest rate? Where do you think interest rates are moving out for a separate reason here?

Brett Heath (2:53)

Yeah, I think interest rates are moving up for a separate reason. I mean, the high oil price is just going to filter into the balance of inflation across all commodities. Everything needs to be transported. I mean, most of that is diesel. And what's interesting is that there's a big divergence between diesel and oil at the moment.

You know, that is probably set to close, but that is going to filter through all of the cost across everything, because given that most of the world's goods are moved by ship, and most of those ships are moved by diesel or run by diesel, and that is something that can't be changed out with a different form of energy. And so I think oil is set to go higher. A lot of the infrastructure that has been damaged is going to take multiple years to repair, and the world is going to continue to have greater demand on less supply, and that's going to make the price go up.

David Lin (3:51)

So if the diesel crack spread that you're referencing right now continues to widen, let's say it closes at some point, like you said, but for now, it's wide, and prices for anything that requires trucking goes up, including our grocery bills. Does that put pressure on the Fed to raise interest rates this quarter?

Brett Heath (4:11)

Well the Fed's in a tough spot right now, and I have an idea of kind of why that I think it's in a tougher spot than it maybe it has previously. And what we've seen, David, we spoke about this on previous interviews, there's been a longer term trend where central banks, which typically have been the material buyer of US debt, have stepped away, and they have now been diversifying heavily into physical metal. This was a big reason over the last few years why gold has gone or went from 2,000 to 5,500, now sitting in the mid $4,000 range. But that trend is continuing. It has not stopped. So who has been the buyer? Who has stepped in to buy the debt? And the Office of Financial Research just published that over $2 trillion are now held by hedge funds.