Chris Wallis, CEO and CIO at Vaughan Nelson, joins with his thoughts on the pending earnings season and the recent gold run.

April 8th, 2024

Lightly edited transcript

Dan Hughes: Welcome to the Vaughan Nelson podcast. With me today is CEO and CIO Chris Wallis. Welcome, Chris.

Chris Wallis: It’s great to be here, Dan.

Dan: All right, Chris, good to have you. And I think it will be a quick one today. A couple questions that we’ve been booting around. One, earnings season is about to start going here. And just broadly speaking, do you have any expectations as we head into that season?

Chris: Yeah, I think generally speaking for earnings, we’re going to see our weakest earnings of the year for this quarter. As we’ve talked about, we should be bottoming economically, and with that we will probably see the weakest of the top line growth, the weakest of any margin, either improvement or in some cases further degradation. And things should begin to improve from here.

I think the only thing that may catch investors by surprise is it wouldn’t surprise me is, as we start to see the banks report, that we see an acceleration in reserve building within their loan books. And I don’t think that would be isolated just to quote, “the regional banks”. We may start to see that in some of the larger money center banks.

We’re just a lot further down the path as far as loss recognition in the development of non-performing loans and modifications. And I think certain banks, like B of A, we may find out are a little under-reserved and we may see some catch-up begin in Q1. And if not Q1, we’d certainly start to expect that in Q2.

Dan: All right. And then one of the other things we were talking about just before we stepped in here today was gold, right? And so, something we don’t talk a ton about here, but we’re seeing a breakout with gold. At the same time, yields are rising and we’re seeing major currencies around the globe are fairly stable. How surprising is that combination to you?

Chris: Look, it shouldn’t be a surprise to anyone. I think there’s two things to consider. One, as we’ve talked about, we’ve seen a big increase in liquidity over the last 12 to 18 months, and that has an outsized impact on gold, eventually. And so, with the usual time lag, we’re starting to see that. Historically speaking, you see it first show up in Bitcoin, and we’ve seen a significant rally in Bitcoin and then you see gold catch up. So I think that’s part of what is going on.

The other piece of this is, central banks are going to start cutting rates and are going to start increasing liquidity because they got severe funding constraints within the sovereign debt market. So gold’s starting to reflect that. And it’s also reflecting the changing nature of currency markets. We’ve talked about in the past that China’s launching of a yuan-denominated oil and gold contract significantly changes the relationship and how devaluations occur.

So as the large, major global central banks are in the process of devaluing their currencies, that devaluation is going to be more and more seen via commodity prices and asset prices more so than against other currencies. So I think that’s a part of it.

And then finally, while we don’t like to see it, the simple truth is geopolitical confrontation and the spillovers from the Ukrainian war and from the Middle East conflict are only increasing. And we’ve seen that with direct confrontation between Iran and Israel this week. I think we’re going to see more of that. I think we’re going to see the Ukrainian situation not stabilize, but quite frankly either see Russia ramp up its destructive nature.

And so all of that, again, is consistent with rising gold prices because it only means further global conflict, further economic tariffs, further eventually capital controls. And given the deficit funding situation around the world, it means more direct monetization. So I think all of those are supportive of gold prices, so we shouldn’t be surprised that the gold is breaking out.

Dan: Good. All right, well, not too much else to chat about today. Pretty quiet week otherwise. And then we got some travel coming up and then we’ll knock out our quarterly reviews, so we’ll have you back on here soon.

Chris: Sounds good.

Dan: All right, good deal. Thanks, Chris.

The views, information, and/or opinions expressed during this podcast are solely those of the individuals involved and do not necessarily represent those of Vaughan Nelson and its employees. Vaughan Nelson does not verify and assumes no responsibility for the accuracy of any of the information contained in the podcast.

The primary purpose of the information, opinions, and thoughts presented in this podcast is to educate and inform. This podcast, or any podcast in the series, does not constitute professional investment advice or services, and any reliance on the information provided is done at your own risk.

Past performance is not an indication of future performance. By accessing this podcast, you acknowledge that the entire contents of this podcast are the property of Vaughan Nelson or used by Vaughan Nelson with permission and are protected under US copyright and trademark laws. Securities discussed within this podcast may be held in the Vaughan Nelson strategies.

The views, information, and/or opinions expressed during this podcast are solely those of the individuals involved and do not necessarily represent those of Vaughn Nelson and its employees. Vaughn Nelson does not verify and assumes no responsibility for the accuracy of any of the information contained in the podcast.
The primary purpose of the information, opinions, and thoughts presented in this podcast is to educate and inform. This podcast or any podcast in the series does not constitute professional investment advice or services, and any reliance on the information provided is done at your own risk. Past performance is not an indication of future performance.
By accessing this podcast, you acknowledge that the entire contents of this podcast are the property of Vaughn Nelson or used by Vaughn Nelson with permission and are protected under US copyright and trademark laws. Securities discussed within this podcast may be held in the Vaughn Nelson strategies.

Also find us on

This information is provided for general information purposes only and does not take into account the investment objectives, financial situation or needs of any person. Investors Mutual Limited (AFSL 229988) is the issuer and responsible entity of the Vaughan Nelson Global Equity SMID Fund and the Vaughan Nelson Global Equity SMID Fund (Quoted Managed Fund) (‘Funds’). Vaughan Nelson Investment Management, L.P. is the investment manager.

This information should not be relied upon in determining whether to invest in the Funds and is not a recommendation to buy, sell or hold any financial product, security or other instrument. In deciding whether to acquire or continue to hold an investment in the Funds, an investor should consider the current Product Disclosure Statement and Target Market Determination for the appropriate class of the Fund, available on the website www.VaughanNelson.com.au or by contacting us on 1300 219 207.