← Macro Mondays
Loading summary
Transcript31 lines
- [00:00]
A
Foreign. Welcome to Macro Mondays here at Real Vision. My name is Mig Oseman and I'm joined as usual by my co host Andreas for this Monday show. We have so much to talk about. Andreas, how are you feeling today?
- [00:23]
B
You know, I'm a little annoyed with everything that happened over the weekend with tariffs. I personally hoped that we could put that topic to bed, especially since it's so blown out of proportion. But here we are again talking about tariffs right, left and center. All of the negotiations with trade partners are up in the air again. I guess we'll have to just accept that tariffs are here to stay.
- [00:50]
A
We'll try and break it down a little bit today. Andreas during the week we have a lot of great shows coming up on Real Vision today. This is obviously our free show that we publish on Real vision as well YouTube and X that gives you a sneak peek into our view of the world of Macro during the week we have tomorrow we have the Macro meets Micro show where we did dive into our model portfolio. Andreas and on Thursday at 11am that's tomorrow is 11am as well, Eastern Seaboard time. But Thursday at 11am we have shooting the together with Roland and Julian and you, Andreas. So so a great week coming up. Lots to talk about both in the world of AI, which is really moving out there, not so much perhaps in stock markets, but in the real world, so to speak. Things are really, really moving right now. Andres and we're going to talk a little bit more about that later. But first, Andreas, before we get to tariffs and AI in Iran, it's time to remind people of our little disclaimer. And I've brought the shirt on today. I don't know if people can see it actually, but it's always good to remind people that we try to be as actionable and as concrete as possible, but that our ideas might be.
- [01:58]
B
Summertime is maybe good. Summertime, it's maybe shit.
- [02:03]
A
That's the way it is, Andreas, especially in these choppy times and markets. So Andres, should we jump straight into the to the terrorist talk? We obviously had as usual Friday night our time. The the news that the US Supreme Court has ruled the IEPA terrorists illegal and basically squashed them. Trump reacted to this very, very quickly by issuing sector one to two tariffs, broader tariffs on on essentially the rest at 10 10%, then raise them to 15% and address this. This even though these are broad tariffs, it obviously hit disproportionately because the IEPA tariffs were not brought. So so this is maybe we should start out with this chart of winners and losers from this weekend, at least so far. We know things tend to, to move a lot in the coming days. But, but Brazil, China, India, Brick, the BRICS countries, essentially the big winners, Canada and Mexico as well. And then the, the, the European partners and, and the east as. Do you think this was working as designed or do you think this was prepared, or was this just sort of a knee jerk reaction by Trump to issue these 10 then 15% general tariffs?
- [03:19]
B
To be honest, I don't have the impression that this was particularly prepared, especially if you look at this scoreboard. There was a reason why China had a higher tariff than the rest of the world. There was also a reason why India had a higher, higher tariffs rate than the rest of the world. It was to put pressure on India in relation to the energy purchases from Russia. The tariff on Brazil was very linked to the pressure he wanted to put on Lula and his administration. And at the very other end of the scoreboard, the deal that was struck with the EU is currently up in the air because the EU basically does not accept this picture on the screen right now because a deal is a deal that's to quote a few officials from the EU today. And if the deal is no longer valid, why should we ratify it? Why should we work together with the US to put everything into sections and so on and so forth. So I guess the sad truth here is that none of the trade deals that were agreed upon last year are currently in motion, to be honest. Because why would you as a trade partner accept this? And therefore, yes, he put it at 10, maybe 15%. It's not really fully known at this stage, brought tariff on everything. But is it really the true tariffs rate? Right now we're stuck with uncertainty around that again, Nikol.
- [04:50]
A
Absolutely. And it's also important to know that these sector 1 to 2 tariffs are temporary, 150 days, then they have to be ratified by Congress. And I mean if there was a clear path to get this ratified by Congress, he would have done so already. And this is sort of the, the core of all this is that it's not that terrorists are illegal per se, but Trump cannot issue them just like that. He needs to get Congress on board and he hasn't been able to sell it, neither to his, his party colleagues in Congress or to the American population. So the closer you get to a midterm, the harder it is to get this passed by Congress. And most likely it still wouldn't be what Trump wanted because if this had to get passed, if Congress were to, to, to pass a, including provisions for tariffs, it would be legal, put in legal terms, it would be structured. There would be some kind of structure to it. And that's not what Trump wants. Trump wants this on his hand, to play his cards in a poker game, essentially. And he's not getting that if this is a new trade law getting passed through Congress. So it's a very strange place we're at where it seems like the administration are looking in all carpets and everywhere around. Is there some sort of sector this or that that we can use to issue some levies to keep this pressure going on. But of course, in the long term, something has to be codified into law, essentially. And that's, that's, that's where this gets interesting. But that's probably not at the, at the side of the midterms.
- [06:22]
B
Andreas, what's interesting, just before we went on air, I just wanted to get that in there. Trump basically posted on Truth that as a president, I do not have to go back to Congress to get approval of tariffs. It's already been gotten in many forms a long time ago. And that was also affirmed by the Supreme Court decision on Friday, apparently. So, I mean, he's, he's not, he's not giving up without a fight. Let me put it like that. Let's see where this ends up.
- [06:49]
A
No, and I mean, that's just taking a bit of a detour here, Andre. This is a proof that the US System is working and we're hearing a lot about, especially here in Europe, that Trump is an autocrat and he's broken the system and there's no, this is checks and balances. Trump is testing the limits of the presidency and the presidential authority. He's supposed to do that within the Constitution, and then he gets squashed by the Supreme Court. The thing is, address this causes a lot of turmoil in markets. We will get back to that. Let's just touch on China a little bit, because I still tend to think that a lot of this is about China. Where does this leave Trump ahead of the April meeting with Xi? Xi doesn't have to worry about his Supreme Court, so she can, can do whatever he wants. Essentially, that's not entirely true, but it's much, much simpler for him to, to, to negotiate one on one and to throw these things on the table. What's to stop the Chinese from making even, even more offensive pushes of this meeting you think addressed nothing?
- [07:49]
B
I think that's the short answer to the question. I spent a lot of time yesterday digesting Some of the editorials written by the Chinese state media on the topic, and, you know, it's a very typical Chinese modus operandi to, to state that they're not going to take an aggressive stance ahead of these April talks on trade, but at the same time, they explicitly write in these editorials that this will put China in a much better position from a bargaining perspective ahead of these negotiations. And my own fear right now is that China is readying some sort of supply chain weaponization package ahead of this meeting to try and test whether the US has anything to retaliate with, because that was essentially what happened in April last year. The US Played hardball. China responded with a weaponization of the rare earth supply chain, and then Trump added tariffs back and forth during April and May. And ultimately Trump had to back down because this risk of a weaponization of the supply chain of rare earths was too much to swallow, basically. And then again in October, November, we had the same situation. China basically told the west that they wanted to implement this new licensing regime for rare earths. And Trump responded with these targeted tariffs that he's no longer able to use now. And that kind of led to this ceasefire of 12 months. But that ceasefire was dependent on Trump being able to retaliate with targeted measures against China. And if he's not able to do that now, why would China not try and take advantage of that situation? I think that's the simple backdrop right now. And I also, I think that is the reason why we see metals trading higher again on the back of what happened on Friday. We have gold higher, we have silver higher, palladium higher, all of these metals are higher. And I think it's a very, very relevant question for these talks in April whether China will accept the ceasefire that was agreed upon in Q4, because the playing field is simply not the same as when they agreed upon the ceasefire.
- [10:24]
A
No, I agree. The one thing that, that gives me a little bit of hope in this address is the sector 301 tariffs. Not to get too specific on this, but that allows the administration to levy tariffs on countries deemed to have set up unfair trade barriers. So if China pushes through with the rare earth licensing system, that could be understood as a trade barrier. An unfair trade barrier could allow the Donald Trump a little bit more leeway. But again, it's a legal matter. He'll probably have to go through the Supreme Court. This, this puts him in a very, very weak negotiating position. We, we just have to say the, say as much, Andreas. And, and it's, it's it's a hot potato head of the midterms as well. I think most most Republicans will try to to keep this at arm's length. Let's take the macro picture here. Everyone address do we know anything about these new flat rate tariffs, how much revenue they're going to bring in? You wrote a little bit about it earlier today. Can they make up for what was lost quotation marks for the IPA tariffs or what does that equation look like?
- [11:33]
B
So maybe we can bring up the chart from the treasury on the running intake of tariffs because we've been running close to say 300 billion on an annualized basis, which is decent. You have it as a percent of GDP on the left hand scale here. So we're talking a little less than 0.5% of GDP at peak. These specific tariffs related to the ruling on Friday made up a little bit more than half of that. So now that he's replaced Those with this 10 maybe 15% broad tariffs rate on the rest of the world, we'll probably end up 0.1 percentage points in GDP terms below what we had on Friday. Something like that. So we're talking about roughly unchanged playing field from a fiscal perspective, in my opinion. But remember this, look at the left hand scale of this chart again at max we were talking about an impact of 0.5% of GDP and the details we're talking about around the changes since Friday make up 0.1%, maybe 0.15% of GDP. It's a complete nothing burger from a fiscal perspective. And even despite that we're talking about it all the time. I you know, I'm just staring at my Bloomberg feed here. I see three or four posts from sell side shops, including some of the researchers at Bloomberg now. Oh, Maybe these new 10 to 15% tariffs will lead to higher interest rates and higher inflation over the next two or three months. It's the same discussion we've been stuck in for the better half of 2025 and also the beginning of 2026. And the market keeps expecting this to have a big impact on macro and it doesn't. You can take a look at the inflation outcomes versus what was priced in by economists month in and month out. We haven't had a single inflation print above what was expected since Liberation Day. We're consistently printing at or below expectations. So I think this has blown way out of proportions because it has become a politicized arena. What is not blown out of proportion is the impact on geopolitics, the impact on capex and some of these side effects that go highly unnoted by many. But the direct impact on gdp, the direct impact on inflation, it's neglectable.
- [14:17]
A
Yeah. One question we had, Andreas, in the inbox here, and I think it's quite interesting, and I'm not sure neither of us really knows the answer here. We've been talking about the output of liquidity from the TGA after the government shutdown. We were expecting a nice influx of liquidity into markets during February and March. If the government has to account for refunds of more than $100 billion, does this cut into the money that we were expecting? Does this force the treasury to heighten its cash buffer? Do we have any idea of this yet?
- [14:55]
B
Well, the short answer is yes. That will obviously be a factor impacting the treasury general account if they have to refund, I think, 151 billion, to be very precise or specific. The issue here is that the Supreme Court ruling does not factor in any decision on refunds. And as far as I'm concerned, from a legal perspective, they will allow courts lower in the system to decide on that, at least to begin with. I don't have a firm view on the timeline here, but I struggle to imagine that it's something that will play out over the next couple of weeks at least. Right. So it's something that we simply don't have the answer to as of now.
- [15:38]
A
No, no, it, it. That could take a while to get these refunds out. It's, it's not automatic. The question is if the, I guess we'll, we'll see this in coming days and weeks. If, if the treasury feels, feels a need to, to prepare for that situation. But, but let's let, let's hold off on that. An interesting note, though. So, Andreas, just to sum up here, does this alter your view of the macro outlook? Does this postpone anything, change the timelines? What, what do you think overall? Yeah.
- [16:07]
B
So for those of you who have followed this podcast and now research for the past, say, 12 or 18 months, you'll know that the tariffs debacle between the US and China both in April and October last year, kind of nuked the cyclical momentum in the US Economy twice last year. What I fear here is that we see something similar to that playing out through April, and it's something that we'll have to be very vigilant about, because if we get a new standstill in the trade between the US And China, that's obviously something to consider in terms of the cyclical developments in the economy. So, yes, it has the potential to wreak havoc with what otherwise appears to be a very strong cyclical upswing in the US economy right now. And it's something that will have to be, to be open to discussing in the current, current environment. As of now, I don't think we have any evidence that this has slowed anything.
- [17:09]
A
Fair enough, Andreas. Should we move on to talking a little bit more about AI, Andreas? Because it's red hot out there. One thing is stock markets, another thing is actual businesses. I think over the past few weeks, if even months, things are moving very, very rapidly in AI space. The implementation, the sheer speed of changes going on out there is incredible. We brought on a few hot takes here. I wanted to bring this. I think this is the one. Yeah. So I'll let you introduce this address, but we obviously have brought the chart on how quickly Claude is able to exponentially scale up in the length of tasks it can manage. I'll allow you to introduce this one, Andreas.
- [18:05]
B
Yeah, so this is basically one of my favorite charts. It is from the institute called Metra. And what they do is that they hand the large language model a set of tasks related to software engineering. And then they measured the success rate of the large language model for all of these tasks. And basically what they wrote when they updated the study with the Opus 4.6 model, the latest clock model, was that they were simply running out of tasks that they could feed the model with because it had a very strong track record solving these things, at least with a 50 or 80% success rate. Then this guy on Twitter says, I've adjusted the chart for the fact that LLMs do not have a 100% success rate on anything. And that's true. It is actually true. At least you would need to feed it with incredibly easy tasks for it to have a 100% hit ratio. And then I responded to this guy, well, sure, but please point me in the direction of a human with a 100% hit ratio on these things.
- [19:18]
A
Yeah, Anything. Yeah.
- [19:21]
B
Really?
- [19:21]
A
Yeah.
- [19:22]
B
You probably can find a human capable of having a 100% hit ratio on two plus two equations. Right. But you know what I mean, Relatively complex tasks, no one will have a 100% hit ratio on those. Then the guy responds to me, well, a calculator has a 100% hit ratio and I think you could get a similar 100 hit ratio in another if you practice that on similar scores. Right, but the point here is you're completely missing the train if you think this is supposed to have a 100 hit ratio or 100 accuracy. But I think this is a very common pushback and it's a pushback that you'll be going to see in a lot of corporates as well. Okay. We cannot allow a model to run this because it's only got a 95% hit ratio. Therefore we need humans to check this, which is fair. But at least you could allow the model to run the first trial and then allow a human to double check. Right.
- [20:24]
A
I mean if you ever had employees that you gave a task and asked them to return with something, you know that 50% is very, very generous as a hit ratio. It's the same problem as with autonomous vehicles, self driving cars. You know, we expect them to be flawless, even though human drivers are very, very far from flawless. So obviously this is not the way LLMs and AI is being implemented and no one is expecting them to be right 100% of the time. Some sectors are going to need much closer to that. When you look into replacing doctors and surgeon, all that, but still, I mean, doing desk work, setting up PowerPoints, even constructing spreadshee, you don't need to be right 100% of the time. Nobody expects that. But, but AIs can do so many iterations while you're still trying to log onto your Windows account that it's, it's unfathomable. So. Absolutely, Andreas. So, so we're still seeing a lot of chubbiness in markets, Andreas, over AI. One angle is obviously that AI is, is going from sector to sector, killing financial services, SaaS services, computer security. Yeah, so security, etc. But we're not really, really seeing returns, especially not in the Max 7 right now. But of course, what are you seeing in markets right now? What, what's driving this fear?
- [21:54]
B
Maybe you can bring up the chart on page 13 because I actually think that's incredibly relevant. This is a chart made by my good friend Dario Perkins, a macroeconomist that I respect a lot and I think he's watching the right things. I mean, in historical context we're talking about a big capex build out now, even bigger as a percent of the economy than what happened in the run up to year 2000. But in sharp contrast to year 2000, we do not see massive returns in the companies undertaking this capex. We see the exact opposite. If you look at the run up to year 2000, all of the companies, these listed telecom services providers, they increased 5, 6, 700% while we're currently seeing max 7 probably on average down since 1 January 2025 at the very least, they're down this year and they're some of the worst performers seen on any listed exchange anywhere in the world this year. That's not the stuff that bubbles a build off, if you know what I mean. The market is looking at this from a textbook perspective, okay? Big capex means less free cash flow, hence we need to sell the stock. And as long as that happens, there is basically no reason whatsoever to fear a bubble. In my opinion. You should start fearing this if we got huge returns in those companies that did the capex, because that would in my opinion be equal to the market neglecting the potential left hand tail risk of the distribution of outcomes for this capex. Right now the market is only focused
- [23:50]
A
on
- [23:53]
B
the lack of potential in this capex build out. It is becoming a consensus very fast that this build out will have a weak return on investment. It is becoming very consensus that AI will be commoditized. So you cannot make any money on it in a few years from now. And the jury is obviously still out on this. But my point is just that everyone's focused on the weak side of the distribution. No one cares about the strong side of the distribution. And therefore the market is really not buying into the story at all. And one way of showing it is on page 15 miggle in our slide deck. Because what happened for example in the run up to year 2000 was that margin debt, the debt that you use to lever up your portfolio basically with your portfolio as the collateral doubled versus the market cap of the index. And remember that the market cap went up violently alongside this in a matter of a year or two. So the growth ratio basically doubled the margin debt relative to market cap in a year. We're currently running at 0.25. So 1/4 of that. I mean all this talk about this being a huge bubble, I don't really see any quantitative backing of that because the market is simply doing the exact opposite of what it did ahead of 2000 and what it did ahead of 2008. There is no speculative frenzy into this. The market is extremely conservative and in my opinion also too conservative. So I don't think I've ever said this before, but I actually think it's a strong long value trade to belong the max sevens.
- [25:38]
A
Now I just wanted to point to
- [25:41]
B
typically labeled as a growth trade. Right, but it's a value trade by now.
- [25:43]
A
Yeah, I just want to point to this. That was, was initially my life of the week on, on the Max 7, that 493 of the 500s and P 500 stocks has outperformed the Max 7, 2026. Obviously very, very skewed counting here, but very, very interesting point to dress. Time is flying, Andreas, and we're almost running out of time on the show. I just wanted to put a few words to our shows on Real Vision this week if people want to join in for that. What can people expect from the meets Micro tomorrow at 11:00am Andreas yeah, so
- [26:21]
B
we're running this thematic investing at RV and we've done very, very well over the past two or three years here, especially trying to pinpoint some of these technology trends that have been worthwhile investing into. We're up roughly say 2 or 3% this year so far. Could be worse given everything that's been ongoing in AI. So we'll go through all of these thematics, we'll pinpoint the best single name expressions but also ETF expressions of our thematic views and then we'll obviously update you on our biggest convictions for the year. We have a few wayward bets, but all of our big convictions, they're up at least 35% since entering in in 2025. So we're still on a roll despite everything that's ongoing. And we'll obviously keep you posted on that.
- [27:12]
A
Absolutely. So thanks to everyone for for joining us, sending questions. We had time for a few this year. We'll try and get a few more squeezed in next week. If not, we'll take them during the shows. And Real Vision in which you should really sign up up for, you can check your options@realvision.com It's AI week this week. I forgot to mention that. So a lot of stuff in there if you're interested in the interlinks between AI and investment. Thanks to you Andre for joining. We'll see much more of each other this week. As usual. It's going to be a lot of fun. Thanks for everyone for for watching out there. We'll be back next week.