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- [00:00]
A
Foreign.
- [00:06]
B
Hello out there. Welcome to Macro Mondays on Real Vision. My name is Migo Ostenwal and I'm joined as usual by you, Andreas. Welcome to the show.
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A
Thanks very much, Mikael.
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We have a lot of great ground to cover today. We're going to be talking about Kevin Warsh, the overall volatility in markets and we're going to be touching on our macro regime model which is showing a bit of a shift in the current macro environment. So we're going to look into that and look into how you should position accordingly. We're also going to be covering some of the tweets made over the weekend on Crypto. Try and digest that, what we see ahead and yeah, in general, try and unpack the world of macro for you. Remember that this is our free show at Real Vision. We stream this to X and YouTube as well. We do a lot more content on Real Vision, especially on the approach here where you get full access to all our research, including our macro model portfolio, which is essentially a selection of mainly tech stocks that we are liking right now. And although we've had some, some pops on the road address the portfolio, we're doing mostly okay this year, as you would expect for from a. I should rather call it a tech heavy portfolio rather than a tech portfolio maybe. But anyway, this is our free show. Remember that we try to be very, very actionable, very, very straight to the point and all. You always try to explain what the trade is from our analysis. However, you should expect our analysis to be Summertime.
- [01:38]
A
It's maybe good. Summertime.
- [01:39]
B
It's maybe absolutely sometimes maybe good. Sometimes maybe that's the way it is. Andreas. We had a very, very volatile last week in markets. Last Monday we talked about a quite steady opening on, on Monday after uh, the, the, the entire silver crash the prior Friday. But we sure did catch up with volatility during the week. So, so was that caused by the silver crash address and the, the, the rotation in metals, was it caused by the uncertainty around Kevin Walsh? What, what, what explains what we saw last week?
- [02:19]
A
First of all, I think there is some merit to the view that the volatility shock we got in precious metals spilled over to other asset classes. Let me try and briefly expl. You know, I've been running various fund management setups also within the hedge fund industry. And when you get such a volatility shocker as the one you got in silver, for example, assuming that I have been involved in that trade as a fund manager, you essentially get to the conclusion that the risk has increased A lot versus the day before that shock, meaning that your models, your compliance office, machine, risk managers, they will tell you, okay, you have to run less risk in this trade for it to have the same impact on your portfolio as it had 24 hours ago. So it's a very mechanical process where volatility in one asset class leads to a spike in volatility in other asset classes and a pullback in positioning. So we saw that across range of popular trades, to be honest, everything from data center stocks to technology stocks, more broadly speaking to, you know, some hiccups across other metals, et cetera. Right. So it was to me kind of the symptom of the volatility, the value of risk shock that we saw in silver that we started to see positioning pullbacks across a lot of other consensus trades.
- [03:48]
B
Okay, Andres, we'll look ahead at markets in just a little bit. I just want to get past the, the laugh of the week. And this is, was, I think you retweeted this, Andreas, this very, very Italian standing watching their GDP grow by 0.3% instead of 0.2% thanks to the Olympic Winter Games. I think that that's always like a NFT story whenever you have Olympic Games that this is going to boost the gdp. It's, it's a very, very lazy analysis. Have you been watching anything from the Winter Games yet, Andreas?
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A
No, I though someone sent me the know terrible accident with Lindsey1 but other than that, no, you know I'm, I'm not particularly into winter sports saying that, you know, watching the snow outside here but we don't, we don't have any slopes here so we're not good at it. So no, I haven't watched anything. We're a part of the ice Hockey Olympics this time around in Denmark for the first. Oh yeah, for the first time with a decent team because last time we participated as well but it was without the NHL players as far as I remember, due to the COVID hiccups during that season, etc. So I think ice hockey will be interesting.
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B
Yeah, absolutely. Denmark should be really, really good at Winter Olympics, but we're not. But anyway, it's a lot of fun to watch out there, but let's get back to macro. I just love this picture. A lot of things going down in Milan down there. So Andreas, I wanted to bring this chart along. You sent me this earlier today because a lot of people ascribe the volatility we saw last week and some of the negativity in markets also to be correlated to the nomination of Kevin Warsh, and there's been a lot of debate. Is he a Hulk? Is he a Duff? Can we say anything definitively? Here's an attempt at looking at some, some statistics. What, what's, what's your take on this whole discussion address?
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A
Yeah. So first of all, this is taken from the Economist, and, you know, they've been running some, you know, word count analysis on Kevin Walsh speeches and, you know, public comments since 2006, and, you know, a couple of takeaways here. His views are incredibly correlated. Color of the president in the White House. Right. So every time there's a Republican in power, you see him with a very different set of views compared to when there's a Democrat in power. You obviously see this with other members of the committee. So I don't think this is a trait that is particularly true only for Kevin Walsh. What I'd like to highlight is the following, and maybe we can touch upon Japan in a second, where we had the elections over the weekend. Michael. I think everything that's ongoing in Japan right now, where they basically allow the commercial banking system to do the heavy lifting in terms of creating new money, is the exact task that they've given Wash. They want the central bank to play a smaller role in the economy to the extent possible, but they want the central bank to cooperate with politicians on how to create a strong economy via the private system. And to me, that is an incredibly bullish backdrop, because if you're starting to fire on this on all cylinders and you're starting to treat monetary policy as an instrument for fiscal policymakers, we're starting to talk about monetary policy that always supports the notions of the administration, and that is potentially incredibly bullish. We still need to see how this develops in real life. But I'm pretty sure that we'll get some sort of moralized, formalized cooperation model between Scott Bessant and Kevin Walsh, which is a regime shift. Even though we obviously saw some cooperation between Janet Yellen and Jerome Powell, for example, during COVID it was much less explicit. It wasn't formalized. It wasn't put down in a treaty. They even discussed this openly now that whether they should formalize this legally. Right. So I think this is a regime shift in many ways in the Federal Reserve System. And we haven't even discussed the possibility of Trump gaining a super majority within the board yet because that sources also something that is potentially on the cards on top of Kevin Walsh coming in.
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Absolutely, Andreas. So very, very bullish outlook there. In any case, I think the notion that he is an inherently hawkish Fed chairman. Should be debunked for now. Then we'll see how things play out. But it's very, very obvious that he's been given a job and accepted to do that. So, Andres, speaking of regime changes, that was a very, very nice segue. We're obviously running our macro regimes. We do tend to into the show on occasion. Now I'm going to throw a complete curveball at our producer Peter and try and display our nowcast IQ service where we run the macro regimes and see if we can get it on screen here. So sorry for that, Peter. Didn't really prepare for that, but hopefully we can make it work anyway. So Andreas, when we talk about our macro regimes, it's a combination of the likelihood that growth, inflation and liquidity are on the rise. When they begin to point in the right direction, we can be in various macro regimes and right now we're seeing a shift from what we call QE like to gung ho as we see in the center of the screen here. What does that mean, Andreas, and why are we seeing this shift now?
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A
So I guess the short version of this is that the QE like regime that we've been in for say a handful of months basically since September, October last year was a regime that was dominated by decent private sector liquidity but weak cyclical growth and low inflation. And the big game changer now is that we see cyclical growth returning. So basically the green line that you're trying to highlight over there while inflation remains very low and liquidity remains on a positive trajectory. So I think the most interesting part here is that watching the reporting season last week, for example, with Alphabet, we still see rising capex also relative to expectations from many analysts. You know, the max 7 is probably surprised on aggregate like 40, 50% on top of already elevated capex expectations. That is to me a testimony to what we've been saying for Freeform run straight that the CAPEX window this year is one that you're going to utilize no matter whether you want it or not, as a CFO or as an executive in the US because we're talking about a clear incentivization to do CapEx exactly this year due to these bonus depreciation rules included in the big beautiful bill. So you're incredibly incentivized to do capex this year. Alphabet found out, Amazon found out. But all also smaller companies are starting to figure that out and they'll obviously be on the receiving end of many of these orders. So what I'm Trying to say here is that the cyclical growth outlook is improving because of this capex cycle. And I think it's still very underestimated. What's even more underestimated is that this cyclical backdrop arrives at the same time as probably the softest inflation reports that we're going to see in years over the next couple of months. So when we look at our now costs, one thing is to look at it probability based, but if we look at it nominally, we're talking about inflation that is running say between 13 and 15 basis points a month. So a bit more than 0.1%. The consensus for this week is 0.3% for the change in January. I'm not sure why every single analyst is stuck in this 0.3% every month mindset. That was kind of the case for a long while that we were running at 0.3, 0.3, 0.3. And every single month you get to the consensus that it will increase by 0.3. I don't think any of these people actually run the numbers, which keeps surprising me. But now casting these things and actually some of the Federal Reserve banks doing nowcasting get to the same conclusion that the consensus this week is far too high. So having said that, the biggest surprise element now that the capex cycle is slowly but surely getting massaged in is probably that we get CapEx cyclical spending and low inflation at the same time. To me that's a regime shift relative to what we've seen the past four, five months and one that speaks in favor of a rotation out of all of the trades that we've seen people rotating into from the get go of this year.
- [12:59]
B
That's interesting. So what are you referring to there, Andreas? The precious metal bets or inequities to.
- [13:06]
A
Some extent the precious metals bets. Actually I think the perfect backdrop that we had for that trade since late last year is behind us. If you look at the development across equity sectors, we've seen consumer staples trading higher, we've seen industrials trading higher, we've seen the energy sector trading higher, et cetera, also relative to consumer discretionary technology. Some of the sectors that have done very, very well over the past years otherwise. So it appears that we've seen some sort of rotation out of technology into real life assets if inflation comes down, which seems very, very likely given our now casting. It's typically good news for technology, but it's especially good news for consumer discretionary. And why is that? Well, think of consumer discretionary as spending that is slightly more exorbitant than just average everyday spending. When inflation comes down, the average consumer is better equipped from a purchasing power perspective to also buy things that are slightly more discretionary in nature. And I think that's the kind of environment that we're getting to now. So this is good news for Amazon, Tesla and stocks that are truly connected to this discretionary spending cycle, because that spending cycle would likely return now and.
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Could be oil as well. Andreas, to particularly one of the commodities is looking very, very strong. That's obviously very much related to the Iran issue, which I think we'll cover in a little while. So very, very interesting development. Andreas, I just also just wanted to show this. One second. I'm just getting to it here, this tweet by Donald Trump, because if we have this regime change address, we have to talk a little bit about what that means for crypto. I think we've seen during the year, and I felt this as well at the Real Vision conference in Miami, a big disappointment in what this administration has been doing for crypto. They wanted to make us the crypto capital of the world. Donald Trump reiterated this on Saturday. It seems like now the focus is back on crypto. But is this really, is this actually good or bad for crypto, you think? Andreas.
- [15:29]
A
I'll say a couple of things on that. I said during that exact conference that you referred to that I personally got very annoyed when I watched the live panels from Davos that exact same week, that all of a sudden all of the executives that we typically loaned once a year, you, we were laughing at them every time they were in the panels. And that was, oh, they don't get this. They still want to block it, et cetera. Now they're actually, to a larger extent, embracing the trade, which feels kind of odd to me. I've personally been in crypto also as a contrarian bet, and it feels less contrarian today, to be honest. Having said that, we also saw the Democrats tweeting a chart with the drawdown in Bitcoin and then a picture of Donald Trump on the golf course as and they received a lot of criticism for that. As far as I can gauge from various opinion polls, crypto holders are pretty divided between the two parties. It's not like there's a massive Mecca movement within crypto anymore. There probably was a year ago, but it's less clear today. So I'm not sure whether the Democrats trying to tattoo Trump's face to this drawdown. I think that's basically what they're trying to obtain here. But also comes across as slightly arrogant, if you know what I mean, towards the investors that have lost money. So I, I think crypto will be a battlefield ahead of the midterms. We know at least what we hear, that there will be a meeting between crypto companies, bank executives and the Trump administration on the Clarity act tomorrow, Tuesday. So they're trying to figure out how to get this across the line ahead of mid, the midterms. I can also see that various prediction markets now see it as a base case that the Kerry act has actually voted through ahead of the midterms. So it will be a major theme and one thing that I can guarantee you is that Donald Trump wants bitcoin in new all time highs by the midterms. I mean that would be a very important gauge for him.
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Exactly, exactly. At least as high as the levels of when he was elected. So absolutely, I think this is a run right now to deliver on the Clarity act. Log in those crypto donors first and foremost and then in eight months time to, to, to secure them or nine months time to secure them for, to secure the votes as well. I will so a very, very interesting address. Speaking of, of the Trump administration and, and its immediate surroundings, I want to touch upon Elon Musk as well. Andres, I don't know if you have because we often talk about things going to the moon. Elon Musk is going to the moon it seems and we, we, we received a lot of questions of this that tweeting a bit strangely for those unaware SpaceX has already shifted its focus so now it's all about the moon and not about Mars. The way I see this interest, I want your take on it as well. I don't, I'm not sure if there's a macro angle so this is just found it really interesting to me. This seems like Elon Musk is trying to align himself with NASA and line himself with the, the main source of funding for SpaceX ahead of an IPO. I don't know whether it's best to go to the moon or to Mars, but it's absolutely contrary to what he said in the past.
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So.
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Could this also be a driver for some of the investments into space tech that we see? Because a move to the moon is shorter, it could be more about building up data centers on the moon essentially.
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A
Yep. So a couple of things. First of all, I've always laughed at that idea that we need a city on the moon or a city on Mars. So that means who the hell is going to move there? At least I will not volunteer. Having said that, the space tech trade has been pretty interesting this year and we've seen great returns in our portfolio from that exact theme. Last week, Jim Channels, the famous short seller, in my opinion, basically trolled this entire data center community by saying, you cannot buy the data center stocks here on Earth because in a few years we'll have space data centers.
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Right.
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The same Jim Chano said two months ago that the return on investment of building a data center on Earth was very bad. I'd like him to complete the case of creating a space data center with a strong ROI right now. I don't think that's feasible either. Sam Altman got the question on a podcast last week, will we get data centers in space before 2030? He said, no, it's completely out of the question. I have to agree with that. Even though, you know, even though if we bring them closer to Earth, if, you know, I mean, I mean this notion that the Mars, the moon city is closer than the Mars city, is that more tangible?
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Okay, it's a reach. I get it.
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So what I'm ultimately trying to say here is that the space tech trade is first and foremost a bet on missile defense. In my opinion, for now, it's the best bet on this dome that Trump wants to build.
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Golden dome. Yeah, yeah.
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Have a golden dome, which is essentially much more tangible than this whole space data center, let's build a city on Mars thing. And I've been right that the high beta levered AI trade in tech this year was a space trade and not the quantum trade. The quantum trade was last year. And I think it's very related to evidently what you can see here, that we have this whole run up to the IPO of SpaceX, a lot of focus from the administration on this golden dome project and so on and so forth. It seems like everyone has forgotten about the quantum case X, the bitcoin investors.
- [21:34]
B
It's true. Andreas. Okay, finally, Andreas, before we round off here, I want to touch a little bit on Iran because it is to me still one of the big risks looming out there for, for, for, for market sentiment. We know that talks are ongoing. They crashed a little bit last week, talks between Iran and the US on the new nuclear deal. We had some ideas or some reports on what this deal might include. It's less about oil and trade than I had hoped for for. It's more about stopping the immediate issues, which is Iran's nuclear buildup, Iran's support for various rebel groups, and obviously the, the situation of the receipt. The regime in entirety in Iran. So the status right now and why I'm drawing attention to this is that talks are ongoing right now today, Monday, tomorrow, Tuesday in Oman. But Prime Minister Netanyahu is coming to D.C. on Wednesday and he's seemingly going to the D.C. with a pitch to bomb Iran heavily. Perhaps even the threat that if you don't do it, I'm going to do it. And for some reason address when we went back to May and the last bombing run on Iran that was, you know, that was presented as a done deal. We solved this and now here we are seven, eight months later looking at potential another bombing run in Iran because obviously they started up new nuclear, nuclear facilities and they staved off the, the rebellions that were ongoing. So to sum this up, I think you have an increased chance of a, of a US or an Israeli strike in Iran this week, which is obviously going to have huge impacts. Both typically in the short term drive volatility into markets uncertainty. But but, but slightly longer term also in, in oil markets which are already showing signs of, of, of, of an increasing oil price. This if we get this on the screen is probably going to push it back for a few days because the, the U.S. is sending J.D. vance to Aaban right next to Iran. So while he is in air or you know, within a few hundred miles of the Iranian border, I don't think they're going to attack Iran, but it could come later this week, towards the end of the week. So, so, so really something to monitor going during the week. It's not likely that we're going to have an elaborate peace deal. It's more likely going to be a framework deal. If we, if that's the route, if that can't be reached, then a than the US and Israelis are essentially ready to strike Iran, strike the nuclear facilities once again, this time probably even harder than last time in the hope that it will also shake the regime down there. So something to be, to be aware of going into this week, something to monsoon. Will all we obviously been be covering this on on Real Vision and mig.
- [24:23]
A
Maybe they should just send JD Vance to meet the Ayatollah in person. Right. Because you know, every time he met someone in person last year, they ended up dying a natural death shortly after. Right. So I mean maybe that's just from.
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Yeah, that's actually, that's actually a good, a good idea. The Ayatollah is getting old so that would cynically speaking solve a lot of problems if that was to happen happen. But but anyway. Andres. Yeah, something to watch. We'll be covering on Real Vision. We have lots of other great content for you this week on Real Vision as well. We are obviously you just posted your standard Signals article. I don't know if that's available yet. It will be very, very shortly. I have my the drill coming out this Wednesday with an update on the Iran situation and geopolitics in general. And then we post our portfolio update every Friday where we we are probably going to be making some changes this week or what. Andreas?
- [25:14]
A
Yeah, I think so because we've had this regime shift in macro. So you'll see some changes during the week from us. I'll also highlight that tomorrow. I'll try and spell out why I think Kevin Walsh as the Fed chair paired with this treaty, this pact with the US treasury will be incredibly credit and liquidity enhancing for the upcoming two to three years. They're trying to orchestrate a credit bonanza as we saw back in 2005-2007. Trump knows this is his last term so why not just give everyone a loan until the end of this cycle? I think it is an incredibly cyclical backdrop and one that carries a lot of ramifications for assets. And I sharply disagree with those people who expect this notion that the Fed's balance sheet should shrink in this scenario to impact asset pricing a lot because they're essentially just trying to cooperate balance sheets between the treasury, the Fed and the private sector in a way that is a lot more managed. You can debate the medium term consequence of this from now on until Christmas, but the short term consequence of such a cooperation is that that more credit will be given to the economy.
- [26:38]
B
Absolutely. And this is going to be out on the, on the alpha Alpha. Thank you. Sorry, I just missed the name on Real Vision. So if you are, if you've been lurking and wanting to try out Real Vision, this, this would be a, a very good time to try that out. It's not quite as expensive as the pro shear where you get the the full package in our model portfolio. So this could be a good way to to get started on Real Vision. So just a little suggestion there any final remarks address before we round off the show this week?
- [27:08]
A
No, but we've seen a macro regime shift. Inflation is coming down. The Wall street consensus is off on inflation. I dare to be cocky around that given the quality of the data that we have. While cyclical growth is coming up, it's hard not to be upbeat for the returns over the next couple of months here.
- [27:27]
B
That's great interest hopeful for that. Thanks to you for joining and thanks to everyone for watching this week. We'll be back during the week with a lot more content on Real Vision. And if nothing else, we'll see you next Monday.