A New Lens on Market Dynamics

Featuring Daniel Want

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.

Published on
20 June, 2017
US Dollar, Gold, Financial System
67 minutes
Asset class
Equities, Currencies, Commodities


  • ML

    Malcolm L.

    10 7 2017 01:13

    0       2

    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 7 2017 07:19

    2       0

    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.

  • MT

    Mark T.

    30 6 2017 03:29

    0       0

    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 6 2017 03:26

    0       0

    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 6 2017 21:03

    1       0

    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.

  • EF

    Eric F.

    29 6 2017 05:40

    1       0

    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?

  • RC

    Ryan C.

    26 6 2017 15:24

    0       0

    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.

  • SW

    Scott W.

    26 6 2017 15:01

    4       0

    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.

  • DG

    Daan G.

    24 6 2017 12:54

    2       0

    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?

  • MP

    Mark P.

    24 6 2017 01:13

    1       0

    I like Daniel and am grateful to RV for introducing him to me.

  • PR

    Peter R.

    23 6 2017 13:05

    3       0


    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?


  • LC

    Liliana C.

    23 6 2017 07:41

    1       0

    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!

  • VP

    Vincent P.

    23 6 2017 01:29

    2       0

    Awesome presentation. So keep buying stocks get longer USD, sell gold and wait. Just kidding. Nice job!

  • RC

    Richard C.

    22 6 2017 16:41

    2       0

    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 ???

  • BR

    Ben R.

    22 6 2017 07:16

    10       1

    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.

  • MV

    Mark V.

    22 6 2017 00:12

    1       0

    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.

  • BB

    Bill B.

    21 6 2017 16:47

    6       1

    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 6 2017 16:41

    4       0

    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 6 2017 15:18

    4       0

    Outstanding and thought-provoking presentation. Will watch again to solidify understanding. Thank you, Daniel.

  • GT

    Graham T.

    21 6 2017 14:51

    2       0

    Never heard of the bloke before but the presentation was RV personified. Outstanding.

  • TB

    Tim B.

    21 6 2017 13:57

    4       0

    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 6 2017 13:34

    3       1

    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 6 2017 13:18

    3       0

    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.

  • pw

    pontus w.

    21 6 2017 13:13

    0       4

    So if earnings or multiples go up or there is excess liquidity markets go up. Mindblowing

  • EF

    E F.

    21 6 2017 10:36

    1       0

    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!

  • VK

    Viresh K.

    21 6 2017 09:54

    3       0

    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 6 2017 08:11

    3       0

    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.

  • KK

    Kevin K.

    21 6 2017 05:35

    0       0

    Would it be possible to supply the charts from the presentation? Thanks.

  • MF

    Martin F.

    21 6 2017 04:48

    2       0

    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.

  • DS

    David S.

    21 6 2017 04:32

    2       0

    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

  • us

    ujjwal s.

    21 6 2017 02:51

    2       0

    Love if viewers can recommend good site, books or more information that goes with this add to this great presentation.

  • NS

    Nic S.

    21 6 2017 02:51

    1       5

    Neat idea but presented apolegically which made it hard to watch

  • RM

    R M.

    21 6 2017 02:06

    4       0

    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.

  • CH

    Calvin H.

    21 6 2017 01:09

    0       5

    Mumbo jumbo....gold price is an inverse relation to the confidence in central banksters...JGrant esquire

  • CH

    Calvin H.

    21 6 2017 01:08

    1       9

    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

  • PR

    Paolo R.

    21 6 2017 00:25

    0       1

    Totally Agree

  • EK

    Emil K.

    20 6 2017 22:05

    21       0

    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.

  • DG

    Dave G.

    20 6 2017 21:51

    0       0

    Sorry, that was a comment by accident.

  • DG

    Dave G.

    20 6 2017 21:50

    0       0


  • PG

    Petter G.

    20 6 2017 20:41

    17       2

    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!

  • GS

    Gordon S.

    20 6 2017 20:24

    4       0

    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.!

  • RM

    Richard M.

    20 6 2017 20:16

    20       1

    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

  • AB

    AJ B.

    20 6 2017 19:30

    2       11

    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.

  • PS

    PD S.

    20 6 2017 19:20

    1       3

    a very interesting academic and theoretical discussion but nothing useful here in terms of trade ideas or idea generation...

  • jm

    joeri m.

    20 6 2017 19:05

    3       0

    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.

  • MM

    Michael M.

    20 6 2017 18:19

    16       0

    idea for RV series - 'The can o' worms with Daniel Want'

  • MM

    Michael M.

    20 6 2017 17:58

    12       2

    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 6 2017 17:21

    1       0

    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 6 2017 15:38

    11       1

    Thanks for "dumbing it down"!!
    Sophistication and ignorance are not mutually exclusive.
    That's why I'm here...to learn.

  • GB

    Grant B.

    20 6 2017 15:34

    0       0

    What happened to the 5 minute summaries?

  • MH

    Marco H.

    20 6 2017 15:31

    5       0

    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.

  • BB

    Bob B.

    20 6 2017 15:24

    6       1


    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.

  • lD

    lance D.

    20 6 2017 15:03

    7       0

    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 .

  • HJ

    Harry J.

    20 6 2017 14:24

    4       20

    Not a complete waste of time but close

  • M.

    Milton ..

    20 6 2017 13:28

    11       0

    You can download the slides of the presentation by Daniel Want here:


  • RI

    R I.

    20 6 2017 13:04

    15       0

    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.

  • PU

    Peter U.

    20 6 2017 12:52

    11       16

    He doesn't have to dumb this down so much. We are a sophisticated audience.

  • LN

    Lucy N.

    20 6 2017 12:22

    10       0

    Straight forward explanation - I love this guy