The Duran Podcast - Yen Is Sinking Again. Oil Reserves Near Empty w/ Ray Zucaro

Episode Date: August 12, 2026

Yen Is Sinking Again. Oil Reserves Near Empty w/ Ray Zucaro

All right, Alexander, we are here with Ray Zuccaro on the Duran. Once again, Ray, how are you doing? Where can people follow your work? Very good. Nice to see you gentlemen again. You know, my firm's website is www. www.r-r-r-r-r-vx-am.com. I post my thoughts at TwitterX at Ray Zucero,

and I'm actually just launching a new fun vehicle with variety capital out of the UK. So a couple of different ways to find me. All right. Those links will be in the description. a box down below as well as a pinned comment. We have a lot to discuss on the global economic situation. So Alexander Ray, let's jump into it. Let's is indeed. And can I just say, it's always a pleasure to meet and speak with Ray. And it was a great pleasure to meet him in Chattanooga a short time ago because he was there. And he was also one of the many people that we

met with one of the people that we enjoyed meeting very, very much. So let's go straight in. And if you don't mind, Ray, I'm going to start with the situation with the yen. This was something that you flagged in a program we did together some months ago. You explained the importance of the carry trade in the yen. Perhaps you could just revisit that little. And we've seen the yen SAG and we saw the United States, the Treasury, intervene with the Bank of Japan to support the yen. And I was reading, I think it was either this morning or last night that the yen is sinking again, once more.

So it looks as if whatever they did, it was temporary, but, you know, maybe they'll do it again and maybe it will work better this time. We work more permanently this time. But can you start us with this and take us through this? Yeah, thank you again for having me on. Look, again, I think we did the program back in November. Japan just has so many different problems, whether it be demographics, the stock of debt. And for many years, given low interest rates in Japan, I make the analogy that everyone associates them with exporting cars, really they're exporting capital, right? So now as the yen has gotten weaker, there's more demands for them to repatriate, to bring back a lot of those foreign assets.

And as such, they're one of the largest holders of U.S. treasuries, right? And at a time where the U.S. is, you know, fiscally challenged with rising rates, the idea of having the largest or one of the largest sellers of treasuries putting pressure on rates, the Treasury stepped in in a very hedge fund-like transaction. And frankly, one I've never seen in my 30 years in career is usually the U.S. would use its own reserves or its own currency to prop up another one or defendants. another one. However, as you know, the U.S. sold euros to prop up the end. And I thought it was very interesting. In fact, you would expect a coordination between central banks, whereas the U.S.

basically informed the ECB of what was done. So it just kind of shows you the cavalier attitude. And look, I give Besson a lot of credit that he grew up in the hedge fund world and he's running the treasury, you know, with the world's largest balance sheet, the ability to be in manipulate markets or not manipulate, or guide markets. And to your point, Alexander, sorry of a long-winded answer, but in the intervention last week, you've seen the yen give up about 1% of its value, right? The problem is you can prop up a currency, but it doesn't address the fundamental issues that Japan continues to have.

Can you speak to this? Before we turn to those fundamental issues, why did the United States? States decide to sell euros in order to buy yen? I mean, was this because they didn't want, it goes back to your other point about not wanting to do things that might seen as weakening the dollar system in some way, but perhaps you can explain that. And secondly, why didn't they not tell the Europeans that that was what they were going to do? The Europeans are apparently very annoyed about this. Christine Lagarde has complained about it to Scott Besson himself. There was apparently a rather tetchy call. This is all set out in the Financial Times.

But why did the United States act in this particular way, in this particular situation? I would have thought that central banks talking to each other, Treasury departments, you know, finance ministries, talking to each other would be an obvious. thing to do, particularly if there is a combined universal reason for wanting to prop up the yen. I think it's kind of a two-party answer there. On the one hand, he didn't want to be seen selling dollars because part of this administration is a strong, they speak to a strong dollar policy, right?

And this was a way of trying to help out the yen, again, to relieve pressure on what I think is ultimately the US treasuries. But really to shift the pain on someone else, right? By weakening the euro, it makes the European market, the European exporters, even less competitive, right? So kind of shifting the burden on our European allies, if you will. And by not informing them, it just kind of shows you the cavalier attitude that the U.S. has.

Like, you know what, we're going to do what we want, and you know what, we're going to make you guys feel the pressure of propping up the yet, as opposed to us doing it, us being the United States doing it. I can't imagine this happening before. I mean, this seems a very new sort of thing. I mean, I can't imagine, say, somebody like Paulson, for example, acting in quite that kind of a way. I mean, such complete lack of interest in what happens to the Europeans.

Well, look, you know, not to get too, you know, I tend to try to say on the financial side. But, yeah, look, I think it's an indicator of what happens with NATO, what happens with, you know, the special relationships that we supposedly have with Europe. You know, we're going to, the U.S. is, you know, I like to call it the, you know, the modern Monroe doctrine, the Trump buyer, if you will. You know, we're going to go our way and we're going to do its best with for us, which, you know, you could argue as a return to some of his America first policies. You know, we're going to do what's best for us first and worry about other countries later. It does kind of question what will happen with NATO in the long term. Again, these are my kind of views. Let's just follow this up because you talked about the structural problems that have been affecting Japan,

but many of these are very long term. What has caused the yen to weaken specifically now? Is it because of what you were saying about the situation in the Middle East, the situation with the Strait of Hulmoos, which now some people, sake is going to be closed for at least a year, perhaps longer, and the fact that we have a general energy shortage and that Japan has to import pretty much all its energy. I've seen people say that this is ultimately what's weakened the yen at this particular time, but what do you say to this? Yeah, look, the trend, from when we did the November show, the trend has been the same.

What really has sped it up, you know, Asia as a region is very challenged with the increased energy prices, whether be, you know, Philippines, Vietnam, the Koreas and Japan sits at, you know, as an almost entire energy importer, sits at the crust. So every time they have had to spend more to import energy, you know, they, you know, as you guys know very well, they've re-engage with the Russians to find when energy were they good. I think that was the really, if you will, the straw that broke the camel's back where they really started to get pressure on the yen. And again, I think this is a temporary gap.

And less those underlying issues, the stock of debt, the cost of debt, the importation of inflation, I think you're going to see the yen continue to drift back until some type of other intervention or they address the underlying cause. So I don't think this is, I'm sorry, to interrupt you, I don't think this has solved the issue. I think it's a temporary band-aid and we're going to continue to see pressure on the end. Scott Besson has talked about another Asian financial crisis. Is there any possibility or risk of this at all? Some people are saying this is absolutely fantasy.

But, I mean, what are your feelings here? Well, you mentioned Hank Paulson. I mean, you look at what, by letting one problem, fester or, you know, blow up like a Lehman, it caused other problems, right? That secondary impact. So addressing the yen now helps address or some helps, you know, push off some of the other issues. Once you start a fire, you don't know where it can go. And I think Paulson and with the Lehman experience, you know, remembers that well. So try to put out the fires where you can or address it while you can.

Again, my concern is I don't think it really addresses the underlying issue. In fact, if anything, it focuses more attention on, wow, this is really a problem here. Talk to us about what's going on in the oil markets and oil and energy and fuel and all of this. I'm getting to say that here in Britain and in Europe, there's growing talk about a critical situation in energy. Gas reserves are not filled in Europe. We are starting to see further signs about diesel problems with diesel. There's articles beginning to appear about this in the Financial Times.

And the overall sense that I'm going to appear about this in the financial times. sense that I'm getting, I'm going to be going to Germany in a few days, but they seem to be worried there that there's going to be another twist to this and perhaps a twist that's going to propel them back into recession. Any thoughts on this? Look, I still continue to be surprised about where prices ultimately are given the disruption. We went from 20 million barrels of fuel. and condensate going through the straits, so I think last week was two. So you had a severe curtailment of supply. Even Saudi Aramco in an earnings call last week, the CEO mentioned if things normalized

today, it would take 18 months to replenish drawn down inventories. You saw the U.S. Strategic Petroleum Reserve dropped six million barrels last week. So now we're below the 300 million mark where several million barrels back, they said was the absolute bottom. continue to draw. So to your point, I don't think we're out of the woods. You are seeing demand destruction has taken place. You've seen increase in oil supplies from the non-traditional, you know, Brazil, Guiana, you know, even Venezuela has increased production. So it's softened the disruption, but it hasn't addressed disruption. So the longer we go until we get some type of normalization of traffic through the straits, I think, you know, that problem of a spike or some, in some way, an energy

shock continues to be out there, right? And, you know, inventories have a finite, you can only go to zero, right? You can't, unlike interest rates where you can manipulate them to negative, as we saw in continental Europe for a long time, you can't do that with an actual product like oil and gas. I mean, there is a finite point. What is going on? Because, you spoke before we started the program about how oil industries or other oil producers, Colombia, for example, are actually doing quite well out of these shortages, at least they're unable to sell their oil at higher rates. What is actually going on with these other producers? And, I mean, are they increasing production? Will they be able to be able to

to produce increased production. I mean, is the limit to how far they can go on? You've seen increases in productions in Brazil and Colombia. Actually, Colombia, I believe, was last week announced that one of the largest private oil companies, it just acquired for $1.1 billion transaction, which six months ago, where prices were at the time, wouldn't have received this type of valuation. So while oil production has gone up in these other markets, it still does not satisfy the loss of supply coming out of the Middle East. I will say from an investor point of view that focuses on emerging markets, the longer this goes, this puts the Middle East in a very troubling time because as new export routes get done,

as other producers take up that supply, the Middle East, which, you know, has a very high spend rate, it puts in question their longer term demand and who can satisfy that, right? for that just in time, if you have better oil and gas production in the Americas, you know, you saw for the first time the U.S. imported zero from Saudi Arabia for many, many years. So as new production routes, as new transportation routes, it puts the Middle East in a very difficult spot. So, you know, not just Iran, but the other countries in the Gulf should be really pressuring

the U.S. administration and other governments to really solve this issue because it puts the medium to long-term trajectory of their economies in a very difficult position. Do they understand this? Saudi Arabia has just done, carried out, agreed this U alliance system with Pakistan and Turkey. I know that there is a very cynical view, which I share, that Turkey agreed to this because it's getting an awful lot of money to agree to this from Saudi Arabia. So the Saudis are actually increasing their spending rather than reducing it at this time. I mean, how well do the countries in the Gulf understand this?

And I think I discussed this, we discussed this in a previous program, to the extent that the Gulf was also an important financial center, is that continuing and is that becoming undermined as well? So multifaceted question. The alliance, I think, is interesting between Turkey, Saudi Arabia, and Pakistan. Of those three, two are energy importers, right? And Saudi Arabia is the exporter, the exporter of capital. I do think it was an interesting alliance.

And, you know, Pakistan had been at the forefront of trying to get this issue addressed because a lot of their imports are being impacted by this. You know, putting in question the Middle East as a financial hub, the longer, this goes on. And again, that it puts into question. I think, you know, Hong Kong and Singapore are great beneficiaries from this type of environment. Interestingly, I've even seen Uruguay crop up as an interesting financial destination, which, you know, a country that hasn't gotten a lot of play before this. So I think, you know, capital moves very quickly. You know, human capital moves also very quickly. And as people find, you know, other areas, it does put that Middle East's business

model or the transition that they're trying to go from, from a commodity export to a financial hub, it does put that more in the line light. That said, I will say there, I have seen more hedge funds and asset managers moved to the Middle East, but the private banking sector, I've seen also capital moving to Hong Kong and Singapore. Tell us where all this leaves the Russians. We have a new sanctions bill from working its way through Congress, empowering Donald Trump to raise tariffs on countries that import Russian oil and Russian energy.

It seems a strange thing to do at a time when we have these problems in energy markets. I mean, do you think this is actually going to crystallize that we're actually going to see these massive tariffs on India and China and other countries? I mean, at the moment, it doesn't seem to make much sense to me. Look, I would agree with you. You know, I'll stick more on the financial. I think this is a political thing. Do as I say it as opposed to do what I do.

Do I actually think they'll be implemented? Again, just going back to what we talked about earlier about Japan. Japan's now, you know, re-engaged with energy imports from Russia, right? So I do wonder if this has some political play to the, you know, Lindsay Graham legacy, but it also transfers a lot of power and discretion to Trump. So I'm not sure what will actually be implemented from it. You know, and it hasn't passed or hasn't been signed in the law yet. So let's just see.

But to your point, cutting off, you know, by limiting Russian exports or sanctioning China in India, it's, you know, cutting off your nose despite your face, you already have a very challenging global environment. And then you put that kind of wrench into the machinery. It'll only exacerbate problems. So from a financial point of view, I don't think it makes sense. but oftentimes politics and financial decisions don't go hand in hand. Let's come back to Europe because I said to you that there are worries about recession here. I mean, how great do you think these issues are and whether, I mean, are we at serious risk of recession in Europe?

I mean, there's been talk about it for some years. You could argue that Germany has been in a kind of low-level, slow recession for some time. And we've had problems, as you know, in the car industry, we've seen Volkswagen shed workers. We've seen Van Vair's shed workers, too, other things like that. But obviously there's a difference between a sort of, you know, gradual decline and a, you know, recession. Is there any risk of a big recession in Europe? Look, from a global perspective, I do think Europe is particularly challenged here. You know, stock of debt, you know, import costs, production, competitive from compatibility stances, you know, cutting off their natural export markets.

I think, you know, you know, as you gentlemen have known, if you ever went, if you went to Moscow five years ago, you sold mostly Mercedes. Now you see a lot more Chinese vehicles. So you're cutting off natural export markets, which for ad been traditional. So I do share your concern about Europe. You know, it is a very challenging area, but, you know, with the ability or the removal of the Germany's dead break, they are having the ability to raise more capital, right? And that can prolong the issue and, you know, debt sustains valuations. And, you know, you're going from 65% debt to GDP to 90, which sounds bad. but then when you look at French debt to GDP, UK, GDP, Italy, and even the US, 90% debt to GDP

doesn't sound that bad in comparison. So I think at least in the short term, the ability of Germany leveraging and using that capital to prop up, I think it prolongs a little bit. It doesn't, again, like the yen, it doesn't address the underlying issues. What about the argument, which I've heard, which is that, in fact, the margin for maneuver is not so great, because one of the reasons why Italy can have 130% debt to GDP and France, 115% and other countries also, is precisely because they're backstopped by the fact that Germany, which is 40% of the EU economy, does not have a debt to GDP ratio that is so bad.

And that if we ever got into a situation, especially given how fragmented our financial, system is in Europe, we got into a situation where Germany was reaching the same levels of debt as France and Italy in some of the other countries, then things would become a lot more difficult, much faster. What do you think to that? I think that's a very important problem, right? I always looked at the Eurozone with Germany as the financial anchor, right? So if the anchor increases its debt, it should also increase the cost of borrowing, right? So that increase of cost of borrowing for the anchor will have a trickle-down effects on your your Greece's, your Portugal's, your Italy's, right?

So you're going to pull all interest rates higher, and it just exacerbates the problem. So fundamentally having a more indebted Germany should cause an increased cost of borrowing for the entire EU zone. but it also does give them more capital to sustain it over the short term. I think in the short term I'm not as concerned because there is a lot more liquidity, but long term you'll have a higher cost of debt. This takes us back to your point about Japan and in a kind of a way Germany too, and even the United States, which is that you could argue that there's structural problems in all three.

You said that in Japan, basically throwing money at the problem, supporting the yen, in other words, isn't going to solve the underlying problems because the underlying problems are there. You could argue, I think you could validly argue, that this is even more true in Europe. We've had all kinds of discussions about Europe, low productivity growth, all of these things. We've had the Draghi plan, which has been talked about, but never implemented. And some of us have doubts about whether it's even a, you know, would even address those problems. And you have concerns about structural issues in the United States. But people seem to be more interested in sort of plugging the holes in the piping, if I could put it like that,

than actually doing something to restructure the whole piping and the whole building. Is this a problem that is general, or is the one particular region amongst the three where things are particularly vulnerable? I wouldn't say it's a regional issue. I would say it's the wealth market versus emerging market issue, right? I've been doing financial markets now for 30 years. And over these three decades, I've seen a transformation of what had been largely over-indebted countries. And I've seen almost a transformation, like where the developed world has become over-levered.

And the emerging world, for the most part, has much better fiscal numbers than you see in the developed world. And what have been the escape mechanisms or how did you relieve pressure in the emerging world is through currency devaluations, right? So if you look at the stock of central bank holdings, whether it be China or Russia holding more gold, I think the way for the developed world, you know, the countries of the G7, if you will, is through weaker currencies over time, right? So what I thought was interesting with the new Fed chairman that we have here, you know, he basically only focused on price stability, did not really address the mandate of full employment. So you've seen some very, weak job numbers, but you also saw a weakening of the dollar, right? So I think that's the, you know, the elephant in the room is whether it be the yen, the euro, or the dollar, you're going to have to see weaker currencies over time to address the stock of debt. Again, I looked at, you know, I've been through three Argentine defaults, and when debt to GDP got very high, a currency devaluation is how that was solved. With the size of the stock of the dollar,

I don't think you'll see a dramatic move, but I do think you will see a weakening trend of large currencies, again, the yen, the dollar, and the euro over time to address some of these issues. I think that's why I think emerging markets is actually a very interesting way to hedge against that, right? And you've seen some of the best central bank management holding less treasures, less dollars, right, and more stores of wealth. The same, by the way, historically, was true of Britain. Britain came out of the Second World War with an enormous debt load. And one of the ways it got out of it was that in, I think it was 1947, it carried out a massive devaluation of sterling,

which ultimately helped Britain to pay off and get through that debt load. so that we went from 250, I think, GDP debt to GDP ratio, just something like 20 by the late 80s. So, you know, it can have a pretty dramatic effect if done intelligently. But you have to be careful because, you know, devaluations erode domestic savings. So that's why I think this slow and steady sort of devaluation time is what is what, at least the U.S. is trying to do and trying to maintain that with the yen, right? They don't want to dramatic because then it has that jump risk, that Asian currency crisis risk, but a slow and steady devaluation or a little balloon, if you will, steeping out, I think is what they will ultimately, again, that's my opinion,

what they'll ultimately address the stock of debt. Well, briefly, last question. If the rich countries start to devalue their currencies, what does that do to the emerging markets? I mean, because presumably at that point, the rich countries become competitive again or become more competitive again. Yeah, that's a very fair question. But at least in the short term, I think it'll provide a store of wealth as a protection from that. But, you know, I do think, again, as you mentioned, with what the UK did after World War II, it does restore competitiveness. And, you know, whether Trump was reelected the second term of reindustrializing the U.S., have there.

a weaker dollar would certainly help that. So, you know, it is something to be aware of, you know, but we're at point A, we have to get the point B. And I think it could be a very painful move between the two different, the two different data points. Ray, you've been amazingly clear and thorough as always. I don't know, maybe you have something further that you just not want to highlight and mention, but I've run through my questions. very interesting time in the capital markets, a lot of things going on. And I do worry that the longer that there's no resolution in the Middle East, that that energy crisis, that point where you do get to some, you know, whether it be a hurricane in the U.S. Gulf or a cavern falling in the

strategic patrolling reserve, you could have some catalyst that moves oil very quickly and very painfully higher. So I do hope that it gets resolved sooner rather than later. frankly for the entire global economy. I think that's absolutely right. Ray, thank you very much. Thank you for joining us again today. Thank you. Thank you again, guys.