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- [00:00]
A
Foreign.
- [00:10]
B
Hello everyone. Hello out there and welcome to another edition of Macro Mondays. My name is Miguel Rosenwald and we're sending to you live from the Copenhagen Sauna Club here. Welcome to you as well, Andreas, my usual partner in crime here.
- [00:24]
A
Thank you very much, Mikkel. I think I'm the only person who managed to puke more than markets did last week. So I'm finally back and I'm alive and kicking, but my portfolio is not doing overly well. We've managed okay given this turbulence, but it's been tiring as beep to say the least over the past couple of weeks, to be honest. So let's see whether there's some light at the end of the tunnel after this week.
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B
Absolutely. Thanks a lot for tuning into the show. We are contributors to Real Vision. Obviously this is our live weekly sneak peek into the analysis that we do. Full disclaimer. Sometimes forget to mention that we also run our own strategies. Then a global macro, just so you people know that. No advertisements for that, obviously. And also just remember we try to throw you our best macroeconomical ideas and tips, sometimes some trade ideas. But remember about our trade ideas as usual, they might be summertime, it may be good summertime, it might be shit. Absolutely. So Andreas, finally a week where we can actually talk some honest to God macroeconomical analysis here. Aside from all the headline headline hockey we've been playing the past few weeks, it's been quite a ride. We're still heavy, heavy times in equity space. What's on your radar right now?
- [01:48]
A
So first of all, I don't think we should spend too much time talking about tariffs today because I cannot answer any questions on tariffs anymore. We don't know. No one knows the extent, no one knows the timing of anything. I'm not even sure Donald Trump knows anything about it himself anymore. So I guess this uncertainty related to what's actually going to happen is what's really making markets suffer big time at the moment. I made a very simple study based on some of the well known uncertainty indices out there and I know you've brought a chart on it. Mikaela. Everywhere I look in these uncertainty indices, we're talking about close to peak trade uncertainty, close to peak policy uncertainty, close to peak tariffs uncertainty. And it's much worse than it was during the first Trump era. And I guess the reason is that the extent is widening compared to the first era. But also it just seems so unclear when to expect some clarity, negotiations are ongoing between Trump and everyone on earth. It seems right, more or less every Single trade counterpart will have to obey to some of the demands from the US Administration before we get anything in return. And it's just a struggle by the end of the day. And I'd like to stress that today, I think what's going on right now is that the Trump administration is forcefully trying to bring the dollar and dollar bond yields down and they're succeeding. Now, that's at least a positive angle on all of this. We're seeing bond yields coming lower, we're seeing the dollar selling off. I think it's the worst sell off in the dollar basically for a couple of years, what we saw last week. So, and everyone I talk to within the hedge fund industry, within the asset management industry, they just tell me, okay, it's very, very difficult to load up on US Assets right now. Because why should I? That's basically the answer, right? Why should I? Given how he's treating his counterparts, given how he's communicating around short term paying being. Okay now, that was not the initial message, but it's clearly the message now. So this, they're aiming at creating some sort of soft outcome for the US economy in nine to 12 months from now, not right now. That's a pivot in many ways, rhetorically, in my opinion.
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B
Yeah, because when Trump entered office, he talked about this being the golden age. My prediction was that we were going to have four years of full throttle and everything. Is this sort of after rationalization, after the fact, or is it because also I think we're beginning to see some cracks in this because Donald Trump is lashing out at the globalists for causing this sell off. Is there a limit to how much of a Trump session he can stomach?
- [04:59]
A
I think there's a window of opportunity for him here given how both the dollar and dollar bond deals work with the time lag in terms of easing financial conditions. It may actually make sense if he's on top of these lead lag patterns to do something about bond yields and the dollar now to ensure that the economy is firing ahead of the midterms. And typical lead lag patterns would suggest that we already, within say three months from now, start to see the first signs of some sort of recovery because of a weaker dollar because of lower bond yields. And you know, that's probably what they're aiming for here, at least. I struggle to understand what they're doing if that's not what they're trying to obtain here. And you know, some of the like very forward looking charts we, we, we monitor are starting to look pretty upbeat for the second half of the year now maybe already from May there about because of a weaker dollar because of lower bond yields. And I think the initial attempt from Trump was basically to try and get Jay Powell and his Hill to play ball to get them to cut interest rates and all that, but they will refuse to do so because of the tariffs uncertainty. So instead Scott Bessant told him, okay, let's try to bring long term bond yields lower by doing some pretty harsh stuff trying to balance the budget, all of that. I'm not sure whether they will succeed but they'll give it a shot. And that's a more medium term play. That's not a short term play to try and balance the budget. It's not a short term play to lay off people in the public sector. It's really not a short term play. It's a medium term play. So the time horizon of all of this has shifted and that's what we need to understand as investors.
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B
So Andres, before we get to some user questions and thanks a lot for those, keep them coming. The bottom in all, this late Q2, we see a rule in trends or is that the conclusion?
- [07:05]
A
Okay, first of all, we have the CPI coming up this week. We'll get back to the details in a second. Obviously if we get some really soft numbers, we'll get a relief rally. I'm kind of in that camp again this month for a load of reasons. So I think there's an opportunity to get a bear market rally. But I'm still unconvinced that we'll get a more sustained rally until we get on the other half of the tax season in April. So I think May is a pretty good timing to look for right now. I'm not talking about a landslide from here. I'm talking about a struggle to really regain momentum. And I think, you know, we've seen it before that April tax season is pretty nasty when we've had strong returns to the year prior because people will have to pay taxes based on last year's returns. We need to get that out of the way as well before really turning the tide here. So I, I remain unconvinced that we've really passed some sort of, you know, the, we're not past the nastiness yet and we still have the deadline of reciprocal tariffs and all of that shit upcoming in April.
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B
True. Is is Trump banking on Jay Powell to rescue him with a rate cut here?
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Well, that was at least the initial strategy. Jay Powell spoke on Friday and I think his approach is pretty sensible right you know, there's so many moving parts here that they cannot take a decision. That's basically what he's telling us, which is fair. I think it's fair. So I think they'll cut in the first half of the year, but they'll wait towards the end of it. May, June, thereabout. March is not in play unless everything's completely fallen apart up until March, the end of March, but hopefully it's not right. So, no, the strategy is not to force Jay Powell to cut now. The strategy is to bring long term bond yields lower and they can do a lot about that via the treasury policy, via the budget balance, via the Doge project and all of that, instead of forcing him to do something about the policy rate because long term bond yields matter a lot more. Remember that the average duration of a mortgage loan is way longer than the policy rate, if you know what I mean. So it's much more important whether 10 or 30 year bond deals are lower than whether jay Powell cuts 25 basis points. Remember that when he did this 50 basis point cut back in the autumn, mortgage rates were through the roof after that because the economy was suddenly firing on old cylinders. The inflation scare was back and all of that. He wants to remove the inflation scare. Whether he'll succeed with that is a long and technical discussion and I think we should spend maybe 10, 15 minutes on that today.
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Absolutely. And that was an excellent bridge to the next topic, Andreas, because start with tariffs as an inflation driver. The logical conclusion is that if you push in tariffs into imported goods, prices will rise. That's inflation. Is it that simple?
- [10:22]
A
Yes and no. Obviously, if you add an import tariff on everything, stuff will have to get more expensive. The question is, who swallows the bill? Is it the exporting country, is it the importing company, or is it the end consumer? Those are kind of the three main agents to discuss here. So let's take a look at the empirical evidence from the first Trump era. We don't have that chart here, but my, my point is, if you look at the tariffs implemented on China, when China is faced with say 10 or 20% import tariffs, they can do two things to circumvent them. They can either trade via a third country. They did that a lot during the first Trump era. So you basically reroute stuff via Latam or you name it, right, to avoid the tariffs. So that's one solution that's not going to be as easy this time around. Trump basically learned from the first experience. China will just reroute stuff if you don't ensure that. And that's basically part of the negotiations with China and, sorry, with Mexico and Canada. Right now they want Mexico and Canada to also put tariffs on China to avoid this on, on top of that, China can, you know, they'll have to discuss internally, okay, if we do not lower our prices, we'll eventually lose our market share in the US because of a higher price point that our internal competitors will not be faced with. And I think the ultimate end goal for lnik and Trump and those responsible for this terrorist policy is obviously to try and bring the production and manufacturing inside the tariff zone again, so to speak. And they can only ensure that if China does not lower prices or if China is not able to reroute stuff. So that's what they're trying to obtain now. And if, if they manage to secure that, then we'll get a spike in prices. That, that's ultimately pretty clear, at least for a temporary period until the local production is up to speed and all of that. So I think the yes and the no is the correct answer here. So let me go through a few technical assumptions on this and I have a chart on it because the import price and index is obviously the one you need to watch now through March due to the implementation on tariffs both on counterparts, but also on metal. Specific topics such as.
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B
We have the chart here.
- [13:11]
A
So this is the import price index. And my worst case assumption is that we'll see a price hike of 20% on all Chinese goods imported to the US 2 times 10%. Right. On top of that, we have a 25% tariff added on Mexico and Canada, but with a truckload of exemptions currently. So it's a tariffs, it's a tariff on everything except everything basically right now. But some goods will be tariffed way less than 50%, way less. So if you take those tariffs, plus the steel and aluminum tariffs going live this week and then do a weighted average of all imported goods crossing the border to the US you get to 5.5% in a month. That's a lot. But that assumes no whatsoever attempt to try and lower prices to keep market shares intact. It assumes no rerouting at all. It assumes zero demand effects. And I've seen so many economists do this exercise and call this a base case, which is absolute bonkers. No, no, it's nonsense. It's like measuring stuff in a vacuum. Right. Of course a lot of trade will be rerouted. Of course we'll see dynamic changes.
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B
Have existing stocks that are going to be filled in.
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A
Yeah. Yes. All of that. So my base case is, you know, one of the two lower attempts of trying to measure it here. I'm probably closer to, to the best case of say 1%, 1 1/2% increases in import prices. And remember, this is the import price, so this is the price increase for the importer. If you import a car, you're not going to pass on that exact price increase penny by penny to your customer day one. You're not going to do that because you have price lists, you have basically quote unquote promises that you've made to counterparts and so on and so forth. What we can gather from empirical relationships between import prices and end consumer prices is that say between 15 and 20% will be passed on in the first month. And now we're talking 20, 30 basis points all of a sudden, which is of course bad, but not a major catastrophe. So I'm just trying to tell you here that, sure you can. I mean, it's pretty simple to just state, yes, prices are going to pick up, but you need to consider all of the dynamic effects you get out of it. And on top of this, which is maybe the most important thing to notice right now, every single importer on earth, they've not been living under a rock for the past three months, right? They've bought everything they could ahead of these deadlines. So their stocks are booming. That's what we can see from all of the surveys right now. We can also see it from stock data that the inventories are, they've skyrocketed ahead of this. The trade balance is as negative as it's ever been through the first months of the year because of all of the imports happening before the trade deadlines, the tariff deadlines. So obviously we have a whole stock at old prices to, to use first. So I'm, I'm not super scared that we get an inflation spike right here. That's what I'm trying to say. And I haven't even calculated the effect of it here because it's impossible. Take a look at some of the charts that you can produce with the truflation number. I'd like to show that now, Mikkel, because truflation, you know, it's a pretty interesting concept. We have the chart, right, and it's basically like a big sample of prices that you get from, you know, Walmarts and you know, those kind of retailers out there, right? And it's off a cliff.
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B
It's the dark blue here.
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A
It's the dark blue. So it's basically printing below 1 1/2% year over year. And the official inflation print is 3ish, right between friends. So something is going on here and those dynamic effects are completely neglected by the mainstream economists right now, in my opinion, and I'm rather of the view that we get surprised in the other direction on inflation, which will wrong for everyone. And I know this is extremely contrarian to say because it seems so super obvious when you put tariffs on everything. Sure, the price should spike, and it may spike eventually, but not right now. And I, I don't see any convincing signs that the price spike is here right now. It's not with us in the room.
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B
Very interesting this.
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And look at the correlation to bond deals here. It's been a super strong indicator. If this indicator is right this time around, we'll get past the 4% hurdle on the way down again in bond yields, which will be very stimulative into the second half of the year, into next year. So maybe, and I stress maybe it's not all that bad what they're doing right now. And you know, I think this is a very undertold story. It's underreported in many ways.
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B
Yeah, at the end of the day, the consumer has the same amount of money available.
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A
So yeah, it is for now.
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B
So very interesting address. Should we point on a few more topics on inflation or you want to. Yeah.
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A
Okay. So what does this mean if inflation is actually still heading lower, if truflation is just barely right? Our indicators on inflation are not as soft as truflation, that we just stressed that. But the direction is pretty much the same. We can have a look at the dollar first. I think that's basically been the macro play of 2025 so far. When you look at the dollar versus macro surprises versus inflation surprises, et cetera, we're talking about a crystal clear picture bringing the dollar lower. And remember that global liquidity, global financial conditions, et cetera, they're very dependent on the dollar index, they're very dependent on dollar bond yields, et cetera. So when we get a weaker dollar and lower bond yields in tandem, it's something that will bring about optimism in a while. So I'm just trying to think of the next step here after the dollar weakens, after dollar bond yields come lower, I actually think it paves the way for some sort of pretty material rebound. And that's the light we have at the end of the tunnel right now, because I perfectly acknowledged that we need some light at the end of the tunnel. It's not pretty right now, but this May be what they're trying to obtain.
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B
Interesting. Let's grab a listening question here from Sarah. Presumably they want short term rates down this year to refinance the trillions of US debt that's due. What's more important in for the public sector in that context? Short term or long term rates?
- [20:37]
A
Right in between, I'd say. Because if take a look at the average outstanding debt of the public finance in the US or the US treasury, we're talking somewhere in the belly of the curve. That's basically what they're targeting. And when I mean the belly, we're talking between five and eight years. That's the sweet spot. If they can get five to eight year bond yields down, that's perfect. They have a lot of T bills right now. If they can invert the curve, which they're currently in the process of doing again. So if the short term bond yield is higher than the five year point or the eight year point, they can roll that debt further out and let's secure five or eight years of low bond yields, which would be perfect. So I think the five to eight year range is basically what they're targeting. And Scott Besant is aware of this, he's a smart guy. I don't hold high hopes that Trump is super aware of this, but Bessant is, he's basically trying to orchestrate a very soft yield curve further out to roll the debt into five eight year structures on low bond yields. So it doesn't necessarily mean that we'll get plenty of rate cuts this year, but it means that we'll get lower medium term bond yields in the meanwhile.
- [21:59]
B
Another question here from Luca. Two questions, one that keeps occurring here. Have you sold mind medicine? It's, it's almost a weekly question by now.
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A
There was a bit of, of confusion around that. Yes, it is sold. I, you know, I, I still, I still love it. The case, basically, the Mind Medicine case is obviously a case within alternative treatment medicine for depression and other disorders. And it's a case that has suffered alongside the NASDAQ case, alongside the high beta case in general in the US we need some softer inflation data, we need some lower bond yields and all of that to get this case running again. And then we need some focus on Bobby Kennedy and his agenda. And right now everything else is stealing the show. I just have to admit to that. I think this will be a tremendous case at some point during this term, Batman, because it is a strategic case for them, but just not right now. And we'll just, you know, it's a macro portfolio that we're running. So we'll have to orchestrate our returns after what's hot. Right. And it's not hot right here, right now. It will turn hot. That's still my base case, but yeah, we'll have to. We'll have to wait and see. Yeah.
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B
And the other part of Lucas question here, I'll rephrase that slightly. He asks for EU alternatives to a lot of the suggestions currently in the RV portfolio. It seems to me a lot of American investors, private investors, are really getting their eyes open for Europe right now, sort of unboxing that for, oh, there's Ryan Natal there, the Tongal sort of companies. Especially if you look as a US Investor.
- [23:38]
A
I'll actually be a little bit cautious in Europe right now, even though I've been banging the drum in the Europe case for the whole year with a lot of luck. Also, a couple of the trades that we have in the portfolio have done very, very well out of Europe. So let me put it like this. Just before we went on air, basically through the morning here in Europe, we've only seen bad news arriving out of Germany. They're trying to orchestrate an alteration of their constitution related to their debt break. So they're trying to. To get away from their austerity measures and they're trying to invest in the military. They're trying to get a path towards investing billions and billions into Ukraine and all of that. But they're struggling. And we'll see the negotiations ongoing this week. They'll have to solve it this week because they're using the old parliament to try and bring this through. But the Green Party is currently rejecting. Which is a game changer because, yeah, they basically want friedish maps to deliver some promises on wind turbines and the likes. Right. Some green stuff to accept this extra spending on the military. And he's been more in the camp of reopening the nukes for electricity purposes. And yeah, I'm not super optimistic on them getting it through this week.
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B
No, no.
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A
Europe was through the roof on these plans and right now they don't have momentum. So it may be something that drags on for the entire spring. Classic Germany. Sorry.
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Yeah, there is still a case. We're getting a lot of questions on the Rheinmetall in the European defense industry and I'm all about that. We've made a lot of money on that. The thing is, we're not able to build anything in Europe. We've de. Industrialized for a couple of decades now almost. And so all these European defense manufacturers, especially in Germany, they need to build factories, to build all this stuff.
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A
They need cheap energy and they need energy for that.
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You need energy for that. A lot of these processes can run on electricity, but for metal forges, etc. You need gas as well. Where are we going to get that from? So there are still a lot of systemic issues here.
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A
So the good thing, and that's also why the euro has gained a lot of momentum versus the dollar, is that we've seen much lower natural gas prices in Europe alongside this Trump peace plan and all that likely in anticipation of some sort of easing of sanctions against Russia. I've even heard rumors of Trump allegedly trying to push for some sort of reopening of Nord Stream 2. Now, God knows who quote, unquote, nuked. That one probably wasn't Russia. Let me put it like that. At least some sort of investigation is still needed there. But it's still, you know, still an open question whether we'll get to trade natgas to a larger extent with Russia again this year. I'm not speaking for and against from a moral perspective here. I'm just trying to cynically analyze the situation. And I think the most likely outcome is that the Europe, ultimately we'll have to do like this and buy some NAT gas from Russia again.
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B
Yeah, so we need the Russian gas to build weapons to fight the Russians.
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A
Yeah, kind of.
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B
Okay, one more.
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A
That will probably give you an error in. Except if you did that calculated circular reference there.
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B
Anyway, that's where we're at. Okay, one more question here from Ruth, and I think that's, that's a popular one here. Hi, guys. What's your view on when we will see another leg up in the digital and asset space or we have a.
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A
Very, very concrete chart on that. So here's the thing. You, you need a weaker dollar, you need lower bond deals to get that move going. And I had long discussions with both the RV community within the RV community with Raul, and with loads of people heavily involved from a portfolio portfolio perspective in the digital asset space around this strong dollar that we saw.
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B
We can just bring the chart up here. It's, it's a great one.
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A
Yeah. And you know, we had a really strong dollar after Trump gained office again or took office again due to tariffs due to his America first policy and all of that. We have the dollar in reverse here in dark blue. So when it goes south in the chart, it means that the dollar strengthens and vice versa. Now that we're seeing the opposite right and the light blue is the bitcoin return. So there's a time lag between the two, but they're actually very correlated if you allow the dollar to sort of lead the way, the quarter. Yeah. So a quarter later, you're starting to see something. And remember that the two weeks that we've just seen have basically let the dollar much lower. So we're talking, yeah, 10 weeks from now or something like that on typical correlations before you really start to see the momentum back. Um, but on this chart, right, It's. It doesn't really seem like we have an. A slide here and that, in my opinion, bitcoin trades really stable right now compared to nasdaq, so maybe that's a clue. I. At least I'm, you know, I'm personally waiting a little bit, but I'm. My intention is to accumulate rather than the opposite from here. And we have a. Dipped our toes a little bit in the trade just recently, so I think the signs are starting to accumulate.
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B
But it's early days, so it's time to buy the dip here.
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A
Yeah, more or less. I mean. Yeah, but.
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B
But what's the logic here, Andres? Let's just round off with that, because is this a matter of US Investors looking at their dollar holdings and losing purchasing power and that, and then.
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A
Yeah, yeah, I think there's a. You know, there's a link between the purchasing power of the dollar and the bitcoin. Obviously, that's also to some extent the same case for gold. Right. There's also a link between financial conditions and liquidity and how the dollar trades. And that was the big question mark around what was going on through the initial Trump trade phase, because the dollar increased and bitcoin increased at the same time, which is pretty rare because of. It was kind of the same trade. In a sense. People anticipated Trump bringing the dollar in a stronger direction and bitcoin in a stronger direction at the same time, which is somewhat counterintuitive, and it doesn't work that way over time. So we need a weaker dollar to get a stronger bitcoin, and Trump and Bessant is now trying to get a weaker dollar. And that's. For those of you who invested in bitcoin, that's ultimately good news. And then we covered a lot of ground on that last week. This reserve is a fucking joke. I mean, sorry, bitcoin reserve. Yes. Come on. But I kind of, you know, having said that, I think it's lovely that the crypto market and the bitcoin market will have to stand on its own feet. I think that's the preferable outcome. Because all of this let the public sector buy all of it. No, it wasn't the intention to begin with. I kind of see the case for bitcoin. I see less of a case for Ethan and the rest for this kind of reserve thinking because they're utility based. They're not store value based to the same extent as Bitcoin. So bitcoin, there's maybe a case for this. For the rest, forget about it and look at the utility case instead.
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B
That's all we had for you this weekendreas from Macro Mondays. Is it? Tomorrow you have the State of the Union.
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A
Yeah, if I don't puke. Yes. We've published it for like three or four times.
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B
So if you're a Pro Macro subscriber, you can look forward to that. If you're not, you should sign up for that because that's a much deeper dive. Could you put some words on what to expect tomorrow?
- [31:47]
A
Yeah. So I mean, I really think that we're approaching some mega interesting accumulation levels for a lot of assets. So we'll go through the entire macro landscape across China, Europe, Japan, the US to try and find single names, to try and find good expressions that can have a very strong risk reward, say over the next six months with this weaker dollar, lower bond yields, easier financial conditions. Where do you find the value to play that? That's basically what I'm looking at.
- [32:16]
B
A whole lot to look forward to there. Thanks a lot for joining this weekendreas.
- [32:20]
A
Thank you.
- [32:21]
B
And thanks a lot to everyone for tuning in. We'll be back next Monday. See you.