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- [00:00]
A
Foreign.
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B
Hello out there. Welcome to Macro Mondays at Real Vision. My name is Miko Rosenwald. I'm your usual host and as usually, I'm joined by you, Andreas. Welcome to the show.
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A
Thanks, Michael. It's good to be live on air during a US holiday.
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B
Once more US Europeans are at the assembly line while the Americans are taking another day off. That's how it usually is. And we're all American team today. We couldn't get a producer, so we have a European producer as well. So I think is it President's Day? It is in years. I don't even know what that is, but I read as much.
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A
I think Mikael, the big difference is that we, we don't need to label a Monday an off day or a holiday. We just take the day off. Right?
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B
Yeah, absolutely, absolutely, absolutely. So Andre, you told me that you got caught on a trying to get a shirt delivered today as well.
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A
Yeah, well, I think it was on Friday. I bought a, a shirt online and it looked very true, the webpage and everything. And then I received an email today stating that it will not be distributed to me until I think the 28th of February due to the lunar holiday season, Luna holidays. So I, I may, may have bought something fake. Let me put it like that.
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B
Let's not alone in that. Andres. I used that as a poor segue to pull up this chart from the Guardian, a graphic from last week. We can get it on screen here that apparently 23% of the GDP of Myanmar, which is quite a big country, is cyber scams, which you have probably contributed to, Andreas, an estimated 120,000 workers. That's an extreme number, Andreas have. I mean, yeah, you've helped finance this possibly. How do you even work with macroeconomics in a country where a quarter of the economy is a cyber scam? I don't know. I'm glad we're not covering that part of the world. All too much here. Andreas, Rather, as you know, guys, this is our weekly macro show free show where we give you a sneak peek into our macroeconomic research that we publish at Real Vision. For full access, you need to sign up to the Real Vision Pro Tour where you get access to our model portfolio and all our research. So, Andreas, lots to talk about today. We haven't had a red hot week in headlines to trade for, but still lots of stuff going on. Some very major rotations in markets and maybe we should begin there. Andreas, I love this meme that we keep using for almost every time we have an AI scare in a new sector and we are currently seeing AI cutting deep into the SaaS sector, perhaps especially in the financial realm. We're even, especially Danish companies being hit by an AI scare in logistics as well from. From a very, very strange Asian company as well. So. So is this cloud code? What is this driven by? And how are you seeing this in markets right now?
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A
Yeah, so we have this kiss of death going from sector to sector to sector at the moment, and it's quite tricky to navigate, to be honest. I think it was on Thursday or Friday we had this white paper released by the company you referred to in. In the trucking space, I think.
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Found.
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Out that they could increase their shipping volumes by 300% just due to AI without adding any costs. And then all trucking companies basically fell out of bed. Not an AI story that I had on my plate, to be honest. And therefore we probably should have put trucking in there instead of financial services. The reason why I put financial services in there is to have a look at ourselves, basically because, I mean, there is so much going on within our sector. And I wrote a blog the other week stating that I think between 90 and 95% of the work that we typically have the team doing, the two of us, has now been automated by agents, and I sincerely mean it. So we're talking about that kind of progress over the course of 12 to 18 months, and yet we're stuck here with a fear that moves from sector to sector to sector, even though this is major step forward for technology, a major step forward for mankind in many ways, in my opinion. But we're currently at the stage where no one really gets where this is going. We're at the stage where it accelerates so rapidly that if you extrapolate the trends, we're all dead in a couple of years from now.
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B
Right.
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A
So it is incredibly difficult to navigate as an investor. And one of the things that I see a lot at the moment is this focus on the vast amount of capex needed to bring forward this AI revolution and the impact on the big seven companies in the US typically known as the hyperscalers. Right. And I've borrowed a chart from a colleague at BCA Research, and I admittedly took a stab at him on X over the weekend. His name is Peter Bereson. He's a great guy, but the typical grumpy old man type of guy working within equity and credit strategy. And he posted this chart on the free cash flow on X. That's probably part of his broader analysis on the topic. And it's quite visible that the free cash flow is in free fall, to say the least among these big hyperscalers. Obviously as they spend they're building out their infrastructure. In some cases they're trying to alleviate using Nvidia chips by spending a lot of money on R and D on their own chips. And the big question here is obviously the other side of the coin because it's pretty straightforward.
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If you spend a lot of money.
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You don't have that cash readily available for buybacks or whatever you could use it for. I think that's textbook stuff. It's not like we need to lecture people on that. I think the missing link to this discussion right now is is there a feasible use case on the other side of all of this capex? And my best guess is still that it's very, very underestimated how much of an impact this will make. But it's very tricky to convince these grumpy old men sitting there in their portfolio manager positions that it is a good idea to undertake this kind of capex until you actually see the results. And we don't see the results yet.
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B
No. And address if one of these companies did the flip of this prioritized buybacks over AI investments, where would that lead them? What would the investment case be? There, because as you say, we're seeing AI going from sector to sector to sector. The companies that are surviving, that's what we're seeing so far, are the ones that have some kind of moat that can either be an extreme technological edge or integrations effects or most likely network effects, user effects. So these companies are racing right now to win this and then they will worry about the cash flow later. That's how all of them build their business to some extent. We talked about for years, is Google ever going to make any money? How's Meta ever going to make any money? They ended up doing so because they won the race in their specific technological niches. So in my opinion, address, if I was at the head of one of these companies or other software companies or hardware companies, what's the alternative to not invest in AI, to not be part of this race? That's also quite an acquired decision.
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So Miguel, I asked my audience on X, what is the bigger risk for the Max 7 to over invest in AI or to underinvest in AI and the result is a 50 50. The survey right now basically means that no one's got a clue. Or maybe we're in this very tribal situation again where one part of the market is incredibly upbeat on this and one part of the market is incredibly downbeat on this. I don't know really. It makes for a very, very uncertain near term outlook for a lot of sectors. From a price action perspective, what I'll say is this, you can actually prove that over a long range of data sets. If you invest in companies that currently undertake loads of capex, when they grow their asset base a lot relative to the size of their business, it's typically punished by markets. The market does not buy into it until they see the results on the other side of that CapEx investment. So I think, simply put, Max 7s will be tricky to buy as long as they spend this much. But they will probably turn, at least some of them will turn into huge investment cases once they start harvesting the returns of this. I'll add this using this very simple logic that you should never invest in companies doing capex. If we had followed that very simplified logic, it would have left us all driving around bullet cards still, wouldn't it? Of course, very short term capex is negative for your cash flow. It's by design.
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Right.
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We probably underestimate the future returns in many of these cases as well.
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Yeah. And it's a matter of survival at the end of the day for these companies. That's also where we're at. Okay, Andreas, let's dive into some of the recent macros here and look at the inflation report from Friday. Andreas, we can pull up the decomposition here. So we had another relatively soft inflation print. How much of this is AI driven and how much of this very clearly also energy driven. But how much of this is the beginning of the expected deflationary effect of AI that we're seeing in the economy?
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A
I think it's hard to judge at this stage, but let me put it like this. We've had, I think, 10 inflation reports since Liberation Day and the added tariffs and seven of them came in substantially softer than expected. We've had most of those inflation reports.
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Right.
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Because we use big data series to track this instead of trying to second guess based on tariff effects and all of that. And we still get to the conclusion that inflation is softening. And the report we got on Friday mostly confirmed that we had one big outlier. You can see towards the bottom of the panel here within transportation services rising 1.35% on the month. Outside of that, we had mostly benign developments, both in shelter in all sorts of goods categories and food prices and especially in energy prices. So what happened in transportation services? This is something to worry about. We had the biggest spike ever in registration fees for Autos and we had the biggest spike ever for parking fees. The two combined rose, I think more than 6% of the month. Never ever seen anything like it. So please tell us out there if it has become a lot more expensive to park your car since December. I don't know. At least it wasn't something that we picked up in our data. So it looked like an outlier. And therefore I'm pretty comfortable saying that this inflation trend is fairly benign and something that is underappreciated still.
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B
What's the immediate effects for the outlook for rate concentrates? That's the obvious question here.
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I think the market is very hell bent on not pricing in anything before Kevin Walsh is in power. So his first meeting will be in June. I don't think Paul has ruled out cutting and you know, to my understanding of the situation, I think it would be a feasible scenario to expect him to try and orchestrate maybe one cut before leaving office just to get there in one piece. He's been very focused on trying, you know, to round off his presidency in a decent way or chairmanship in a decent way without getting too involved in all of that back and forth with the administration and delivering one way cut. If he is able to convince the committee over the next couple of meetings. I wouldn't rule it out, especially given our inflation statistics. I mean it would be, you know, if we look at it live here in February, the outlook is even softer for inflation than what we saw in January. March is typically a very soft inflation month, seasonally speaking. And you can see on Outcasts here, and I mean we're currently running at a 90% probability, that's how you should read it, of falling inflation relative to the most recent print. So I think it looks very benign.
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And there to support a cut. I see.
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A
And on top of it we see this early stage cyclical reacceleration in the US which is by the way in sharp contrast to what we see in the Eurozone now where this cyclical growth picture is moving in the other direction. Yeah, we have the data here where you can see the light blue in the Eurozone basically peaked right around this whole Greenland debacle and the threat of new tariffs and all of that. So at least beneath the hood the cyclical momentum is moving to the US from for example, the Eurozone and elsewhere around the globe. And I'd like to add one chart in the context of that, which is page 10 megal. Yeah, I just saw this posted by another analyst earlier today. We're talking about US equities versus the rest of the world here return year to date worst ever US experience performance relative to the rest of the world since 1995. You could probably find outliers back in time, but it's an incredible outlier and I think it's very interesting outlier. Given what Marco Rubio said in Munich, maybe that's a good bridge to that discussion.
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B
Yeah, it is. I've had a lot of questions about this and I'll expand on it in our the Drill article this week. Also covering Ray Dalio's admittedly very, very good article on Twitter this week. It was too long, so a lot of people asked me to summarize it. I'll do that on Wednesday and give you some takeaways from what's really important. What we saw from Marco Rubio was really, really interesting. It basically underlined for me that this the Euro bashing has several phases. Marco Rubio is. Was much more smooth to European ears than JD Vance was a year ago. But the message is. Message is the same. As he put it, we still want to have beers with you, but friends pay for their own beers and that's decoupling. Andreas, Europe has to pay for its own independence. Fair enough, we'll do that. But that's also loss of US power. That's a new cause for the us. The US used to be completely okay with buying for beers as long as they decided where we all went. If you don't buy the beers, you. You don't get to decide where we all go. So that is the shift that we're seeing. I'll explain I don't know on Wednesday, but it underscores this decoupling as well, both between Europe and us on certain areas, but obviously much more vital to the global economy, the decoupling between US and China as well. So we're seeing that. Other than that, we had pretty much the expected talks at Munich. I'd say we didn't get too much news out of the US Denmark meetings on Greenland, which is a good thing. It's a bureaucratic matter rather than a violent one. So all in all, pretty much what we expected to hear of Munich, but obviously testament that we are looking at a new world order where the US is behaving quite differently. One thing that is, I would always almost say business as usual is the US gearing up for a war in the Middle East. And I'm not saying this to bash on the us There are lots of reasons to be against the Iranian regime. Horrible regime. I'm just mentioning this because I think people tend to forget it that we have almost a third of the U.S. navy deployed near Iran. So this tells me two things. One is the military is obviously opening up options for Donald Trump. This doesn't mean that you have to use it. You can pull these ships back, but there is a certain path dependency to this. Secondly, the deployment of a second carrier task force tells me that the US Is now building up the option or opening the option of prolonged conflict with Iran. So we're not necessarily just talking about hit and run type attack like we saw in in the late spring. This could be built up to a prolonged at least the capabilities are there. So negotiations are ongoing. I don't think we're going to see US attack on Iran just now, but the risk is there and it's something you have to factor in. Overall, this was less of an issue at Munich than I had expected because of this military buildup. But that probably also goes to show the importance of us here. So, so we'll cover this much more in the drill article. Address I wanted to get to to to one or two lister questions here. One that that ties in with our now casting. Let me see if I could get it on screen here. One second. It was from we remain bullish. Wonderful handle on on X. We want to hear updated views on gold and gold miners, please. We have some interesting angles to that, but I'll let you start. Andreas, what's your position on gold and gold miners? Right now?
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I'm moderately upbeat. We have them in the portfolio, I think with a weight of slightly less than 5% in all transparency, we've seen better environment for gold than what we see right now for a couple of reasons. The regime shift that we've shown you in our now casting, the one where the US picks up speed relative to Europe, basically means that our now casting has flipped a little bit more dollar positive. So on the dollar leg of the equation, you don't have the tailwind for gold. We've also seen the dollar stabilize a little bit relative to peers and we see it rising versus the Japanese yen, for example, today. So I actually think the dollar will at least near term find some stability here, which means that the basement bed is not as live as it was a few months back in the gold trade on top of that. And I'd like you to pick your brain on that as well. Michael, we saw this story emerging last week around Russia providing a suggestion to the US on how to reintroduce Russia to the dollar system and the swift system and all of that as part of a broad package when they negotiate the PE in Ukraine. And I've said this over and over and over, that the biggest risk to the gold trade is a peace in Ukraine because the war in Ukraine was what started this gold trade. So, I mean, where do you see this heading, Michael? Is there some merit to that? Stories emerging in Bloomberg last week?
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B
Yeah, absolutely, I think so. Obviously, I don't know what's going on within the Kremlin, I don't know what's going on in the talks between the US And Russia on this. But what we do know is that Donald Trump has pushed for a peace in Ukraine, including a gradual reintegration of Russia into the US Led economy, essentially the market, the trade system. So this is going to be very, very controversial for Europe. Let's leave that aside. But what Trump is trying to do is saying, okay, if we can make a peace in Ukraine, why shouldn't we trade with Russia? Why should we keep up sanctions with them? Because the only that does is push Russia closer to China. So Donald Trump is saying, okay, Putin may be a bad guy, what he's done is horrible. Let's forget that and begin trading with them and try and pull them away from China. If you flip Russian China, it's exactly what Richard Nixon tried to do in the 70s where he went to China and tried to pull China further away from the ussr. And strategically, geopolitically, it makes a lot of sense to do this. And part of this will be reintegrating Russia into the dollar system. Because although this talk about the dollar losing its role as a global currency is overstated, the one place where it has lost that role is in Russian fossil exports, which are more commonly settled in yuan. And I mean, to pull Russia back into the swift system, using dollars, reestablishing their gold reserves, easing pressure on. That would make a lot of sense if you can sort of hold your nose and forget what Russia has done. So obviously this came from the Russian side, but I think it came from the Russian side because they sensed this openness from Donald Trump to not only negotiate with Russia, but also initiate what I would call a rapid reintegration or normalization in the relationship with Russia. And that's interesting for a number of factors, but especially the gold trade. Because if Russia can get their gold back, a lot of the case for these countries to hold as much gold is it evaporates a little bit. It's not that practical to hold so much gold if you don't necessarily fear it being Confiscated. So absolutely, I agree with that, Andreas. It's still intangible. We still need to get closer to a peace deal in Ukraine and see confirmation that we are on this path of normalization. But it's absolutely something to watch out for. And a forgotten piece to this.
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A
But Miguel, let me add this. I used to work as the head of strategy and macro in a bank with a huge operation in Russia. And it sounds like it's decades ago, but we're talking about five years ago. That bank obviously left Russia when all of this happened. But it's not like we didn't have a relationship trade wise with Russia five years ago. So what feels incredibly unlikely today was the reality five years ago. So all I'm just reminding people of here is that in five years from now it could be reinstated. That's not an unlikely geopolitical event. Everything happened so fast in 2021, 2022. But if a deal is settled, probably things will normalize faster than you anticipate in many ways. I just have to remind people of that, no matter the morals of it. Mikael, maybe we could conclude with a few snippets from our AI model on returns across asset classes in the current environment, because there's a decent angle to this also in the commodities space, now that we talk about Russia, Iran and stuff like that. If you bring up the pattern recognition model on commodities first. Here we go. I think it's very interesting that oil is currently flagged as the best risk reward trade in macro in our now casting techniques. And it is flagged as a decent trade risk reward wise in what could typically be characterized a Goldilocks environment, where you see cyclical growth going up and inflation going down. And as I've written a couple of times to our clients, it is the kind of environment where you can actually hold energy and at least parts of the technology space at the same time. Which is kind of an odd cocktail. But we're so early in this on ground domestic recovery in the US that oil is probably still early in terms of recovering. And we've been stocking this 60 to 70 range for a long time and now we're starting to see signs of oil picking up. So I think that's still a decent trade, also a decent tail hedge if something happens in Iran. Right. And as you can see here, the gold future, decent risk reward, the silver future less so. And the regime we had until say a few weeks ago put both gold and silver at a 10x here. So I mean, we've certainly had a regime Shift in truck commodities. Given our now casting techniques here, I'll show a few charts on the rest of the asset space as well because I essentially think that it's very interesting what we see across the board. For example in bonds as well. The bond market has been, it's been struggling for a long while but for the first time in a long, long, long time our now casting has flipped positive on global bonds. I also think I would pull out that it could turn out to be one of the best AI traits at all if AI is actually passing through the CPI index and all of that as we see some admittedly early signs of so I don't think Bundt yields will will pick up in this kind of environment, at least for the next couple of months. I think we'll have benign interest rate developments, especially in the long end of the curve as well. And typically that should brighten the outlook and soften the fears a little bit around the duration trades and equities as well. That's maybe the final chart I'd show here on page 17 nickel to give people a glimpse of what's going on in the equity space. It's a little small here, but the interesting thing is that you see very bullish trends in both information technology in semiconductors at the same time as you see very bullish trends in for example the Polish ETF or the Korean etf. So basically what you see here is a very cyclical setup with energy and manufacturing trades doing well at the same time as a softening of the duration bets in information technology in semiconductors, et cetera. So I think this is an incredibly interesting backdrop and currently one that is not super appreciated by the market due to these AI fears moving from sector to sector. But at least if macro is to be priced in, there is some respite coming up for the software as a service companies, so the big technology names, et cetera. I'm still of the view that it makes more sense to buy into the supply chain of the Max 7S rather than the Max 7S themselves. So buy the companies that will receive the capex instead of the company spending the capex, if you know what I mean. But that's more of a top down view of qualitative view than a quantitative view, if you know what I mean. So I think I will leave it at that this week. Nikol, this is not appreciated by the market. This Goldilocks scenario is not priced and we see it every single month. And as I wrote out last week, especially on inflation, it seems like it has become a politicized arena after Liberation Day and the tariffs and all of that. But the big data suggests that we see a very benign inflation environment right now and longboard deals coming down.
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B
Interesting address. Give us a few words on the shows you have on Wednesday address for the, for the subscribers in Real Vision. You have a talk with Raul and you have an interview. Right. On Wednesday.
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Yeah. So I'm on the Journeyman this week. Yeah. With Raoul. And then I'm hosting Jim Carson for a discussion on volatility. I especially look forward to picking his brain on how to navigate the sector to sector to sector volatility that we're currently seeing. He's one of the best volatility guys out there. So look very much forward to hosting him then. If you're keen on exploring my views on this capex cycle and how it impacts the technology investments, you need to sign up because I will release the article called the AI Investment Case Seen from a Millennial Tech Optimist's Point of View in just a few hours. And you know, I'm biased, but I think it's a good article.
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B
Very good. And that also covers a few of the questions that we didn't have time for. We had a few very, very good questions on the Real Vision platform regarding the AI cycle and the AI outlook. That's that we're covering. So that's, that's probably why we didn't catch up on them here. But thanks a lot for all the questions. Thanks a lot to everyone for watching. Thanks to you, Andreas, for joining. We'll be back with more Real Vision, if not then on Monday. See you there.