A New Lens on Market Dynamics

Published on
June 20th, 2017
67 minutes

A New Lens on Market Dynamics

Presentations ·
Featuring Daniel Want

Published on: June 20th, 2017 • Duration: 67 minutes

Daniel Want from Prerequisite Capital presents a different way of looking at the macro world and a new perspective on excess liquidity, which you won’t find in any textbook. Building a framework of what’s driving the gold price, based on excess liquidity conditions of the US dollar system, he unlocks signals on equity market valuations and a sense of the breakdown in self reinforcing structures and major market shifts. Filmed on May 16, 2017, in Sydney.


  • ML
    Malcolm L.
    10 July 2017 @ 01:13
    Properly edited that could have been half as long. If it were WRITTEN instead of spoken I could probably have got through it in 15 minutes. As a new subscriber I'm starting to think I just don't have
  • JH
    John H.
    3 July 2017 @ 07:19
    Daniel, thanks for your time in this insightful presentation. Your clarity in articulating complex topics is exceptional. Please could you expand a little on the first principles reasons why excess liquidity compresses P/E multiples? I'm certain there is more to your thinking than made the final clip, but in the presentation you suggest that it's a compression of the value of $1USD (using gold's yardstick analogy). It's this reasoning I'm struggling to reconcile, as in the P/E example, you have USD in both the numerator and the denominator, such that if the value of $1USD of corporate earnings 'fell', the value of your unit of measure falls as well. In addition, given the geographically diversified nature of the S&P 500's earnings, it strikes me that $1USD of S&P earnings is actually some composite basket of global FX. This would mean that in an excess liquidity situation, using your yardstick analogy, P/E multiples should behave more like the gold price rather than its inverse, because the value of 1 unit of S&P earnings would rise relative to the price, which is 100% USD. With respect to your gold price vs. P/E multiples relationship, could it not be argued that you are simply representing some other driver of relative capital flows into stocks vs. gold? Going back to your framework for excess/deficient liquidity, excess liquidity occurs when we change states towards some combination of i) lower global economic activity (demand), ii) lower expectations of US real rates, and iii) higher money supply (also, in more recent years, associated with lower expectations of economic activity), which I will over simplify by describing as a state of US/global recession. It seems to me that 'US recession = gold price up and P/E multiples down' is as easily described by more traditional theories of asset pricing and capital flows (simplified to 'risk on / risk off' type behavior), than a theory that excess liquidity is diminishing the value of $1USD of corporate earnings in USD terms? Would love to get your thoughts, and many thanks again for your contributions to this platform.
    • DW
      Daniel W. | Contributor
      4 July 2017 @ 22:25
      John, great questions – but I am not sure how I’d even begin to address them all to the degree required in this comments forum (with a word count limit of say 300-400 words)? I’ve done my best to describe the framework’s perspective in this hour-long presentation, some of your questions are getting into areas that would require us to have discussions on a broader array of topics and at deeper levels than what I raised in this presentation though – probably would require another 1-2hr presentation to more fully deepen/build out the paradigm in a way that would clarify the different things that I think you are asking? I struggle quite a bit sometimes in knowing where the boundary line is to providing ‘too much’ information vs trying to communicate an essential understanding of things in a way that will be absorbed and useful to the majority of the target audience - this presentation was particularly difficult for me to figure out in this regard... I also struggle to know exactly who it is I’m addressing with the Real Vision audience generally as it seems to me that the RV audience is broadening out a lot more over the years as RV is becoming more successful & well-known – so a wide spectrum of both sophisticated/experienced viewers and viewers that are newer to the field makes it tricky to position a presentation properly such that the majority will find value. Please accept my apologies for not being able to provide a suitable response to your questions here.
    • JH
      John H.
      5 July 2017 @ 12:39
      Not to worry, appreciate it's very challenging to articulate, in any forum, let alone 400 written words, in particular given its complexity, and the adaptive nature means describing inter-dependencies in one state might not perfectly explain the system in another state. Look forward to your next presentation.
    • DW
      Daniel W. | Contributor
      5 July 2017 @ 22:41
      John - send me an email via my website (www.prerequisite.com.au) and we'll do a phone call sometime if you like
  • MT
    Mark T.
    30 June 2017 @ 03:29
    Great presentation. I would like to see all the "but that's another subject for another day" actually produced! Plenty of subject matter and great content for future RealVision publication.
  • MT
    Mark T.
    30 June 2017 @ 03:26
    All presentations and presenters should correctly use the terms "inflection point" and "turning point" / maxima minima. It is tiring having to reinterpret the modern vernacular to mathematically correct expression. Realvision should spearhead this initiative. If you don't know what the hell I'm talking about - Google it.
  • GR
    Gregory R.
    29 June 2017 @ 21:03
    Daniel: A note of caution on metrics. Stock buybacks have suppressed current P/E’s by dramatically elevating D/E’s (Debt/Equity). Corps have altered their financial position with higher debt to create the appearance of greater value through lower P/E’s. Today’s debt leveraged P/E’s aren’t comparable with P/E’s from the past. Let’s leave dollar value and inflation for another day.
  • pw
    pontus w.
    21 June 2017 @ 13:13
    So if earnings or multiples go up or there is excess liquidity markets go up. Mindblowing
    • CY
      C Y.
      21 June 2017 @ 13:19
      thats not at all what he said.
    • pw
      pontus w.
      29 June 2017 @ 10:21
      I believe that was the framework, as per slide 10 in the pres. ignoring such things as discount rates and risk premia although that is baked into the P/E multiple. Thea Causality is also not well covered. are P/E multiples a driver of equities as per the "framework" or the other way around? I guess this is all on a "first principles basis" but still.. My point is this presentation is trying hard to sound much smarter than the very simple arguments underlying it.
  • EF
    Eric F.
    29 June 2017 @ 05:40
    Hi Daniel, Thanks for the presentation. I've noticed recently that the DXY dollar index has been falling, and gold had not really rallied at all in the last quarter in dollar terms. Is this too short of a time frame for your framework? Or is the DXY not a good indication of US dollar excess liquidity?
    • DW
      Daniel W. | Contributor
      29 June 2017 @ 06:19
      This framework is best suited to a multi year timeframe, I have other approaches for a more granular/shorter time horizon (none of which suggest to me at the moment that the broader thesis I outlined in the presentation is really being threatened at all). Always worth monitoring though as it unfolds
  • RC
    Ryan C.
    26 June 2017 @ 15:24
    Thanks Daniel, really enjoyed the presentation and the humility you showed to very complex situations. My takeaway of your theory was 1. Fed have ruined the elastic supply of money i.e. nolonger does money supply = economic activity. 2. when supply of money > demand you will see excess liquidity. 3. A good proxy for excess liquidity is measuring local FX relative to Gold (due to inelastic supply of gold). 4. Excess liquidity moves into financial assets as not enough economic demand for money. 5. The yield on financial assets therefore fall i.e. expanded P/E multiple. 6. Potential catalyst for reversal is Fed balance sheet reduction. Let me know if my simplification has resulted in a mistaken understanding of your overall thesis.
    • DW
      Daniel W. | Contributor
      28 June 2017 @ 00:05
      Thanks Ryan. With your takeaways, my basic comments if I understand you correctly would be these... 1. I would be very slow at making the assertion that the Fed alone was responsible for creating the situation we have at hand, there's a lot more at play here than just what the Fed have done/are doing - but this is a more expansive presentation in its own right unfortunately. 2. Yes. 3. Yes. I am not sure about '4' and '5' as it is actually a 'deficiency' situation where demand for USD liquidity is greater than effective supply which on a multi-year basis has caused gold to fall and PEs to rise (i.e. yields to fall), its the value of $1USD in earnings (or yield) that is rising in this instance due to the deficiency of liquidity (i.e. the opposite of an 'excess' liquidity situation). 6. I think that the Fed's balance sheet at the moment is only one smaller part of a bigger picture that is affecting these dynamics, so I would be very hesitant to try to assume the Fed reversal of balance sheet might be a/the catalyst for a shift. Hope this helps.
  • SW
    Scott W.
    26 June 2017 @ 15:01
    This was a solid and welcome addition to the normal RV fare. I enjoy trade opinions as much as the next guy, but the occasional "here's how the system works as I see it and model it" nicely complements.
  • GB
    Grant B.
    20 June 2017 @ 15:34
    What happened to the 5 minute summaries?
    • ww
      will w.
      26 June 2017 @ 14:35
      the first few pages of each transcript provide 'highlights' of that presentation. While not necessarily a complete summary, you may find those highlights useful, as I do.
  • HJ
    Harry J.
    20 June 2017 @ 14:24
    Not a complete waste of time but close
    • DM
      Daniel M.
      20 June 2017 @ 16:44
      Man does he every say a lot of words with very little meaning. This guy needs to learn the concept of 'economy of words'. I don't know why they keep bringing this guy back. He doesn't share his process (one that he partly stole off Michael Oliver of MSA). It doesn't bother me that he swiped Michael Oliver's stuff, or that his process is proprietary. What bothers me is that he keeps coming on RealVision to 'teach' without giving anything of real value.
    • TS
      Tyler S.
      20 June 2017 @ 17:22
      your insane mate, if you didnt pull a massive amount from this then you need reevaluate being an investor.
    • MM
      Michael M.
      20 June 2017 @ 18:11
      He went into a fair bit of detail into his process in his last contribution here.
    • EK
      Emil K.
      20 June 2017 @ 20:03
      In the May 25, 2017 video Daniel W. explicitly references Michael Oliver of MSA, recommends him, and acknowledges the "fantastic job" M. Oliver and MSA does. In that same presentation Daniel W. explicitly states he won't share his process at this time because he has clients who pay him to do this but that he absolutely intends to share his work in the future. (What a difference between "M" and "W".)
    • ww
      will w.
      26 June 2017 @ 14:29
      Where else could you possibly get such deep insights into the "plumbing" of the supremely contorted financial markets/ systems that we find ourselves dealing with? Among the multitude of 'Aha' moments I get from RV presenters, the greatest of these revelations have come from (in alphabetic-order) Michael Green, Jeff Snider, and Danial Want. And even the (partial) overlap between these three brilliant minds is VERY helpful - it provides a form of triangulation that substantially deepens my primitive understanding.
  • DG
    Daan G.
    24 June 2017 @ 12:54
    Fascinating take, Daniel! Thanks for sharing! Really helps to better understand the paradoxical market conditions in our current day and age. Two questions, if you would be so kind. 1. Is it possible to fit housing into this model, or would that require other variabels? My initial idea would be that housing, contrary to equities, would be (much more) adversely affected by global/dollar liquidity shortage as a result of banking system problems if the current trend continues. 2. If liquidity conditions strongly deteriorate, do you expect a divergence between (a) highly-levered and less-levered equities and (b) cyclical and non-cyclical stocks. If so, what sectors would you be looking to buy at what point?
    • DW
      Daniel W. | Contributor
      24 June 2017 @ 22:48
      Hi Daan, in my view, for housing the dynamics I describe in this presentation would merely be quite a distant secondary/tertiary influence as compared to the more primary dynamics surrounding housing related credit flows and income related issues, so I think if you focused on these things (rather than excess liquidity type things) you'd probably end up with better conclusions in a housing related analysis, having said this however, one of the things you'd need to consider re: housing from a global perspective is the capital flow issues that might directly find its way into property, but I still don't really see this in most instances as 'primary' as such. Regarding equities, I'd prefer to be a little slow to draw generalized conclusions about particular sectors etc - lots of weird things are happening (especially with the manifestation of system dynamics into the short volatility regimes in the background). My preference, especially given the limited scope of these comments boxes, would be just to observe that the dysfunctional global USD liquidity environment is causing a 'rising tide' type dynamic in equities generally through a PE type channel, but when it comes to equity sectors, depending on the sector, that's a bigger discussion for another day, I can't think of any generalized dynamics pertaining to particular sectors that I can really concisely talk about here sorry.
  • PR
    Peter R.
    23 June 2017 @ 13:05
    Daniel, As usual, thought provoking presentation. Also, I think we all appreciate your willingness to engage with the viewers in the comments. Many people would argue (I am not convinced myself) that Bitcoin has similar characteristics to gold (fixed quantity, stable/predictable growth, etc.). If that were the case, would it likely be that this USD system excess liquidity framework would be effective for "predicting" the major trends in Bitcoin? The obvious problem with that line of thinking would be that we are currently in a USD Liquidity deficiency situation and yet Bitcoin is appreciating meaningfully, the implication is that it doesn't really share the flood gage characteristics of gold. Do you have any thoughts? Thanks!
    • DW
      Daniel W. | Contributor
      24 June 2017 @ 06:06
      Hi Peter, at a circa $100b market cap I think cryptocurrencies etc are just too early on in their lifecycle for an excess liquidity framework as I've described in this presentation to be relevant - maybe well into the future it might be different? Gold by contrast, although it has a market cap of only $7-8t which is still pretty small relative to other markets out there, is a highly matured market/commodity/currency and so from a lifecycle/ecological perspective it is 'stable' and its dynamics are more fully established and absorbed within the broader system, gold is therefore relevant I think to the excess liquidity style framework whether it be against the USD or whatever comes after it in an effective 'reserve' capacity. I look at Bitcoin still kind of like I would a high risk 'frontier' market with quite a lot potentially going for it, with many of the underlying swings still catalysed by capital flight dynamics happening in different parts of the world at different times, and with regards to the broader financial/ecological system its a part of, crypto currencies although having come a long way are style almost embryonic in some regards, for example they have yet to be fully tested and embraced/rejected/altered by governments/policy makers around the world, which will be a major milestone in the future with a significant amount for risk attached to it depending on the jurisdictions in question but will probably not happen until the market cap of cryptocurrencies becomes more meaningful (i.e. much larger). Anyway, this gives you an idea of how I am looking at it at the moment for what it's worth.
  • MP
    Mark P.
    24 June 2017 @ 01:13
    I like Daniel and am grateful to RV for introducing him to me.
  • LC
    Liliana C.
    23 June 2017 @ 07:41
    Thanks Daniel, this was mind expanding indeed. I really appreciate your framework that leads to a fascinating conclusion. Interestingly, another presenter, Armstrong, reached a similar conclusion regarding a US equity bull market, though he didon't present any real framework. Thank you once again!
  • RC
    Richard C.
    22 June 2017 @ 16:41
    Powerful content that makes us think - thank you Daniel and RV. One question - in the upper chart on page 9 of the slide deck their is a graph of 'Equities to Gold Ratio' (running in tandem with the Shiller CAPE ratio) ..... this is the inverted ratio of the Gold price (presumably represented by the 'gold' line in the chart below) to ???
    • DW
      Daniel W. | Contributor
      22 June 2017 @ 23:01
      The upper panel of the chart on page 9 shows the CAPE ratio (green line, log scale to the right), and in black is the S&P500/Gold ratio also on a log scale (values range between 0.1 in 1980 to a high of about 5.6 in 2000) on the left axis - apologies for not showing the left axis scale on that top panel, not sure how I managed to do that.
    • js
      jacob s.
      23 June 2017 @ 01:37
      This is why real vision is the best.
  • VP
    Vincent P.
    23 June 2017 @ 01:29
    Awesome presentation. So keep buying stocks get longer USD, sell gold and wait. Just kidding. Nice job!
  • DS
    David S.
    21 June 2017 @ 04:32
    Lots of hard work and thinking. As you said this is just one filter. Another possible reason for the current high P/E ratios reflects a whole lot of baby boomers piling savings in ETFs before they retire - in the hope that the market will continue to go up forever. Add the robots who accentuate any trend and we keep going higher and higher. Bear markets may have been tamed somewhat by hedging with ETFs – therefore mitigating less forced liquidations. Very simplistic, but possibly part of the story. DLS
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 08:05
      Yes, absolutely, this is just one example of a framework I look at equities with to try to understand what the underlying realities are likely to be. Another way of looking at it is most definitely through the lens of demographics and flows related to these dynamics. This is a key point - when you look at reality through multiple different perspectives (that are reasonably robust in themselves), and start to 'glimpse' similar underlying realities, then this helps to build conviction that you are indeed grasping the underlying dynamics properly. So a 'confluence' of insight approach I find helps me in trying to navigate markets, but it is key that the ways in which you try to 'glimpse' the underlying realities are reasonably robust and able to be somewhat objectively able to be stated/defined (to minimise bias etc). You also have to be aware of the 'time horizons' your insight methodologies are useful to, otherwise it's hard to reconcile it all in a coherent manner. Like I say, you're not after perfect tools, just 'useful'.
    • DS
      David S.
      21 June 2017 @ 08:35
      Well said. Since you will be watching the markets from many points of view, I hope you will succeed in seeing the breakdown earlier and avoid the correction. I just hold 50% cash and wait. I only invest my money and actually can live my simple life without capital appreciation. DLS
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 09:33
      Funny thing is, 'simple' is the most powerful thing there is. Just got to make sure it's not 'simplistic'. I try to keep things simple, especially in portfolio management, but I try to understand things deeply, in order that I may arrive back at simple. Looking at things from many points of view is part of the process of trying to understand things more deeply, but bringing it back to practical decision making and producing results requires taking very simple things very seriously. You will find that it's hard to understand anything deeply until you've arrived at the simple principles that drive its behaviour. I often tell people about the conservative portfolio mandates that I run is that about 70% of the returns are from basic diversification and a simple longer-term (multi-year) trend following philosophy, maybe 30% of the returns are driven as a result of trying to understand the world deeply.
    • DS
      David S.
      23 June 2017 @ 01:03
      You are correct that normally when you understand something deeply and can state the case in a straight forward manner, you are there - for the moment. I try to understand Aristotle, Kant and Schopenhauer in this manner. Markets, however, are the resultant of a thousand factors; many of which are not rational and many are always unknown. You are doing a great job as shown by your results, but when crossing the street look left, right and left again. DLS
  • MV
    Mark V.
    22 June 2017 @ 00:12
    I was just wondering whether the Fed's planned reduction in its balance sheet will reduce available collateral to such an extent to overwhelm any PE expansion for equities.
    • DW
      Daniel W. | Contributor
      22 June 2017 @ 23:34
      If the Fed does actually materially reduce its balance sheet, it actually is making more collateral available to be used in the system, the effect on collateral 'values' however is debatable and depends upon the context in which it happens. When it comes to equity prices however, at least according to the earnings/PE/collateral framework put forward in this presentation, the biggest threat to collateral I think is a broader increase in the non-performing loan & asset impairment cycle (of which I suspect has quite a way to go yet before it's done) - at its worst, this could really threaten to overwhelm any further PE expansion. My suspicion is that we are a year or two away yet from a peak in this non-performing loan cycle, but not sure, definitely need to monitor these things to see how their magnitudes interact with other drivers.
  • BR
    Ben R.
    22 June 2017 @ 07:16
    Normally i would not comment but after reading the comments I feel the need to show my support. Thank you Daniel for the work you put into explaining your thought process. I find it invaluable.
  • lD
    lance D.
    20 June 2017 @ 15:03
    Again this is a sweet presentation thank you however I'm a Plumber trying to learn the art of investing ... tell me would i be on the right track to creating this "Excess USD System Liquidity" line if i were to down load data for the say- US Cbbs and also add M2 would this give me a USD System Liquidity chart on my excel spread sheet ? If i am totally off track please point me in the right direction with which data i need to source maybe a link to the raw data would be greatly appreciated . Thanks .
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 07:54
      If you are unable to commit to the investment field of endeavour on a full-time basis, but are looking to learn about investing generally, I’d suggest you avoid the intricacies of liquidity type analysis, it requires too much background info that might not necessarily appeal to your time constraints? Unfortunately there’s no easy way to learn this stuff – most of what I’ve learned is from running down rabbit holes, reading LOTS of books and then playing with data to test concepts and getting some real-world trading/investing experience (which usually means/involves losing a bunch of money in the early years). Having said this, not really knowing where you are starting out at in terms of experience or knowledge of the ‘investing’ area --- I am going to assume you’re starting from scratch so apologies if it’s not the case (given that you’re a subscriber to Real Vision then it’s obviously not the case, but this might be helpful anyway)... These are the books/areas I’d consider looking at if you want to learn about investing, trading and markets etc... Reminiscences of a Stock Operator (by Edwin Lefevre) and “How to trade stocks” by Jesse Livermore. Jack Schwager’s entire ‘Market Wizard’ series of books – basically this is a great way to get a sense for what styles of investing appeal to you and your personality etc – lots of interviews in these books of great investors of many different styles etc so a good overview of everything. Learn about Warren Buffett & Charlie Munger’s investment methodology & philosophy. Get Michael Covel’s “Trend Following” book. Read John Percival’s “The Way of the Dollar”. Read Anna Coulling’s “Volume Price Analysis” book. Read Harry Browne’s “The Permanent Portfolio” book. Read anything written by Van Tharp on Risk/Money Management. Get “Trading in the Zone” by Mark Douglas, also “The Psychology of Trading” by Steenbarger might be helpful. That will give you a kind of ‘crash course’ in things. Once you’re through all of that you’ll kind of know where to head from there – it all depends on what you’re interested in and your personality and your time constraints. There’s no easy way to learn the game of investing, it takes lots of time, passion, curiosity, patience, mistakes, etc, etc, but if you keep going you’ll get there, and you’ll have found a way of doing things that suits your unique personality and interests, which is key! Hope this helps. Apologies if this was not what you were after.
    • lD
      lance D.
      21 June 2017 @ 15:35
      Apologies accepted . maybe liquidity analysis is a little further down the road and I would be better of keeping my ear to the ground with all the videos on here . Thanks and be sure to keep coming back to rv. Cheers
    • DW
      Daniel W. | Contributor
      22 June 2017 @ 02:39
      Perhaps if you want to grow in a liquidity perspective, study Prof. Richard Werner's stuff, and also go back through a lot of Jeffrey Snider's work that's published on his website. Both will give you a broad overview of many things and give you a good start into the field.
  • BB
    Bill B.
    21 June 2017 @ 16:47
    I like this type of video. Detailed professor type lectures explaining concepts, terminology, and frameworks. As someone who spent my life as an electronics technician and computer programmer I find a lot of the content on Real Vision to be impossible to grok. So if you guys keep trying to explain things to me, I might eventually start to understand a little bit.
  • MP
    Michael P.
    21 June 2017 @ 16:41
    Really broken down well. Felt like I was back in college and this was a professor teaching a class. Very interesting and informative. Enjoyed his insight.
  • RP
    Robert P.
    21 June 2017 @ 15:18
    Outstanding and thought-provoking presentation. Will watch again to solidify understanding. Thank you, Daniel.
  • GT
    Graham T.
    21 June 2017 @ 14:51
    Never heard of the bloke before but the presentation was RV personified. Outstanding.
  • TB
    Tim B.
    21 June 2017 @ 13:57
    I feel like this presentation contains a lot of content that would be very useful for beginning investors. If/when RV ever starts producing content for younger/mainstream investors, chunks of this kind of content would be instructive. Of course, some of the content goes beyond that. Thanks Daniel for making the presentation.
  • TS
    Thomas S.
    21 June 2017 @ 13:34
    What you've described is a dystopian macroeconomic environment where paradoxes become normalized. The forces that have been driving the social environment toward insanity have are now also succeeding in the financial environment. I understand that we are all here to allocate capital within the conditional framework supplied. But it is also incumbent upon us as thought leaders to voice dissent to this madness. Centrally planned culture and financial markets will lead to nothing less than the ultimate collapse of civil society.
  • CY
    C Y.
    21 June 2017 @ 13:18
    in economics it is really, really difficult to come up with original ideas. The first time I watched this guy I knew he had some original ideas. Presentation was a little long but I think that was probably necessary to build the framework. Amazing content but uncomfortable conclusion....internal groan - prepare ye for PE 45.
  • CH
    Calvin H.
    21 June 2017 @ 01:08
    This is one of the most painful videos to watch. Way to long and not discussing the main driver of the equity market is the FeD and TINA and BTFD !? Gold is keeping pace in spite of the technical m
    • CY
      C Y.
      21 June 2017 @ 12:59
      spoken like a true gold bug
  • JL
    J L.
    21 June 2017 @ 10:36
    Nice follow up on the P/E to gold chart that left a goldbug like myself rolling his eyes last time... One question I have is how likely do you think it is for the US stock market to remain flat for a while? Seems to me that would require earnings to offset P/E expansion which feels inherently unstable and not something that would hold for long. Reason I'm asking is because I've been buying a decent amount of SnP calls on a rolling basis, always trying to minimize the capital I hold through ETFs in this algo and leverage plagued world. I believe you don't use any options or derivatives at all, is that because of moral reasons or just keeping it simple strategically? Thanks again and looking forward to further presentations!
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 11:33
      The mandates I currently run for clients are very much capital-preservation focused with a high degree of resiliency throughout any/all conditions required (whilst compounding returns are a respectable rate well above the higher of interest rates or inflation), as a result we do keep things simple, trying to stick to only highly-liquid, big boring securities that clients can convert to cash even amidst more trying market conditions. We also use an SMA (Separately Managed Account) structure that is transparent for clients wherein they can directly see and own the securities themselves, we also construct them in a way that helps us keep the minimum investment low, in amongst other considerations, we keep it simple and use no derivatives, no leverage and no short-selling etc, just long only dynamic asset allocation --- our aim is that our clients will have their purchasing power in tact when the inevitable recession or crisis rolls around every 7-10 years and in the meantime being able to conservatively compound returns beyond interest rates or inflation in a conservative way. In a year or two we will be launching a more aggressive mandate that basically will be a hedge fund, targeting a higher risk/higher return profile than our existing mandates - in this strategy we'll be using exchange traded options and futures (avoiding the OTC world which largely is just a big bucket shop), so I'm not necessarily morally against derivatives, I just think primarily in the OTC world they've been misused and over-used. In terms of whether the US equity market is likely to remain flat, I'm not sure sorry. Our near-term thesis (say next 1-9mths) is the risks are elevated for a substantial correction in equities, thereafter it's likely that people are going to be surprised at the resiliency of this multi-year uptrend in stocks, albeit driven by some fairly dysfunctional globalised dynamics as explained in this presentation (kind of a wrong-reasons bull market we've been referring to it as)... at least this is the primary thesis, we will monitor information flows and market behaviour to see if it is confirmed or whether the broader system is adapting in some way I previously didn't appreciate etc. Hope this helps.
  • VK
    Viresh K.
    21 June 2017 @ 09:54
    Great presentation, Daniel. I think a lot of what is being discussed here is clearly multi-faceted, so this framework should be used in conjunction with other things. As always, you did a great job of walking us through your framework in a clear and concise manner. Thanks.
  • JV
    Jason V.
    21 June 2017 @ 08:11
    Thank you , Daniel. Extremely interesting, and a depth of information that requires a good deal of reflection and careful thought to fully appreciate. Your thoughts on the near and mid-term direction of the gold price and its drivers are very much in line with Dr Lacy Hunt, whom I consider perhaps the foremost economist in the 'public domain'. In fact, the more I listen to your work, the more I sense a thread of genius running in that grey matter of yours. Again, thank you for sharing your considerable learning and your excellent distillation of that knowledge, and I eagerly look forward to your future discussions here on RVTV.
  • RI
    R I.
    20 June 2017 @ 13:04
    Daniel - could you please speak to the potential for the USD and GLD price to increase together? This of course is a thematic trade idea proposed by several market speculators on RV over the past year or so. Thanks.
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 08:00
      I actually was asked this question in the comments of a previous RV interview, here was my reply, it still basically sums up my view------ For what it's worth, I loosely see the inverse correlation between gold and the USD being maintained in the years to come. At some point the USD will materially loose its reserve currency status and the 'excess liquidity' framework will need to expand to become less USD centric (I already run such a model, and on an underlying trend basis, problems in non-USD liquidity are still causing flows to the USD rather than gold, this is always worth monitoring but in my view it's still too early to be expecting the inverse correlation between gold and USD to be breaking down yet on a sustained basis. But will see)
  • PU
    Peter U.
    20 June 2017 @ 12:52
    He doesn't have to dumb this down so much. We are a sophisticated audience.
    • OT
      O T.
      20 June 2017 @ 13:41
      I agree with Peter, this presentation could have taken 20-30 minutes.
    • dd
      darrell d.
      20 June 2017 @ 15:47
      Good walk through ...
    • PR
      Paolo R.
      21 June 2017 @ 00:23
      I think he did a great job..
    • Rd
      Robin d.
      21 June 2017 @ 07:37
      I found it very interesting and a great way for setting up the framework. Thanks Daniel.
  • MH
    Marco H.
    20 June 2017 @ 15:31
    Another much appreciated presentation. To me it felt like the conclusion is against Daniel's believe of a sound market (lower PE, yet increasing stock market) . For that reason he went very cautious explaining his logic. I like is approach very much, especially with the graphs supporting his thesis.
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 07:26
      You are right - I am a little frustrated/cautious with the conclusion because ultimately it derives from things that are not akin to a sound functioning of markets... when you impede the natural functioning of markets, more often than not bad things tend to happen. We are in a world of all sorts of crazy policies and experiments - and when you try to tinker with a complex system you are likely to have adaptive and emergent responses that are not always 'sound' or necessarily desirable in the longer-run, in markets, this can translate to some quite paradoxical situations. I felt I needed to unfold the presentation cautiously in a 'precept upon precept' type format because I've found with most people this was the only way to do it, so they too could see some of the odd and somewhat counterintuitive dynamics at play in a way that kind of made sense.
  • MM
    Marc M.
    20 June 2017 @ 19:05
    Hi Daniel, have you ever thought about the idea that the velocity of money is constant? Everyone looks at velocity through the wrong lens I think. Velocity declines because money is created for purposes that don't directly affect the real economy (like to buy financial assets). This implies the money supply increases but the economy doesn't, this is reflected in a decreasing velocity of money. Prof. Richard Werner proved that when we divide the money supply growth into two parts, one that is used for productive purposes and another that is used for unproductive purposes, that the velocity is constant as was stated by Fisher. I am really interested in how you measure velocity since people who simply measure it by dividing money growth with economic growth are fooling themselves. (Just my humble opinion but please read the work of Richard Werner) This would imply that the monetarists who thought the velocity of money was constant weren't wrong, they just did not know how to measure it correctly. We can also now explain why the money supply can grow without stimulating the economy, something the monetarists couldn't and why they were discredited.
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 07:20
      Hi Joeri, I like the way you are looking at these things, but wow, that’s a pretty big topic of discussion. I think Prof. Werner's work is fantastic, in fact I've been keeping an eye on his work for the better part of the last 17 years. Trying to define velocity (beyond the conventional stuff around GDP/M2 etc) I find actually gets pretty complicated fairly quickly, and is highly dependent upon the context in which you're trying to refer to a ‘velocity’ concept, and the analytical target for which you’re trying to extract insight for. In my case, most of my studies of banking systems, capital flows and liquidity etc is with a more practical target of tying dynamics back to asset and currency markets/pricing, and so I’ve found I’ve had to develop a more nuanced approach to analysing these things than if I were to just try and target the understanding of say a business activity cycle. For me ‘velocity’ is a very blunt and poor term unfortunately. Velocity is a multi-faceted concept, I find there are many subcategories/relatives to this general concept that will vary depending on your context and analytical target (your measurement approach will similarly vary depending on the context and analytical target)... in different contexts we could be referring to what is effectively a currency elasticity phenomenon wherein we're trying to figure out whether the money/liquidity units are adequately matching economic activity with the perceived gap being loosely reconciled with a ‘velocity’ or demand concept, we have a similar 'productivity' of money/liquidity concept, we have a category that's more akin to a 'circulation' type of concept, and then we have more a nuanced more specifically behavioural money 'demand' type of category --- all the same/similar, but different, depending on the context. In some contexts, yes, I’d argue that an assumption of velocity being ‘constant’ is indeed valid – but depends on what you’re trying to analyse and derive insight into? Apologies if this is not the response you’re looking for, but these are some of the observations I’ve had in trying to analyse different things over the years, and in the process being confronted with ‘velocity’ type possibilities... I don’t necessarily hold the answers, but for me I’ve found ways of understanding things that make sense to me and empower me to make better decisions in markets from time to time. Generally speaking, if you’re reading Prof. Werner and applying his concepts, I think that will definitely keep you ahead of the crowd.
  • GS
    Gordon S.
    20 June 2017 @ 20:24
    Thank you for your humble presentation and insight into your thought process. I personally find it very valuable! Concerning gold, I was wondering how you approach its inherent leverage, i.e. paper vs physical gold? Wouldn’t that also play a major role in its price? It also seems to me that the gold price is highly manipulated in genreal (proven from banks / “conspiracy” from central banks?). In that respect I’m still surprised to see that many apparent correlations… Anyways, I would also very much enjoy a “can o’ worms series”, as suggested by Michael M.!
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 06:47
      Hi Gordon, glad you found it interesting. Obviously there are many things that affect the price of any given market, the hardest thing in my view is trying to assign magnitudes of importance to the differing (and sometimes contradictory) possible drivers or influencers... trying to distinguish the material drivers from the less so is one of our main tasks as investors and analysts. The framework I outlined in this presentation is one of the perspectives I use to try to measure and gauge some of the different drivers of the gold price that my studies have found to exert a material influence - but there's never a perfect framework or toolset, but still doesn't mean you can't find/evolve 'useful' ones. In trying to gauge some of the influences I think you're referring to, I try to get a sense for how different market participants who would have different motives and information might be behaving - and by trying to get a sense for their actions (driven by their motives and perceptions/incentives) I try to then gauge when certain underlying factors may be issues or not... but this isn't an easy discussion for a comments box - my last presentation on RV discussed a little of how I try to review certain participants (Speculative and Patient money groups), but in addition to the two groups I profiled in that discussion I also typically try to get a sense for the progression of a longer-term more 'retail' crowd of participants, and also a longer-term more professional 'structural' crowd of participants (which in the case of gold would also include certain bank/CB related actors among others)... between these different groups of participants, all sorts of information is discounted into their behaviours, and so I kind of hope to cast a wide net to being able to focus on a few things that hopefully include many other things. Not sure this is really helpful, but it's kind of some of the things that come up for me in terms of trying to respond to your question - essentially, I try to focus on certain core things, that hopefully sum up many things that I could not possibly hope to well-analyse in detail (this presentation and my last RV presentation are examples of how I attempt this, or at least aspects of it, particularly pertaining to gold).
  • RM
    R M.
    21 June 2017 @ 02:06
    So, if i got this right, net net, as long as international demand for dollars stays high, gold prices will stay soft and p/e 's will continue to expand despite faiiling earnings. If so Dan, plz what are the first signals we should be looking for when demand for dollars lessens? How to make this tradable? Very interesting, thanks.
    • DW
      Daniel W. | Contributor
      21 June 2017 @ 06:23
      Unfortunately its hard to list a few simple things to look for as there's quite a few moving parts both on the demand and supply sides of USD liquidity. However, if we step back we can see around the world that stresses are continuing to build within banking systems, particularly in the Eurozone and China, with other banking systems more indirectly exposed to imbalances and latent risks, so on the other side of 'peak stress' (i.e. probably when it more visibly manifests into crises of different forms) you would begin to expect the tide to shift on the USD and Gold (all else being equal)... another way of looking at it is that we are still in a more broadly-defined asset impairment (& non performing loan) cycle globally that has yet to peak, which still could be a couple of years off yet. Alternatively, the FX markets could get ahead of themselves and we see a further strengthening of the USD that gets to the point wherein it is a heightened political issue, and policy turns decisively (with an element of desperation) towards targeting a weaker dollar. Within our research we track all sorts of things in terms of monitoring the different dynamics that we believe are at play, but unfortunately this is subscription-based. We probably may from time to time update some of our broader views around demand for USDs in our Quarterly Client Letters that we publish publicly, so you can freely follow these? As another freely available source to monitor aspects of global USD demand issues, I would highly recommend you follow the articles/research that Jeffrey Snider (Alhambra Investments) publishes on a frequent basis - his work is first class. Hope this helps
  • KK
    Kevin K.
    21 June 2017 @ 05:35
    Would it be possible to supply the charts from the presentation? Thanks.
    • KK
      Kevin K.
      21 June 2017 @ 05:42
      Nvm. Just saw the link.
  • MF
    Martin F.
    21 June 2017 @ 04:48
    Hello Daniel As always an amazing insight in your work and your process. Thx mate, you perfectly translated your earlier framework driven presentations into practical work and decision taking. Hope to see you soon on RV again. M.F.
  • us
    ujjwal s.
    21 June 2017 @ 02:51
    Love if viewers can recommend good site, books or more information that goes with this add to this great presentation.
  • NS
    Nic S.
    21 June 2017 @ 02:51
    Neat idea but presented apolegically which made it hard to watch
  • CH
    Calvin H.
    21 June 2017 @ 01:09
    Mumbo jumbo....gold price is an inverse relation to the confidence in central banksters...JGrant esquire
  • PR
    Paolo R.
    21 June 2017 @ 00:25
    Totally Agree
  • EK
    Emil K.
    20 June 2017 @ 22:05
    Hey, how about we focus more on the content from this point of the thread forward? Daniel makes quite a fascinating observation at the end of this video that I haven't heard elsewhere. Multiple expansion in the face of contracting profitability followed up by multiple contraction in spite of expanding profitability on the other side of this slow-burning crisis. I have heard the first half of this paradox elsewhere (someone compared it to US equity and commodity markets that boomed during the 1930s in the midst of a global great depression) but I haven't yet heard the second half. The post-crisis net contraction in the stock market despite expanding profitability. Love it. So hard to generate a new idea on Real Vision but there it is.
  • AB
    AJ B.
    20 June 2017 @ 19:30
    This presentation can be shorten quite a bit. You do not have to explain the dynamics of supply and demand, or the uses of gold. You do not need to teach the Real Vision community. You simply need to present your idea.
    • SC
      Sean C.
      20 June 2017 @ 22:00
      You can skip to the chapters that you find most interesting. That function allows for professional investors to pick and choose while allowing the novice investors to absorb all the information they need.
  • DG
    Dave G.
    20 June 2017 @ 21:51
    Sorry, that was a comment by accident.
  • DG
    Dave G.
    20 June 2017 @ 21:50
  • CH
    Crag H.
    20 June 2017 @ 20:41
    Great vid and kudos to Daniel for trying to explain these dark matters to such a wide audience with (most likely) widely different skill sets. If some of the more "advanced" viewers didn't like it, then perhaps RV should consider adding a tag that indicate the complexity level of the content (novice/intermediate/advanced for instance). I'd personally love to have more of these lecture type series where different macro concepts are explained for those of us that aren't full-time investors and need a bit of extra help to get up to speed (the trading series with Peter Brandt and Dave Floyd are a great examples). Thanks Daniel and thanks RV for another great addition!
  • PS
    PD S.
    20 June 2017 @ 19:20
    a very interesting academic and theoretical discussion but nothing useful here in terms of trade ideas or idea generation...
    • AS
      Alex S.
      20 June 2017 @ 20:33
      for you*
  • RM
    Richard M.
    20 June 2017 @ 20:16
    Daniel, fantastic presentation as usual! I really enjoy how in depth you go with your analysis and really appreciate you taking the time to give us your thoughts. Please do not let the naysayers in the previous comments dim your views regarding future RVTV presentations. I can assure you the majority of the people here really appreciate your efforts to enlighten us! Many thanks, Rick
  • MM
    Michael M.
    20 June 2017 @ 18:19
    idea for RV series - 'The can o' worms with Daniel Want'
  • MM
    Michael M.
    20 June 2017 @ 17:58
    Really disagree with a lot of the negative comments. I'm not a superstar trader (yet), and having a successful investor who can talk in a stream of consciousness way on markets and his view that is intelligible to us plebes is *incredibly* valuable.
  • TS
    Tyler S.
    20 June 2017 @ 17:21
    as always great content! so pretty much I have a few more years to finish digging out the bomb shelter :o)
  • CM
    Carl M.
    20 June 2017 @ 15:38
    Thanks for "dumbing it down"!! Sophistication and ignorance are not mutually exclusive. That's why I'm here...to learn.
  • BB
    Bob B.
    20 June 2017 @ 15:24
    Daniel, Thank you for your time. Your presentation was insightful and provided an interesting concept of how to look at the correlation between Gold, Equities and liquidity.
  • M.
    Milton .. | Founder
    20 June 2017 @ 13:28
    You can download the slides of the presentation by Daniel Want here: https://we.tl/q42jTtDM56
  • LJ
    Lucille J.
    20 June 2017 @ 12:22
    Straight forward explanation - I love this guy