McGloom's Warning: Deflation, Tariffs, and a Looming Market Correction (Jun 2, 2025)

Mike McGlone: Global Market Correction Risks (YouTube link)

In this episode of The Prospector News Podcast, recorded at the Current Trends in Mining Finance Conference in New York City, host Michael Fox interviews Mike McGlone, a senior strategist at Bloomberg Intelligence. McGlone, nicknamed "McGloom" by colleagues due to his bearish outlook, discusses concerning economic trends reminiscent of the 1930s, 1970s, and 2008, driven by historical data and ratios pointing to potential deflation and market corrections.

Key Points

• Market Overvaluation: The U.S. stock market's capitalization-to-GDP ratio reached 2.2 last year, the highest in a century, comparable to 1929 and 1989 Japan, signaling overvaluation.
• Buffett himself noted that a ratio above 1.0–1.2 indicates caution, and above 1.5–2.0 suggests significant overvaluation (added by author).
• Commodity Ratios: The gold-to-silver ratio is at 100 ounces of silver per ounce of gold, near historic highs, and the gold-to-crude oil ratio indicates deflationary pressures, with crude oil demand weakening and gold rising.
• Deflation Risks: McGlone highlights a pattern where significant inflation, fueled by massive 2020–2022 stimulus, typically leads to deflation. He cites collapsing bond yields in China and declining crude oil prices as signs of global deflationary forces.
• Policy Challenges: The Federal Reserve is constrained from easing monetary policy due to persistent inflation (3.5–4% core measures), while fiscal stimulus is being cut, and tariffs could reduce corporate profits, further pressuring risk assets.
• Tariffs and Trade: Unlike the multidimensional Smoot-Hawley tariffs of the 1930s, current U.S. tariffs are two-dimensional, targeting specific countries like China, Canada, and Mexico. These could disrupt global trade, particularly affecting export-heavy economies like Germany, Japan, and China, whose bond yields are significantly lower than the U.S.
• Stock Market Risks: McGlone predicts a potential mean reversion in the S&P 500, with a fair value around 4,000 in a recession scenario, driven by tariffs, austerity, and reduced profits. He notes the market’s reliance on “buy the dip” behavior, which may falter as valuations remain unsustainable.
• Gold as a Safe Haven: Gold is seen as a hedge against market downturns, potentially reaching $4,000 per ounce if stocks decline, as investors shift from overvalued risk assets to alternatives like gold and U.S. Treasury bonds.
• Government Spending and Politics: Despite efforts to cut spending (e.g., DOGE initiatives), the U.S. budget deficit remains high, with military spending at record levels. McGlone suggests a stock market decline could lower yields, benefiting Trump’s voter base through cheaper mortgages and policies like no taxes on tips or overtime.
• Historical Parallels: Comparisons to 1929, 1989 Japan, and 2008 underscore the risks of a market correction or recession, though McGlone hopes for stability but sees a “lose-lose” scenario due to high deficits, inflation, and trade disruptions.

McGlone emphasizes the need for investors to be cautious, reduce exposure to overvalued risk assets like stocks and cryptocurrencies, and consider safer assets like gold and Treasury bonds. He reflects on being early in predicting declines in crude oil and bond yields but remains confident in his deflationary outlook, citing historical patterns and current economic indicators. The podcast concludes with McGlone encouraging listeners to reach out via X (@MikeMcGlone11) or LinkedIn for further insights, stressing that the discussion is for educational purposes, not investment advice.