VIDEO TRANSCRIPTION - LONGWave - 04-09-25 - APRIL - Investment Themes - 2025 Q2
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TRANSCRIPTION
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Thank you for joining me. I'm Gord Long.
A REMINDER BEFORE WE BEGIN: DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are COMMENTARY for educational and discussions purposes ONLY.
Always consult a professional financial advisor before making any investment decisions.
SLIDE 3 – COVER
It is time to revisit our Investment Themes for 2025 particularly in light of the global turmoil that the Trump Tariffs have created. Trump is attempting to re-order the Global Trade Process which can be expected to result in winners and losers. Not just nations but investors.
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Our initial Investment Themes discussed at the start of the year are shown here. As we said then, the particular investment ideas, securities and allocations are something we leave to our 3 separate weekly newsletters.
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We explained then that the changes we saw coming in 2025 were so significant that we were changing the structure of our reporting process so we could broaden our coverage of global markets other than just US equities because they were going to be key in staying ahead of changing themes.
We felt global markets were going to be of particular importance with US valuations being historically high. We then indentified two sectors as shown in the red box as already clearly evident.
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The first was the defense sector. Originally identified in our 2020 Thesis: Global Conflict we felt it was about to take another major lift.
We talked about it in our various newsletter and put out full video on it with our March LONGWave – “A Global Defense Sector Re-Alignment.
With the EU enacting the EU Escape Clause, releasing EU member states from their binding financial stability requirement of a maximum 3% of deficits to GDP, it along with other EU “RE-ARM Europe” plans will result in over €800B being created towards Defense spending increases over the next 4 years.
Additionally, countries like Germany are taking on major reflation programs which will include the expansion of Defense spending to over €800B.
These kinds of expenditures have ignited the valuations of the entire European Defense and Aerospace sector.
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We also highlighted AI, not because Nivida was such a hot idea, but because of what we saw as part of China’s “Made in China 2025” plan initiated 10 years ago with a focus on high tech and AI dominance.
We subsequently saw in February the initial shock of DeepSeek changing the rules with an open architecture application approach to AI. Many considered it a “Sputnik” moment for America.
Just as significant has been China’s rollout of AI Agents which are transforming the industry.
Coming soon is a whole world of Humanoid robotics and more.
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We have written this quarter about the serious competitive disadvantage currently facing America based on a serious R&D spending shortfall.
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Unless American soon aggressively reacts, the race will be won by China. It is a race where the winner takes all.
Chinese High Tech is an important investment theme throughout 2025 as China can be expected to continue to flood the market with new AI products and services based on its massive MADE IN CHINA 2025 country R&D investment commitment.
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As we have mentioned, we are in an era of unexpected change. We have therefore completely modified our reporting format to better be prepared to identify opportunities in all the markets, not just US equities as early as possible.
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Long time subscribers have seen our DOG analogy before and are aware of the fact we believe Credit leads the market. Credit is like the nose on the dog and often senses danger first. Currency and Bonds also act as key warning sensors. Many times the tail can still be wagging as danger is being registered though the sensory input areas.
We wanted to make changes that built on this understanding.
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Our Mid Week Market Lab report now focuses on the items listed here.
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In our weekend Technical Lab Report we now focus more regularly on the items and markets outlined here.
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The three weekly research reports all feed off each other in different ways and focus.
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In turn they support more of the synthesis thinking that goes into our twice a month videos.
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.. and our quarterly and annual higher level synthesis views to make sense of it all.
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I wanted to mention all this because it is important to watch the reports to flag important investment themes for you to take full and timely advantage of.
I am not talking just trading themes here but longer term investment themes.
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With that behind us I want to move quickly through the items and markets shown here.
Starting with the Trump Tariff Turmoil as a further proof example of the era we are in.
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We are in the Fourth Turing. Don’t forget that for a moment!
Massive changes like Trump’s Tariff Turmoil and the potential change in the mechanics of Global Trade are to be expected in the Fourth Turning. They define what the Fourth turning is about.
We need to expect them with an understanding that investing in them is extremely difficult without sold research – not just an article you might notice.
Many developments are unknowable in advance. They are not something you gamble or speculate on what might happen. But understanding what they mean when they do is where investors make their money! We hope to fill that need.
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We believe that today what is important to true investors is solid risk management!
We at MATASII neither lost nor won on the trump Tariff Trade volatility. That is because we had already determined the equity risk was just too high to participate in. It has been for some time now!
Our Bonds however were well rewarded as the offsets to the high equity risk.
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We must appreciate when it comes to equities we are in what we have previously labeled as the Beta Drought Decade. Where Total returns are historically now expected to underperform.
We showed this chart in our year beginning 2025 outlook. We believed the market was nearing a major top reflected by a Dome Top and a potential emerging ”M” top formation. This supported our Beta Drought Decade and Stagflation outlook.
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We have begun to see that outlook unfold. The WXY pattern is a large degree pattern currently estimated to complete late in 2026.
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We also showed this parabolic culmination pattern. It never quite reached our target, but the timing was as close as we could expect seeing as we drew it in 2012.
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The market re-priced right on time but as of this video has still not reached our expected initial target support level indicated by the horizontal black line versus the red current position arrow.
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At a smaller degree we are currently expecting the larger degree “W” leg to complete with a fractal “WXYXZ” pattern.
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- We believe stocks were slammed by China’s 34% US Import Tariff with traders fearful of equities approaching circuit breaker levels. This distorted responses and contributed to after cash close selling in offshore markets (showed itself Monday AM before bouncing).
- However, it has highly likely (with credit worries with credit spreads surging) a De-grossing or Risk reduction still ahead.
- What is clear is that Recession is now the base case for a surging number of economists.
- China's 34% Tariff announcement on imported goods signaled China is ready to fight and not prepared to negotiate until the US modifies its current position.(Remember China's US Import Tariffs are now 10% +10% + 34% = 54%.)
AS A CONSEQUENCES
Global markets on Friday began pricing in:
- TRADE WARS HAVE BEGUN.
- A RECESSION HAS BEGUN AND IS BEING PRICED IN WITH REDUCED EARNINGS & PE VALUATIONS.
- CURRENCY WARS FOLLOW FROM TRADE WARS.
- COMMODITIES WILL BE HURT ON TRADE MORE THAN GAINING ON A POTENTIAL WEAKER DOLLAR.
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- The MATASII Elliott Wave Fractal Pattern of "WXYXZ" is still the count, but SOONER (shorter duration) and FASTER ((Increased rate / steepness).
- There is still a strong possibility of a large degree ending diagonal labeled an ABCDE with A, C & E replacing the down legs of W,Y, & Z.
The three down legs (W,Y, Z) are likely to be:
- Leg W: TARIFFS (near completion)
- Leg Y: STAGFLATION - Increasing worry of Growth + Inflation
- Leg Z: RECESSION - Historically Long Overdue
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The exploding measure of overall US Economic and Trade Policy uncertainty is impacting global markets.
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WHAT COMES AFTER TARIFFS?
If President Trump is following the playbook laid out in a recent paper by Stephen Miran — Chairman of the President’s Council of Economic Advisers — it could be a Dollar Devaluation.
We featured the Miran roadmap "A User’s Guide to Restructuring the Global Trading System" in last weekend's newsletter. A roadmap for upending the post-war global economic order.
REMEMBER: TRUMP APPOINTED STEPHEN MIRAN HIS CHAIRMAN OF THE POWERFUL COUNCIL OF ECONOMIC ADVISORS.
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According to Miran’s plan, Trump would:
- Hike tariffssharply (as he just did), then
- Convene a “Mar-a-Lago Accord”with U.S. trading partners to push through a coordinated
DOLLAR DE-VALUATION — in an attempt to boost U.S. competitiveness and manufacturing.
- Foreign investors now hold $57 trillion of U.S. Dollar-denominated financial assets. It won’t take much for panic to set in once they realize devaluation may be coming.
- That’s how a Run On The Dollar could begin. And not just by foreign investors — Americans may also begin dumping their Dollar holdings as trust in U.S. economic policy erodes.
- A sudden collapse in the Dollar could be the catalyst for the next leg down in global stock prices.
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We have major concerns about a reverse wealth effect impacting the US and global economy. As we written previously about, Credit growth has been insufficient and has been offset by the use of a massive growth in the wealth effect.
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This chart shows the impact that Wealth destruction had in 2009. The exposure to the loss of $6T in US market cap in two days is going to be felt as leverage is forced to be taken off unless the market has a quick and significant bounce.
This is a huge issue which is getting little visibility – yet!
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We showed this proprietary chart at year beginning which indicated we had reached the critical point on the right where rates reverted which we saw prior to the dotcom and 2008 market drops. It is not an exact timing tool but certainly indicated to expect something before spring.
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High Yield Bonds as represented by the JNK ETF were giving us worry at year beginning as shown here.
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As if right on cue we have seen the High Yield Bonds drop and spreads widen.
We showed a raft of Credit measures in our latest weekly Technical analysis report and Macro newsletter.
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Donald Trump’s “liberation day” tariff blitz sparked the biggest sell-off in the US junk bond market since 2020, signaling growing angst among investors that an economic slowdown will hit corporate America.
The premium investors demand to hold speculative-rated corporate debt compared to that offered by US government bonds — a proxy for default risk — has shot up by 1 percentage point to 4.45 percentage points since Wednesday, ICE BofA data shows. That is the biggest rise since corona virus triggered widespread lockdowns in 2020.
“Credit is obviously a canary in the coal mine. Credit tends to go first . . . if the economy’s going to roll over, the odds of a recession pick up and then you’re going to see spreads blow out.” Brian Levitt, global market strategist at Invesco.
On Friday, JPMorgan slashed its US economic forecasts, predicting:
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- A contraction of 0.3 per cent in 2025 — down from an earlier growth estimate of 1.3 per cent.
- It also said the jobless rate would rise to 5.3 per cent, from 4.2 per cent in March.
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The concern in the Bond Market also came into full display in Q1.
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The down leg of the white rising large degree pattern has also begun to unfold as marked by the small red arrow.
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On a smaller degree the fall in yields has been quite dramatic even with the recent bounce.
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- What I believe we may have learned from the initial Trump Tariff Turmoil is what a recession with high inflation (or stagflation) means.
- Stagflation recessions now yield 3.85% to 4.00% (on the 10-year Treasury). That's it.
- When the recession is removed, stagflation becomes just inflation, and a 4% 10-year yield is way too low.
- Want to see yields lower than 3.85%? This requires the economy to sink so far that it kills inflation, turning stagflation into just a recession.
- At its worst this past week, no one thought the coming recession (if we have one, I have my doubts) would be this bad.
- So, the market is priced in a stagflation recession, and that is 3.85% to 4.00%.
- For some context, yields are basically unchanged now since trump unveiled the tariffs (from being down notably as stocks fell), while stocks remain down hard... and the divergence started when China retaliated...
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Currency markets and the US Dollar have so far been relatively quiet.
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We showed this chart at year beginning where we were at the red arrow.
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We have been falling but not yet as aggressively as we expect. The black horizontal bar is likely to offer support in the short term.
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We are watching what China does with its controlled Yuan to the Us dollar.
Implied volatilities are climbing, but haven’t yet reached the levels seen just before the US elections in November, which suggests traders have room to build USD/CNH exposure. Indeed, the volatility curve looks set to go inverted which is a signal that extreme currency moves are expected.
Of course, China hinting at devaluation is a huge risk: China has $60 trillion in deposits, 3x more than the US. If this capital starts to flee, it will have catastrophic consequences. In 2015/16 we saw this, and it started the great move in Bitcoin from $200 to $20,000.
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Commodities got crushed with the Trump Tariff Turmoil.
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We were at a potential breakout point at year beginning as shown here by the red arrow.
We felt that the consolidation for the overall commodity complex was not yet complete and a “C” leg was still ahead.
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It appears that leg has now started.
As we pointed out at year beginning there are sectors in the Commodity complex that have been performing extremely well.
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Precious metals is one such sector as represented by Gold which has had historic returns over the last year with Central Bank buying.
However, if global trade slows and excess reserves are depleted, buying from Central Banks may slow dramatically.
Jewelry sales have slowed particularly in India where Gold is now seen to be too expensive.
It has been awhile since gold had a solid consolidation.
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Silver as both a precious metal and an industrial metal which was beginning to breaking away with gold got hammered with Trump’s Tariffs. We believe this reflects the industrial metals side of the mineral as global trade potentially slows.
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We have intentionally kept this short and at a high level since most of the securities and themes coverage in our three times a week newsletters.
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Our newsletters have all been modified to better allow us to spot investment opportunities early. Additionally to:
- Report on the Unexpected!
- Explain Regulation Changes
- Warn of potential Market Halts / Collars
- Spot Liquidity Squeezes … and
- monitor Dislocations
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I would like take a moment as a reminder
DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are for educational and discussions purposes ONLY.
As negative as these comments often are, there has seldom been a better time for investing. However, it requires careful analysis and not following what have traditionally been the true and tried approaches.
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Do your reading and make sure you have a knowledgeable and well informed professional financial advisor.
So until we talk again, may 2025 turn out to be an outstanding investment year for you and your family?
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I sincerely thank you for listening!
