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Checkmate-Like Situation...",
- Marcus Nikos
- Feb 22, 2025
- 3 min read
Pozsar's
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Picking up on what Bridgewater's Bob Prince said in October, when he warned that “the amount of government debt that will need to be absorbed by the private sector in [2023] is larger than at any time outside of world wars”, and..... that "with US/Japan/EU/UK governments all set to issue $6 trillion in bonds in 2023", the Fed will either step in and resume monetizing this debt, keeping yields manageable, or it won't suggesting that QE will have to come back, Pozsar says "he can't disagree..."
That is precisely what the YCC/QE mentioned in part 3 will be used for. Here is where Pozsar posits how one can position themselves for that eventuality. Zoltan puts the truly fresh material near the end, like a dessert for those of us who have the appetite to finish the 4000 word meal placed before them.
This time, he lays out at the highest level his suggestions investors start to focus upon for the next ten years to optimize their portfolios. This is the part no doubt, CS clients will be calling their advisors on. Here it is in English:
Translated from Zoltanese
Right now: sell some bonds, buy some commodities with half of those bond sales, and hold the other half in cash (ratios below)
Redeploy cash as the curve un-inverts (re-steepens).. This is the tactical part. (commod/stock/bond mix)
Commodities should include the three Golds: Black (oil), White (lithium), and Yellow. Categorized and augmented:
Oil-- we add copper, Gasoline for Traditional Industrials
Lithium- we add cobalt, uranium for Renewable Metals
Gold- we add Silver for Monetary Metals
Dollar buying power will weaken as consequence of de-globalization, but remain the strongest among Western countries.
If the dollar remains strong vs the G7 but weakens versus the BRICS, then by proxy, the price of raw materials9 will go up in dollar terms (Zoltan’s Crisis of commodity collateral concepts
While this all makes sense, we're not saying to do this. We're just trying to make his ideas a little more accessible.
Pozsar's Actual Picks
60/40 won’t cut it anymore and should be 20/40/20/20 instead, with the weights representing cash, stocks, bonds, and commodities.
Cash, while the curve remains inverted, is “king”. It provides a nice yield, has no duration risk, and, as Warren Buffet said, it has an option value.
Commodities should include three types of gold: yellow, black, and white. Yellow gold is gold bars. Black gold is oil. White gold is lithium for EVs.
Commodities should also include a range of other stuff like copper, cobalt, et cetera, and the general theme driving commodities is that…
…after years of underinvestment, supply became extraordinarily tight, just as we re -arm, re -shore, re -stock, and re -wire the grid (see here ).
The U.S. dollar won’t be de-throned overnight …
…but on the margin, de -dollarization and digitization (CBDCs) byBRICS+ central banks will reduce dollar dominance and demand for Treasuries.
The dollar’s strength or weakness should be though t of in the context of the four prices of money (that is, par, interest, FX, and the price level):
The U.S. dollar will remain “FX” strong versus other DM currencies…
…but will be become “price level” weak (that is, outright devalue) versus commodities and “FX” weak versus most BRICs currencies …
History: We Fight This War, Or We Fight a Worse One?
As Zoltan's 5 part War series ends there is a potential part 6 -- a real war. We hope it never comes to pass but here it is:
The West will be fighting inflation as consequence of reduced financialization and supply shortages of good collateral, but the East will be likely fighting deflation from definancialziation and reduced demand for their good collateral. The last time the world bifurcated so extremely from de-globalization was post WW1 when the inflationary region (Weimer Germany) and the Deflationary region (US Great depression) ended up fighting a second World War.
It is dangerous to short the East given their importance in supply chains, commodity collateral, and labor. It may be more dangerous to short the West in its ingenuity and ability to fix problems even though it all too frequently shoots itself in the foot from innovative arrogance. Maybe long gold and oil (Commod. and Eastern econ exposure), Long the US Fiat and Long innovation (short Euros, and the next important Chip tech) makes the most sense?
