B (3:08)

We should take our usual little disclaimer here.

B (3:12)

I think Italy got a decent group with the World Cups if they do qualify. But, but, but nonetheless, it's time to remind everyone that our trade ideas might be.

A (3:20)

Summertimes may be good. Summer times may be.

B (3:24)

Absolutely Jan there. Okay, Andreas, let's jump, jump straight into it as usual. We had a lot of Trump action over the weekend and I just wanted us the, perhaps the laugh of the week. You. This picture, they're, they're, they're laughing Anyway, how did you find this whole World Cup? I know you're, you're a big football or soccer fan, just as I am. Andreas, did you watch the draw? What did you make of it?

A (3:48)

Well, he got the, the inaugural FIFA Peace Prize, wasn't it? I, I have to say that the bald guy on the picture, Gianni Infantino, he's, he's a really, really good marketing guy, first of all. And he's really, really good at public relations, especially with dictatorships and.

A (4:08)

Sorry that I'm laughing at it. But he's also good at managing his relationship to Donald Trump. And I think this picture is very, very telling in that regard. Obviously, he needs to be able to manage that relationship given that Trump is the host among a couple of hosts next summer. Right. In any case, really much look forward to it. And he even got Donald Trump to say that there is only one type of football, so they need to find a new word for the NFL. That was a big, big, big sentence to be absolutely.

B (4:40)

Okay. I just enough about football for now. It's going to be a great show, I'm sure. And I think you're absolutely right. Infantino has managed this perfectly to, to, to remove some of the risk for that tournament at all. Something else that came out of the, the Trump administration seemed like over the weekend they agreed that what they should be marketing now is that perhaps equity returns haven't been too great.

B (5:05)

In the second Trump period. But look at the bond returns I've just posted a picture here and I mean, this is true, but is this the goalpost now? What does this even say? Andreas.

A (5:18)

The timing of this chart is a little bit interesting given that we've actually seen rising bond deals the past week here also today in yearly trading. But I think there is some merit to this, to be honest, because.

A (5:31)

I think a lot of people expected the Bund market to riot against this Trump administration this year. It initially showed signs of turbulence back in March, April, around the Liberation Day, et cetera. But ultimately we've actually seen much better performance in the US than elsewhere in bond space. While that hasn't been the case in risk assets, it has truly been the case in bond markets. And I think the reason why they're trying to tour with this message is obviously that they've had a focus on, if not balancing the budget, then at least trying to contain the damage in a sense from the growing deficit, from the lack of momentum in terms of balancing things. And they've had some luck with that.

A (6:21)

In part due to tariffs, but also to some extent due to other sources of revenue.

A (6:30)

I think on a rate of change basis they've actually done well. It's a big ask to fill the void on this budget, but on a rate of change basis they've done okay and I think I expect them to do okay next year as well.

B (6:46)

That's a fair analysis, Andreas. I was beginning to wonder if the Trump family had made the full pivot from meme coins to bonds. This is the great season for that, but we're not quite there yet. Andreas. Okay, let's stick with the US economy, Andreas, and take a bit of a deep dive in into the US job market because obviously we had numbers, the ADP employment numbers last year. We have the breakdown here by industry. So was this as bad as it looks or what do you think is going on here?

A (7:14)

So if you look at the overall job creation, it was slightly negative on the month. And at least if we had received such a drop report say a year or two ago during the Biden era, everyone would have panicked because the US economy probably needed to create a couple of hundred K jobs a month to stay in balance back then. Now I think this is within the feasible outcome space of what we should expect given the Trump policy mix on this. The breakeven job creation rate is maybe 30k jobs a month now that the labor force shrinks, that they've turned the tide on migration, et cetera. So if the average break even rate is 30k, you should expect some prints below zero now and then without panicking. And the market really didn't panic too much either. The interesting thing here is that this could be used as an excuse to cut interest rates. And given that inflation is still printing substantially above target.

A (8:25)

They probably need some excuses into next year if they want to cut interest rates all the way to the midterms. Right. So I think this is actually in turn bad news that will prove to be good news because it will allow the Federal Reserve to continue cutting. If you look at the details of this ADP report.

A (8:44)

I'd actually argue that it's slightly worse than what was reported because look at education and health services. It's essentially the only sector that holds up job creation. And it is a sector that is not a true depiction of what's going on in the economy.

A (9:03)

Yeah, construction, manufacturing, etc printed negative on the month and then we had quite substantial net negative job creation in information services and professional business services, in my opinion, very related to AI.

B (9:17)

Yeah, that was what I was going to ask you. How much does AI influence this? Because it seems to me that the job market is changing. We're perhaps not there yet. I know we're not there in manufacturing or construction necessarily, but how much of an effect is AI making on this? And when do we come to the point where this is not necessarily relevant for the economy because it's simply a matter of AI taking over these jobs?

A (9:39)

We've heard this doomsday story about robots taking over the labor market for decades. For once, I actually think there is some, and let me underscore some merit to it this time around as AI is able to replace a lot of manual jobs in services very much related to consulting, tech and stuff like that. And we actually see the impact on hiring in the exact sectors that we should expect to see the impact in, which makes this an even more feasible thesis. So I think slowly but surely we're starting to see some evidence that AI is impacting the job creation and it should. It has impacted the job creation in our little shop, Miko. It has impacted the job creation in many similar shops around the globe. So when you aggregate all of that, there is obviously a macro impact here. Kevin has it. We will need to discuss that guy in a second. Probably the next Fed chair. He said that he expects a 4% productivity print next year. I wouldn't rule that out, but it would take AI productivity gains to get there. Also bigger gains that we've seen this year.

B (10:56)

Yeah, and the Fed, and I mean the entire category of economists might need to recalibrate the reading of these job reports because on one hand, it's not as much of a macro indicator whether jobs are being created because they've been replaced by AI. On the other hand, if jobs are disappearing, you have people without jobs. So it's still a policy issue. Before we get to Kevin Hassett and the Fed address, I just wanted, I'm still sometimes trying to wrap my around this, that while we see these weaker job reports, we have this, the temporary hiring re accelerating. And is this a matter of people getting laid off and then hired back or hired temporarily into other services or how do you read this?

A (11:39)

So this staffing index is, you know, it covers temporary hiring in the economy. So what I'm still not 100% certain about is whether this is a side effect of the ICE efforts to deport illegal migrants or not. So.

A (12:00)

Simple question here, Miguel. If you're an employer and suddenly you're faced with an ice, right, and some of your employees are getting deported, you probably call a company able to help you with some temporary solutions to that problem, Right? So that could be one way of explaining why this staffing index for temporary hiring is more or less through the roof while the business cycle is not really moving, because usually they move in tandem. The other way of explaining this is.

A (12:34)

I think it's related to the uncertainty around tariffs. We still don't know whether tariffs are on or off. We still have that ruling ahead of us from the Supreme Court. So if you're a company with an improving orders book right now, would you hire permanently or temporarily to match that order's intake? I would probably, as an executive, decide to hire temporarily right now. And that is typically why we see temporary hiring early in a reacceleration phase. Because if you're an executive and you have a muddy outlook, but you start to see improvements, you typically decide to temporarily fill that gap before permanently deciding to do so. Once the order book is a little bit more permanent, we'll have to see.

B (13:22)

In any case, address these reports, especially the ADP report.

B (13:27)

Will be a huge indicator for the upcoming Fed meeting. Let's just stay with what happens on Wednesday and we'll get to 2026 address. Do you see any risk of.

B (13:39)

A surprise, of an upset here or are we going to get the cut that most people are expecting here?

A (13:44)

Yeah, I won't get the cut.

A (13:47)

You know, it's incredibly rare that a central bank decides to rule against the bond market. And that would be the case in case they decided to.

A (13:58)

Leave rates unchanged. The big Question to me is the liquidity question and of course also the guidance for next year. I suspect that we will get fairly limited guidance since Powell is running towards the end of his reign. Right. So he'll probably, as I've said many, many times now, try to get to the finish line in one piece, deliver a few rate cuts, stay in the middle of the road, try not to upset anyone until April next year, and then we'll see with the next year. Kevin Hassett but on the liquidity question, maybe we can bring up the chart on the funding gap that we have between now and New Year's. The top panel here is a measure of bank reserves available to the financial system. Bank reserves are used to settle interbank trades based on Fed funds so far, et cetera. And we've seen hiccups in these repo rates, especially since the government shut down and the buildup of the Treasury General Account. So we simply have a lack of bank reserves or scarcity of bank reserves available to settle these transactions.

A (15:13)

On my best estimates, we're talking about a gap of 250 billion. The federal Reserve is aware of this. They've hosted a couple of emergency meetings with the depository institutions on the receiving end of these bank reserves. And I guess that will get a conclusion one way or the other from Jay Powell on this. This is a slightly technical matter, so it is not necessarily something that they will have to address.

A (15:40)

Exactly. During this meeting they could also take a technical decision on this topic outside of the regular schedule. But if they take a more formal decision on this, it will probably be to launch some sort of light QE program, maybe buying, say 40, 50 billion worth of t bills every month. But. But to me, that is a suboptimal solution to this because it will take five, six, seven months to get us back above pain levels in the funding market. If they only buy 50 billion a month and we have a gap of 250, that's at least five months of buying before we're back where we need to be. And we have this change of the legislation around supplementary leverage ratios upcoming in the first quarter of next year, which will likely help alleviate a lot of these issues since it will reduce the need to hold bank reserves from a legislative perspective for banks. So what I'm trying to say here is that I think the smartest solution to this is to announce some kind of a term repo at this meeting saying, okay, from now on until mid Q1 will provide endless liquidity at this level and try and.

A (17:02)

Fill the gap from the Gap with a temporary solution instead of a more permanent one. Until we have the full picture of how these legislative changes to the supplementary leverage ratio will impact repo markets next year.

A (17:17)

Let'S see what we get. We'll get one conclusion or the other on this, and I think they'll address it. Let me put it like that. And ultimately we should salute that. Markets will probably also cheer.

B (17:29)

Yeah, sounds like just what we need. Andreas, let's talk a little bit about this guy. Kevin has an address. I had a question. I just need to get it here from an excuser called Walshi. If we get a hawkish cut from Powell on Wednesday, will markets look through it with the likelihood of Kevin Hat's hazard as Fed chair and plenty of rate cuts in 2026 or how. How do you think the outlook is going to be?

A (17:55)

Very good question. Because one thing is the Fed chair, the other thing is the.

A (18:02)

Committee overall. And I think I need to remind people of this on a running basis when I talk about the next Fed chair. No matter the next Fed chair, they're still going to vote. The committee is still going to vote on these decisions. So even if Kevin Hassett is a loyalist and he's trying to get Trump's way, so to speak, in the committee, it's still a democracy, that committee, and he's only got one vote. Right. So.

A (18:36)

The optics matter a little bit more.

B (18:40)

Sorry.

A (18:40)

A little bit less practice. So I think from a market perspective, the. The point of view I'm trying to make here is that Powell is just one voice, HACC is just one voice. You'll need to have a look at the composition of the votes on Wednesday. And if it's a very, very tight call whether we get a cut or not, which may be the case, it depends on whether Paul is able to convince some of these members currently against.

A (19:12)

Voting with him, because I think he'll vote for a cut, then we should have smooth sailing. But if we have like maybe 4, 5 voting against, then it's probably the first glimpse of what we'll see all next year. Like a very, very divided committee where Kevin Hassett will have tough time trying to form any consensus around anything. And then all of these small tricks they have up their sleeves in terms of trying to orchestrate a super majority in this committee. President Trump have talked a lot about that, trying to form a majority in favor of their policy stance in the committee, then that will certainly become the next major question. But the majority is there for the rate cuts still, but it may be a tiny one. So I think the composition matters more than what Powell says. Yeah.

B (20:01)

So there's going to be a lot of reading between the lines here, Andreas, and reading the vote count, essentially. Perhaps I just wanted to throw in here, Andreas, before we move to some further listener questions here.

B (20:13)

A couple of charts on the. On the expectations for next year. Markets seem to be completely confused about how many cuts we're going to get next year. I know this, that there's a lack of guidance. It's very, very hard to say. Perhaps we can focus in on the, on the January meeting with the, with the consensus being no, no cut. Do you have any idea of this or do we simply need to need the guidance from the, from the board?

A (20:39)

So I'm currently staring at the forward pricing of interest rates also in Bloomberg while we bring up this chart as well. Miguel. And we have, I think 43 basis points priced in between the meeting this Wednesday and the meeting in April. So that's four consecutive meetings and 43 basis points priced in total. That's one cut this week and less than one cut at the three subsequent meetings. That is.

A (21:09)

Almost puzzling to me given that we will receive the third rate cut in a row this week. And even though there's been some internal discussions on whether to continue or not, my best guess is that Powell wants to get to 1st of May. I think that's where his terms end.

A (21:28)

In one piece. He'll try to form a majority around at least another rate cut, maybe even two during the first quarter of next year to get there without too much. No, that's all that counts for Powell now, given the now cost. And the Federal Reserve also do now casting on inflation. We do not see inflation accelerating at the moment. So his legacy will not be one of runaway inflation. Even if he cuts a few times next quarter, we will not see the impact on inflation between now and then. So I think it's very likely that the untucked. Talking about Paul's personal incentive structure here is that he tries to, at least to some extent, massage a few rate cuts in there to avoid too much turbulence and too much noise. Because there is a majority in favor of doing that. And as long as that's the case, it's what Powell will pursue. So we don't have enough cuts priced in. If you look at the entirety of the year next year we probably have, yeah, a bit more than.

A (22:35)

Three cuts between now and then.

A (22:39)

It's not enough. It's not enough. And I'll stress that again here, way too few cuts priced in.

B (22:49)

Sounds Great, Andreas. Okay, we have time for a few questions address. So we're gonna be diverting ourselves a little bit into some other topics here. But, but that's, that's, that's always fun. Eli Monsure from X is asking are indust commodities and mining companies the place to be in the next six months? He's talking about fertilizers, copper, et cetera.

A (23:10)

It's a very good place to be. At least one of the things.

A (23:16)

That one of the assets or asset classes I like the most for 2026 is commodities. Broadly speaking as a consequence of the impact that we'll likely see from the Fed cutting cycle on the dollar first and foremost, but also as a consequence of some of these supply scarcities that we're namely in copper but also in other industrial metals as a consequence of the terrorist policy.

A (23:41)

I've written a lot about that. You have a huge idle inventory of copper in the US now because every executive needing copper in the supply chain basically told everyone to get copper into the US before those fucking tariffs arrived. As simple as that. So the US sucked in a lot of material and given that you have import tariffs now, it's not going to be a feasible case to re export those to fill the void outside of the US So we have this odd scarcity of copper outside of the US with no economic incentives to re export the copper from the US to the rest of the world. So I think that is a story that holds true for several of the industrial commodities. And when you have the dollar cycle in mind as well, paired with what is hopefully a business cycle take up next year into the midterms, I think it looks very good for commodities. We've also seen a very clear technical breakout. And yes, we have copper miners in our portfolio. We also have a few single names that you can find and if anything we have too little exposure to it.

B (24:54)

Okay, let's do a question from Steven here. How are you liking IRIN still after their dilution last week? Do you still see it as a long term hold?

A (25:06)

Long term hold is a really good question in an AI cycle that is as outrageous as this one. I think iron is an asset heavy company and an asset heavy company is very much dependent on an accelerating CAPEX cycle. So I think the CapEx cycle will accelerate even more in 2026. That's good news for an asset heavy company like iron and there on a cyclical basis. I still like the stock a lot next year. As with other infrastructure plays in the AI space, I'm not sure that this is a place to hide in a rate of change downturn from a capex perspective because you're essentially the back holder as the infrastructure play when the rate of change in terms of the investment pace slows. So. So from that perspective, Aaron will prove to be one of the most cyclical plays on AI also going forward up and down with the cycle, but the cycle is still pointing up.

B (26:13)

Okay, we have a fresh question here that came in live on X. I'm not sure we're going to get it on the screen, but it's from a guy called Myers on X. I think it's really interesting. What are the arguments for and against The Fed buying 45 billion in T bills starting January 1st versus them waiting. What's the RV view on this? And the Fed adding repo liquidity? You've touched a bit on this, but an interesting angle to it.

A (26:38)

Yeah. Yes. So this suggestion from the viewer here is quite similar to the one I discussed ahead of Wednesday that they could more formally decide to fill this funding gap with a long term plan buying say 50 or 60 billion dollars worth of T bills every month. But I think the counterargument against that is that it will take five or six months, it will take half a year to fill that funding gap. While the funding gap is very much present and incredibly present between now and first of Jan.

A (27:11)

So in conjunction with that they need to add some liquidity via term repos or another facility or else they'll just stick to the communication that the standard repo facility they have in place is sufficient. I don't think it is for a lot of reasons that I've written about. So I think the major argument against that long term plan to fill the funding gap is that it will take too much time to fill the funding gap. And second argument against is that most of the Trump lieutenants, they've been tasked with bringing interest rates lower and bringing the Fed balance sheet lower at the same time. That's what we've heard from Stephen Mirren, we've heard it from Chris Waller to some extent. So it's not something that the Trump administration is a fan of.

A (28:00)

Permanently increasing the size of the balance sheet. They want other ways of solving this repo market mess. Among other things, this supplementary leverage ratio guidance for next year, which is in my opinion a big deal. It will add more than $1 trillion in repo capacity for private banks. You can read about all of that in the liquidity piece that I'll put out in two or three hours.

B (28:26)

Christoph, that's all we had for you this week, lots of great content on Real Vision. This week, we'll have Andreas's Stainless Signals piece, as you just mentioned, out in a few hours for the pro subscribers, but lots of great stuff in the other tiers as well. We're looking very much forward to next week and to the rest of the year, where we'll be catching up on the Fed meeting and on the outlook that we discussed today, among many other things. So thanks to you, Andreas, for joining the show. Thanks to everyone for your questions and your attention. We'll be back next week.

A (29:19)

Sam.