Trey Lockerbie (03:03):
Very interesting. When COVID first hit, oil had this extreme volatility. Are you seeing any warning signs in the energy sector as well, potentially coming, or any indications that there might be another issue if cases continue to rise?

Daniel LaCalle (03:18):
Well, unlike in the United States where Henry Hub Natural Gas prices have fallen because of a mild winter, in the Euro zone, the European Union, natural gas prices have rocketed. And the reason why they have rocketed is because there’s this very significant bottleneck of supply and a very challenging environment into winter to address the increase of demand.

Daniel LaCalle (03:44):
The other aspect in terms of gas prices is that taxation in the European Union is so high, it’s more than 50% of the final price, that a reduction in the commodity price is not felt significantly by the consumer. So in general, inflationary pressures are very strong in the Eurozone. Inflation is at 30 years high. Not as high as in the United States, but only by a bit less than a point. And the situation in general is, as long as restrictions continue to exist and as long as the supply chain bottlenecks are there, there’s going to be a significant problem of rising prices.

Daniel LaCalle (04:29):
So energy right now is a sector that is suffering obviously, because demand is not working properly and the refining sector therefore is not doing as well as it should in this environment. But because the most of the companies cannot transfer the increase of commodity prices, the increase of industrial costs to the final consumer in their entirety. There are four margins, margins are falling now, and it’s very evident as well in the airline sector and in the automotive sector.

Trey Lockerbie (05:02):
I’m glad you brought up inflation because I have a few questions around that. First of all, when it started happening here and showing up finally, it was thought of to be transitory. Now it seems to be more here to stay. Talk to us about what is projected for inflation next year in 2022 and 2023, and if you personally agree with the forecast laid out.

Daniel LaCalle (05:23):
I don’t necessarily agree with the forecast that have been laid out. Particularly for one reason now, is that they have been incredibly wrong in this year. Remember at the beginning of the year, we heard from central banks and from investment banks that inflation was going to be inexistent, actually there was more risk of deflation. Then when inflation started to rise, they said it was due to the base effect. And now they say it’s transitory. And now they say that it’s persistent. Good use of words to be fairly honest, but what that tells me is that this year, the United States finishes the year with a 6% level of inflation, and next year sort of improves to 3%. That is more than 9% in two years.

Daniel LaCalle (06:10):
I don’t think that there will be many people either in the Eurozone or in the United States that are going to see their disposable income and their wages 9.5% in 12, 24 months. So I think that the picture for inflation is probably more persistent than what we expected at the beginning of the year. It’s also likely to show some reduction, because as you mentioned before, oil prices have come down a little bit, they’re still at $69 a barrel, but oil prices have come down a little bit, the trend remains inflationary in basic goods and services. So I would say that next year we probably have more risk of a unfortunate surprise on the upside in terms of inflation, rather than on a downside risk.

Trey Lockerbie (07:01):
With this money printing that’s been going on, do you see the prospect for runaway inflation happening potentially? And if not, what would be some of the dis-inflationary pressures that would be combating it?

Daniel LaCalle (07:13):
I don’t see runaway inflation for a very simple reason. We live in the Eurozone or in the United States where we have a world reserve currency, the United States dollar, the Euro, are world reserve currencies, therefore a lot of the imbalances created by aggressive monetary policy are transferred to the rest of the world. So I don’t see runaway inflation or the kind of risk of inflation that we saw in the 70s. However, I do see very high inflation for the developed economies with global reserve currencies that we are.

Daniel LaCalle (07:54):
In terms of dis-inflationary pressures, obviously technology. Technology is dis-inflationary. Demographics are dis-inflationary. Where as we live in societies which have different demographic pyramid, and that have a completely different type of population, obviously that makes it more difficult to get to very high levels of inflation. And finally, obviously very high debt. Very high debt is dis-inflationary.

Daniel LaCalle (08:24):
So I think that ultimately we can see high inflation, but not necessarily runaway inflation. Can not forget that for the average American citizen, currently we see that healthcare, education, things that we purchase on a day to day basis, are going up significantly above consumer price index. And that is a saying in the European Union that the daily purchases, the essential goods and services are actually going up faster than what the consumer price index indicates.

Trey Lockerbie (08:58):
Let’s go there, because from what I’m seeing, the top traded commodity prices over the past two years have been exploding. Oil, steel, soybeans, copper, aluminum, the smallest price increase in that basket was 17%, almost 17.5%. What would inflation really look like if we started to add in things like healthcare, education, some things that are not currently in the US CPI number?

Daniel LaCalle (09:24):
Well, there are some alternative estimates to what inflation would look like if we calculated the CPI index, the consumer price index, the way in which it was calculated a few years ago, and we would probably be in about 8%, 8.5%. So significantly higher than the one that we have seen in … that’s in the United States. In the Eurozone inflation is not that dissimilar if we calculated the way it was calculated a few years ago, because obviously many of those costs are paid in taxes, and inflation doesn’t account for taxes. But in any case, it would be significantly higher than the 5%, 5.5% that we have seen in the last year.

Trey Lockerbie (10:19):
I’m actually really glad you brought that up, because I’d like to talk about how inflation shows up in Europe versus the US. So for example, you touched on, it’s showing up in your taxes. One industry that’s obvious to understand is that healthcare is covered by the government and your taxes in Europe, where it’s not in the US. So healthcare services in the US have been skyrocketing in price. But how does that show up in somewhere like the Euro zone and what is the growth rate of that tax inflation, if you will. How does that look today?

Daniel LaCalle (10:51):
Yeah, the comparison between the United States and the Eurozone in terms of healthcare cost, obviously is blurred by fact that in the Eurozone our countries are paying for the healthcare cost in taxes. Now, so what do we have? We have basically a tax wedge that is on average about 15 … so basically the tax wedge for the average European Union household is about, including indirect taxes, is about 40% of gross income, whilst in the United States it is lower. In the case of the Eurozone, what we have seen is very high inflation of taxes. We have, for example, VAT, value added tax, which is 21% on everything that we purchase. In some countries there are some goods that have a low VAT, but the value added tax is very, very high in many countries. And obviously the marginal tax rate is significantly higher than in the United States, but massively higher, and particularly for the middle class.

Daniel LaCalle (12:04):
Many times when I discuss about taxation versus state provided goods and service like healthcare, we tend to forget how high taxation is particularly for the middle class, both in indirect and in direct taxes. So we have seen almost tax wedge doubling since the creation of the European Union that we call now the Eurozone, once all the countries started to join the Europe area.

Trey Lockerbie (12:34):
Very interesting. And would you say that the way that the Eurozone calculates their inflation, meaning CPI like we use here, is pretty comparable to the US?

Daniel LaCalle (12:44):
There are differences. There are significant differences. The way in which, for example, accommodation and everything that has to do with housing is calculated is different. In terms of commodity prices, energy, et cetera, taxation is not considered. So there are small things here and there.

Trey Lockerbie (13:06):
Let’s talk about the US Fed for a minute and their recent announcement. They’re essentially planning to accelerate their reduction in monthly bond purchases. They’re also planning to do three rate hikes now in 2022, which I think was a bit of a surprise for most. That’s saying the estimated funds rate will go from 0.25 roughly to 0.9, so nearly a 260% increase even though they’re really small numbers. So it sounds quite substantial. How will this affect the markets in your opinion?

Daniel LaCalle (13:38):
Well, I don’t think it’s going to make much of a difference, because ultimately the Fed is going to put rates massively below where inflation and core inflation is expected to be. If the Fed does follow the dot plot, as we call it, of the rate hikes that have been announced at 2024, the fixed funds rate is going to continue to be below core inflation. So I think that that means the Federal Reserve, just like the European Central Bank, is going to continue to be extremely dovish and accommodative despite inflationary pressures.

Daniel LaCalle (14:18):
The repurchases of bonds and mortgage backed securities is going to be scaled down, but it’s not going to be scaled down dramatically, and is going to continue to be a very significant proportion of the net issuances of the federal government. So my view basically is first, I don’t think that the Federal Reserve will ultimately comply with the announcements that they have made. I think that they will make less rate hikes than the ones that have been announced. That is the history that we have lived and that is consistent with the slow down of the economy that we’re starting to see at a global level.

Daniel LaCalle (15:02):
And I don’t think that it’s going to make great differences in markets because, even considering the announcement of rate hikes and slow down or reduction in repurchases of bonds and mortgage backed securities, the Federal Reserve is going to continue to be a very significant player. Very … it’s going to continue to inject billions of dollars of liquidity every month, even into 2024. So I think that the impact on the markets will be very limited. There will be volatility because markets are basically priced in right now, almost an ideal scenario of higher growth, higher productivity and better earnings, that is very unlikely to happen. So my view is that the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan and People’s Bank of China are going to continue to be a lot more accommodative than what probably they imply in their messages.

Trey Lockerbie (16:15):
Traditionally, as I understand it, the Fed would set these fund rates and then commercial banks would follow suit and adjust their lending rates accordingly. But talk to us a little bit about maybe how that’s changed in the recent past, rates being at zero for so long. Are commercial banks hiking rates preemptively, and what will that look like moving forward?

Daniel LaCalle (16:36):
That’s another of the reasons, because a lot of commercial banks have been increasing rates for the riskier customers in the past year. There’s a point in which rates were so low and in which the Fed funds rate was so out of touch with the reality of credit solvency and liquidity, that commercial banks were already, preemptively at least, increasing rates and adjusting lending capacity to the increasingly risky environment in which we were getting into with the reopening.

Daniel LaCalle (17:17):
Because usually what tends to happen is, banks remain extremely loose in the way in which they blend, in the way in which they provide credit to customers, because we’re into a recovery. In this one, because it’s been such a quick crisis and such a quick recovery, the impact of non-performing loans, the impact of increasing levels of weakening solvency ratios, et cetera, all of those were already being embedded by banks in their actions. I think that commercial banks were already acting to what would have been inevitably a rate hike path from the Federal Reserve. And they were already acting because inflationary pressure were very strong and those commercial banks were more aware of the fact that inflation was more permanent, more persistent, than what the Federal Reserve said in the first half than the first three quarters of 2020 in 2021.

Trey Lockerbie (18:27):
So Daniel, going back to your point about the Fed tapering off and how that’s not that big of a part of the bond market in total, it just begs the question around, who will be buying bonds that the Fed is no longer buying once they’re tapering, because obviously there’s a negative yield associated as inflation has continued to rise. So I guess my question for you is, where do bonds go from here and do you have a projection for when these get back into a positive yield?

Daniel LaCalle (18:56):
I think it’s going to be very difficult considering how dovish central banks will continue to be. And also because what happens, for example, right now we are seeing it in emerging economies, how their currencies, despite rising commodities are weaker against the dollar. So one of the effects that we see, this hoover effect from the Federal Reserve tightening a little bit their policy, is that demand for US treasuries rises significantly. Because for a lot of central banks all over the world, US treasuries are reserves that support the purchasing power of their domestic currency. So who will buy US treasuries once the Federal Reserve starts to taper? Fundamentally emerging market investors, looking for dollar exposure. Because yes, the yield might be negative in real terms, however, the performance of the bond in domestic currency might be quite good because the dollar appreciates, the domestic currency depreciates, so you don’t care so much about the yield as the performance of the bond in domestic currency, real terms.

Daniel LaCalle (20:17):
So I think we’ll see quite a lot of inflows from emerging economies into the US dollar and therefore less treasuries. But the Federal Reserve needs to be very aware of this because demand of US treasuries cannot be based only on the fact that there is a risk of appetite. It must be a healthy level of demand from US investors that find that the yield is attractive enough. And I think that that is something that we are not going to see in 2023 or 2022. That we’re going to continue financial retraction, which is keeping yields significantly below inflationary expectations and keeping the level of repurchases high enough to maintain bond yields at very low levels. Which doesn’t mean that bond yields are not going to go up, it means that they will stay at very low levels, but obviously from the hugely depressed levels where they are today, they are likely to continue to rise a little bit.

Daniel LaCalle (21:26):
The biggest is on the European Union, Eurozone sovereign bonds in which peripheral countries are financing themselves at extremely low rates, and in the so-called high yield that is not high yield anymore, and therefore the risk of solvency starts to become something that matters.

Trey Lockerbie (21:50):
That’s a very interesting point about the exposure just to the dollar, especially for the emerging market cohort. I’m curious if you have an opinion on the forecast of the dollar as we continue to raise rates that would imply the dollar would probably get stronger. There’s obviously a large cohort out there of people who believe that the dollar will continue to depreciate and somewhat drastically, even hyper inflate away. So it’s a spectrum of opinions. I’m kind of curious where you land on it.

Daniel LaCalle (22:19):
In my opinion, the dollar is not [inaudible 00:22:21] depreciate relative to its basket of traded currencies. And the reason is because my fellow American friends now, and colleagues, they look at the monetary policy of the Federal Reserve and they look at the fiscal policy of the government and they say, “Well, obviously this is going to lead to very high inflation and a weakening of the currency, and it’s going to get a lot worse.” But we forget that the currency market is a market of relatives. So the US dollar remains strong, not because the Federal Reserve policy is [forkish 00:22:59], or because the fiscal policy is prudent, but because the monetary policy and fiscal policy of its competitors, of the competitors of the US dollar, are significantly worse than that of the United States. So what ends up happening is that demand for US dollar rises, for the US dollar rises and therefore the US dollar strengthens relative to its main basket of traded currencies because the monetary policy and the fiscal policy of the countries that hold those other currencies are even worse than that, of the Federal Reserve and the US government.

Daniel LaCalle (23:42):
So it’s almost a game of who loses first. And when the Eurozone is embedded in this monster stimulus plan, and this huge deficit spending program, and at the same time a very aggressive monetary policy strategy in which the balance sheet of the European Central Bank has gone to rise above 80% of the GDP of the Eurozone. Remember that the balance sheet of the Federal Reserve is 37% of the GDP of the United States which is huge, obviously, and it’s very loose policy. But if you look abroad, the European Central Bank are conducting much more aggressive monetary policies, and the governments are conducting much more aggressive fiscal policies than the United States. Therefore, my view is that the US dollar will continue to strengthen relative to those traded currencies.

Trey Lockerbie (24:46):
So I’m going to jump ahead a little bit to, just based on that point, to sort of an end game forecast, because what you kind of highlighted there just raises this concern around the middle class, especially in the US, but also across the world. When will we enter or how can we enter into a scenario where society and its wealth will not be achieved at the expense of the middle and lower classes as it is now? Meaning that the dollar, while it might not depreciate against the basket, certainly is depreciating against other assets, healthcare, even in services and things like that, real estate, stock markets, bond markets, and it’s getting harder and harder for the middle class to even just keep up. So what does a scenario look like that gets us out of this negative feedback loop and back into a more prosperous scenario?

Daniel LaCalle (25:39):
The middle class grows in an environment in which saving and prudent investment is incentivized. If monetary and fiscal policy incentivize debt and reckless spending, the middle class is always going to suffer. Doesn’t matter if it’s a Democrat government or it’s a Republican government, the policy of massive deficit spending and huge money printing is at the expense of the middle class. Because the ones who benefit from financial repression from very low rates, huge money printing and high government spending, what ends up happening is that the middle class gets wiped out by policies that are supposed to be about the middle class. So we hear politicians say, “No, we care about the middle class. We want the middle class to thrive.” But the entire policy is against the middle class. Raising taxes, increasing liquidity, massively lowering rates and increasing deficit spending does not benefit the middle class. It has never done it.

Daniel LaCalle (26:57):
And therefore, and if you add on top of that, and for a while that was acceptable because there was very low or no inflation, but when there’s high inflation, the middle class hurts the most because obviously it suffers from the inability to save for a rainy day. Ultimately it’s very simple. Inflationary and deficit spending policies are literal taking resources from the economy, from putting a hand in the pocket of the ones who save. Who save? The middle class. Because the very rich might have a lot of assets, but they have mostly a lot of debt and very little cashflow. The very poor have no assets and no cashflow. So the one who are inflating out of its wealth is the middle class. So every time that I hear that, how can we rebuild the middle class? For me it’s very simple. Stop financial repression. Stop policies that are sold as something that helps the middle class and in reality hurt the middle class.

Daniel LaCalle (28:09):
Because it’s going to get a lot worse. It’s going to get a lot worse because access to real estate is going to get impossible the way that things are going. Purchase of essential goods and services, as we were mentioning healthcare, education, all these things are just going to get worse. But on top of that, the real disposable income of the middle class comes down and real wages, real wages, not nominal, I don’t care about nominal wages, real wages come down and the ability to save for those goods and services is worse. So if we want the middle class to thrive, we need to incentivize a policy from the side of governments that incentivizes prudent investment and saving, not debt and expenditure.

Trey Lockerbie (29:01):
Very interesting. Let’s talk about where to invest. One trend that is been really taking hold as of late, is this focus around ESG companies. In theory, ESG companies and the intention behind it seems very sound, but there’s a lot of skepticism around the actual approach or execution of implementing ESG policy. What is the skepticism exactly and why is it there?

Daniel LaCalle (29:31):
Well, I understand the skepticism, because it’s become such a quick [inaudible 00:29:37] ESG that it’s very difficult for investors to discern between what’s really ESG and what may be green washing. Green washing is a concept by which you basically provide publicity and an image of green and socially responsible activities when they’re actually not.

Daniel LaCalle (29:59):
So I think that what will likely happen is the following. I think that ESG as a trend is unstoppable. But I think that what’s going to happen in the next few years is that people will start to really analyze, what is ESG? What is really the environmental, social and governance policies is that companies are implementing, and profitability? Because there are two risks about ESG.

Daniel LaCalle (30:28):
The first is that people start to confuse ESG and socially responsible investment with loss making. It has to be profitable, and it has to be real. So when companies say that they’re conducting environmentally sound policies, it’s not just about small rates of change from where they were, but truly sound environmental policies, truly responsible social policies and truly transparent governance policies. And I think that that is why there’s a tremendous demand for portfolio managers, investors that can actually really tell whether this stock, this company, is something that we can be confident that falls in the ESG category, relative those that are simply basically publishing corporate governance and environmental report every year, putting their logo in green, making us think that everything has changed.

Daniel LaCalle (31:33):
So I think that it’s an unstoppable trend. It’s a trend that wasn’t created by politicians. ESG socially responsible investment existed many, many years ago, way before politicians even thought about it. But I think that what’s important now is to separate those companies that are sort of in a process of improving but not really complying with ESG policies, from those that really do. Because those that, and they’re profitable, those will be tremendous investments.

Trey Lockerbie (32:11):
And who is the agency that ultimately polices the policies at the SCC, or what does it fall in, some other regulatory entity?

Daniel LaCalle (32:19):
It’s a great question. Right now, nobody. Right now, what you basically do is that, companies apply to different indices. And those indices, the FTSE4Good, things like this, what they do is that they analyze whether the company adheres to certain standards or environmental, social governance policies, et cetera, which is fine when I think about those indices.

Daniel LaCalle (32:43):
But ultimately it’s going to be the professional investor who analyzes the strategy of the company, capital expenditure plans of the company, the hiring and corporate decisions, and sees that A, they are profitable. B, they follow these principles. Even if [inaudible 00:33:03] or the government decided to provide some sort of, imagine, some sort of trademark or some sort of competitive positioning, it would not work. Ultimately it’s investors who will understand that there is a lot more value in companies that are truly following those principles, and being financially and strategically sound, because those will be the winners.

Daniel LaCalle (33:36):
It’s no surprise actually that without knowing precisely which companies are truly following ESG principles, but it’s interesting. If you look at the S&P 500, you look at the Stock 600 in Europe, the ones that actually do, do trade at higher multiples and have better performance. So investor already are sort of placing who’s doing it well, and who is basically just using a little bit of marketing.

Trey Lockerbie (34:09):
It’s super interesting because it always feels like there is an argument for either side. And it, for whatever reason, is bringing to my mind this argument around say digital currencies and how much energy they expend. And you could say, “Well, that’s just a huge waste.” And then you can say, “Well, you know, think about the US dollar and how much energy that takes. It takes an entire military. It takes the banking system and all the real estate that goes into it and all the …” You can make these arguments to say, really for either side, and say, “What is”, as you put it, “Truly sound for the environment.” It seems debatable and highly so.

Daniel LaCalle (34:47):
I completely agree with you. I think that there are, in some cases, for example, energy utilization is one of the things that is being used with probably ideological or with kind of interest behind it. Cryptocurrencies, some of them are highly energy intensive. Others are not. And as you very well said, when we look at the carbon footprint of a currency, we have to look at the carbon footprint in its entirety. You’ve mentioned a tremendous example. Now it just, the US data is not just how much is spent in terms of energy to issue the currency, it’s everything that is attached to a global reserve currency.

Daniel LaCalle (35:32):
And therefore, with that in mind, the reality would be pretty similar if, you probably remember when there was a message out there that, for example, that cows were environmentally disastrous relative to fruit and vegetables until you added transport. So I think that you’re absolutely right. I think that there … we need to be very strict and we need to be very prudent about making, let’s say, drastic visions about what is truly ESG or not. Because the reality is that, however we want to look at it, in anything that has to do with cryptocurrencies and with technology is ultimately going to be significantly more environmentally friendly because of efficiency, technology and diversification than traditional [inaudible 00:36:32]. That is not even debatable.

Trey Lockerbie (36:34):
I hope this doesn’t come across the wrong way, because I don’t want to group you in with a cohort of any … that doesn’t make sense, but you are a PhD economist, and not too many PhD economists that I’ve come across are bullish on digital currencies or cryptocurrencies. But you seem to have a different opinion or at least a more bullish take on the future of it and how it implements. So I’m kind of curious to hear your thoughts on what that looks like in your opinion, what a digital currency say, Bitcoin, or what asset classes are truly disrupting over the long term?

Daniel LaCalle (37:06):
One thing that tends to happen in my profession is that, we as economists tend to see lots of risks and all of the risks in disruptive technologies, and none of the risks or very few of the risks in traditional technologies. And basically, because we are not built or equipped to understand the future, we basically analyze the past and the present. So that’s why I would never debate about the future of transport with Elon Musk. The reason why I’m more bullish about cryptocurrencies is simply because, if you look at the history of money, state owned and state controlled central bank issued currency is actually something that is relatively new and that is not necessarily better, more stable or more valuable. The value of the currency is decided by the next person that is going to use that currency as a means of payment, as a unit of measure and as a reserve a value.

Daniel LaCalle (38:18):
So the great thing about currency, is that it’s the most democratic thing out there that I can imagine, because no government can tell you that its currency is valuable. You will find any other way of using means of payments, different means of payments, if you don’t believe that. So within that context of understanding that currency and money are not the same thing, I find cryptocurrencies extremely interesting.

Daniel LaCalle (38:50):
What I do know as well is, and I concur with a few people out there on this subject, is that the vast majority of the thousands of cryptocurrencies that have been issued will disappear. Of course they will. But that doesn’t mean that the concept of a decentralized currency isn’t going to take hold, because it will. The same way that we are seeing decentralized, denationalized global companies with completely decentralized strategies that have absolutely nothing to do with the place where they have their headquarters.

Trey Lockerbie (39:29):
But what I’m hearing. I mean, I don’t think I’m speaking out of school, it sounds like you’re not implying that they will disrupt something like the US dollar over the long term and it’s hedge money.

Daniel LaCalle (39:40):
No, no, no, no. That’s … I don’t enter into that discussion. First because obviously, I don’t know. I think that cryptocurrencies, the same way that the metaverse will coexist with our day to day lives and our day to day universe, cryptocurrencies are very likely to, or happen [inaudible 00:39:59] to live with the fiat currencies that we live with today and it’s a symbiotic relationship in which, the desire of the central bank that issues the Fiat currency to demolish the purchasing power of the fiat currency will probably be curbed by the fact that there is competition out there. And the other way around.

Daniel LaCalle (40:22):
And cryptocurrencies will have to be stable and valid in order to become real units of measure and real payment and obviously we are the value. So I think that, the thing is that I don’t see this battle of one or the other, that is sort of what seems to be what the conversation is leading into. You’re in favor of fiat or you’re in favor of crypto. I think that all of it will coexist in different layers, or depending on the use and depending on the universe of purchasing of services that we’re going to live in.

Trey Lockerbie (41:05):
Fantastic. I want to touch on a dis-inflationary pressure you mentioned earlier, which was demographics. How concerned should we be or how much weight should we be putting into that risk specifically? And what are you seeing around the world? We can start with the US and Euro zone. And are there any major red flags that you’re seeing that should be of a concern longer term?

Daniel LaCalle (41:26):
The first red flag in terms of demographics was shown a few years ago by Japan, is that the entitlement cost of an aging population is unassumable … no, it’s unsurmountable. You can see it in the, for example, in the US budget. How mandatory spending massively, how it paces the rising receipts or the growth of the economy. So we need to understand it from the perspective of fiscal policy, and aging of the population obviously has some negatives and has some positives. In terms of the negatives, we all understand them. We all understand that population that ages and diminishes makes a country to go downhill. We also understand that aging of the population has some positives in the sense of that there’s a tremendous level of wealth, of intellect and talent had been built in the economy. And all of that sort of is positive as well. And there’s also different areas of growth that we did not even think of. So that … think about Florida, how it has benefited from aging of the population.

Daniel LaCalle (42:42):
So the point is, we need to pay attention to demographics because the budget and the fiscal situation of countries in an aging population becomes very difficult when entitlements, when pension costs, healthcare costs, et cetera, Medicare, Medicaid, social security, you name it, all of that, hugely outpaces economic growth and receipt growth. Because you cannot offset it with tax increases. We cannot … we always hear this thing about, “Oh, if you tax the rich and you tax corporations, everything can be paid.” No, it can’t, not even close. Look at the trillions of dollars of increase in mandatory spending in the budget in the United States or mandatory spending in the Euro zone, and not even … you don’t even get close to fiscal balance through taxation.

Daniel LaCalle (43:41):
So what … how do we get close to fiscal balance without destroying the economy through taxation and at the same time preserving the growth of the economy and the growth of a nation? With a policy that attracts talent, that attracts investment, that attracts people from all over the world and that keeps that population growing the way that the United States grew, the way that the European Union grew. So very much about a realistic approach to immigration in which the people that join a nation contribute to the growth and the talent that is required for a nation to continue growing.

Trey Lockerbie (44:25):
Speaking of that taxation, and without getting political, I’m just kind of curious to hear your thoughts on the fact that Elon will be spending something over $11 billion on his tax bill this year. And I’m curious to know if you have any thoughts on, if that is an awakening of sorts to a lot of folks who believe taxation is the answer to rebalance this budget. Because again, it seems 11 billion will go fairly quickly in the spending that we have. Without, reserving judgment or opinion, more curious to know if you think that that is sort of an act that will get recognition of sorts or if it’s sort of a nothing burger in your mind?

Daniel LaCalle (45:05):
No, it’s not going to be recognized unfortunately. We know, in the Eurozone, where taxes are incredibly high for the wealthy, for the middle class, for everybody, we know that messages like this, which are perfectly valid, nothing against what Elon Musk is going to be paying in taxes, we don’t need to think about taxation from the perspective of receipts, but from the perspective of taxable base. Which is, what we need is more Elon Musks. What we need is more middle class. What we, at the same time, not try to build the middle class by making Elon Musk disappear because that doesn’t work. I live in the Eurozone, doesn’t work.

Daniel LaCalle (45:54):
But we need to increase the taxable base and that means building a stronger middle class through savings and through being able to save for the future and get, and invest in their wealth. And we need more Elon Musks, and that increasing the taxable base will allow us to finance, however you want to call it, a welfare state, et cetera. That is based on providing basic services to those people that cannot afford them. So the idea of a social system can only come from the perspective of widening the taxable base, increasing the middle class and at the same time promoting, that if somebody is as successful and as intelligent and as genius as Elon Musk, please come to our country.

Trey Lockerbie (46:50):
Fantastic. A lot of people in our audience are looking to invest their own money and I’m curious to know if you have resources that you kind of recommend most to people. I know you’ve also written your own book, so feel free to share some of those as a reference point, but any other resources that you typically recommend?

Daniel LaCalle (47:09):
What I recommend to investors is that if they’re looking to grow their wealth, not to, buy sell, buy sell, buy sell, but to try to increase the assets under management that you have. How do you do that? By having a portfolio in which you have short term bets that you take, and you monitor with very clear catalysts, and then you take them away if you’re wrong or if you have made the return that you expected out of them. Second, by having long term investment that you monitor on [inaudible 00:47:48] basis and that you look to grow with time. And third, which is what people tend not to look at, is to have, what I call goalkeepers. What you need to have in a portfolio, assets that will protect you in a downturn. One of the things that I find is that usually, many people that invest look either at having very aggressive bets in very cyclical names, or very defensive bets in stable assets. You should have both. And you should have both in order to grow that the business that is your wealth.

Daniel LaCalle (48:30):
So my opinion is that you need to have US dollar exposure, you need to have precious metal exposure as defense and that you need to have technology, crypto assets in the more aggressive side of your portfolio, and a number of investments. A little bit of real estate, a little bit of safer, more stable companies, large caps, et cetera. So in general, what I think is that you need to have a very balanced portfolio, and that you have to look at the opportunities that corrections give you to look for the things that you really like. If that is too daunting of a task, which is maybe the case for many of the people that are listening to us, that’s why we have professionals. I don’t go to a dentist knowing what dentists do. Therefore, I think that that’s … you need to look at investing in investment funds with proven track record, good portfolio managers. And look at the opportunities, because every sell off is an opportunity, and every market rally and every record high is also an opportunity.

Trey Lockerbie (49:38):
Fantastic Daniel. Well, before I let you go, I want to give you the opportunity to hand off to our audience where they can learn more about you, find your books, find your podcast, et cetera. Anything else you want to share?

Daniel LaCalle (49:51):
Thank you very much. It’s been a great pleasure. My name is Daniel LaCalle. It’s very easy to find me on Twitter. I have two accounts, so one in Spanish, one in English. It’s @dlacalle_IA if you speak English. You have my books available at Amazon or at any book seller. Freedom or Equality is the latest one. But Escape From The Central Bank Trap is very much about what we’ve been talking about today, which was the previous one. There’s one about the financial world. You also have my website, dlacalle.com. It’s both in English and Spanish. And you also, it’s not difficult to find me actually. If anyone that’s listening finds it hard to find me it’s because they haven’t looked enough.

Trey Lockerbie (50:40):
Well, I really enjoyed this discussion and I would love to have you back on the show and continue to monitor all these developments as they occur. So let’s do it again sometime soon, and hopefully sooner than later.

Daniel LaCalle (50:52):
I wish everybody a very, very good 2022, and that all of these problems that we’re living today are at least eased significantly. Thank you so much, it’s been a true pleasure.

Trey Lockerbie (51:06):
Alright everybody, that’s all we had for you this time. Daniel and I originally connected on Twitter so if you want to get a hold of me, do the same. Find me @treylockerbie. And one resource you need to check out, if you haven’t already done so, is the TIP finance tool. Google TIP finance and find the world of amazing resources we’ve built for you there. And with that, we will see you again next time.

Outro (51:25):
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