Macro Mondays – “How to Trade the Inflation Schism”
Podcast: Macro Mondays
Host: Andreas Steno Larsen, with co-host Miguel Roosevelt
Date: March 18, 2025
Episode Overview
This episode revolves around the deepening uncertainty and complexity in global inflation dynamics—what the hosts call the “inflation schism.” Andreas and Miguel walk through current macroeconomic forces, with a special focus on:
- Divergent inflation expectations and measures
- The effect of tariffs and trade policy shifts post-Trump
- Geopolitical instabilities, especially in the Middle East, and their ramification for inflation and markets
- How short-term traders can position themselves amidst these unresolved, sometimes contradictory signals
The discussion is punctuated by direct trade ideas and a candid look at what’s actionable versus what might be “sometime good, sometime shit.”
Key Discussion Points & Insights
1. European Perspectives on US Political Risk and Equity Sell-Offs
[02:05]
- European institutional investors are increasingly wary of US political risk, as exemplified by Danish pension fund Academica’s recent divestment from Tesla.
- Tesla is being singled out due to Elon Musk’s perceived political stance and association with Trump-era policies.
- The trend of divesting from US assets is still limited but symbolically significant; further moves could come, including pressure on Norway’s oil fund.
Quote:
“Elon Musk, he's got this whole trade war, anti-NATO stance tattooed all over his face right now... I think we'll see more pension funds, potentially the oil Fund in Norway, doing the same.” — Andreas [05:00]
2. Middle East Geopolitics: Houthi Attacks and Market Risk
[06:13]
- Revival of shipping disruptions in the Red Sea by Yemen’s Houthi militia, despite a Gaza truce, signals persistent geopolitical instability.
- Insurance barriers still hinder shipping return; risk to global supply chains remains live.
- Houthi actions are now less about Gaza and more about maintaining profile and influence; their disruption fuels inflationary risk, particularly in Europe.
Quote:
“They’re finding, quote, unquote, new excuses to get involved. And this Houthi militia... have gained a lot of territory, at least symbolically speaking, from getting involved in this.” — Andreas [08:00]
- Ground intervention is politically toxic, with neither the US nor Saudi Arabia wanting boots on the ground.
3. Tariffs, Trade Wars, and the Global Playing Field
[09:40]
- An upcoming round of reciprocal tariffs (early April) between the US and its trading partners could mark a “race to the bottom” for global trade barriers.
- Other major economies have not yet reduced barriers; most countries still impose more on the US than vice versa.
- Trump's strategy appears to forgo US soft power in favor of directly addressing perceived trade imbalances.
Quote:
“There is no level playing field on trade... Even with the World Trade Organization and such... most countries worldwide... impose more sanctions on the US than vice versa.” — Andreas [10:00]
- The dollar's reserve status and global influence remain rooted in these imbalances; unwinding them could shift global reserve patterns very slowly.
- China's reduction in US Treasuries holdings has been overstated; most changes are mark-to-market rather than outright sales.
4. Inflation – The Schism Between Perception and Reality
[19:27]
- A split exists between “truflation” real-time indices (showing falling inflation) and consumer expectations (University of Michigan, showing much higher expectations).
- The gap likely stems from perception bias due to media narratives, and lagged consumer price adjustments—exacerbated by pre-emptive inventory build-ups ahead of tariffs.
- Near-term, this “vacuum” could create a window of disinflation.
Quote:
“So the question I’ve asked myself is whether we have a growing divide between perception and reality when it comes to inflation... Try to open Wall Street Journal or FT or every single article is about rising inflation right now. So... the perception of inflation is just wrong right now in many ways.” — Andreas [20:02]
5. Actionable Trade Ideas & Strategy
[22:55, 23:01]
- If “truflation” is accurate and actual inflation is lower than perceived, current pessimism may offer an entry for US risk assets—stocks and bonds.
- Ahead of the Fed meeting, Andreas’s team is “slowly but surely” accumulating such positions, anticipating a risk-parity rally (strong equities + falling yields) if inflation proves over-hyped.
- Financial conditions are easing globally, especially as the dollar weakens, enabling more global liquidity and fiscal easing in places like China and Germany.
Quote:
“I think there’s some merit to the view that bond yields can drop quite a bit here at the same time as equities performing. You’ll get a risk parity rally short term from here.” — Andreas [23:01]
6. Global Liquidity and Dollar Dynamics
[26:44]
- The DXY (dollar index) and global financial conditions are tightly linked; a weaker dollar is easing conditions, providing the space for foreign easing and supporting risk assets worldwide.
- The US is contracting its fiscal stance (e.g., DOGE Project), hoping for a global offset via foreign fiscal stimulus.
Quote:
“The US dollar as... a source of liquidity for foreigners is very important... when the dollar is incredibly strong... it becomes incredibly difficult for China, for Europe... to accumulate dollar liquidity... when the dollar weakens, you’re starting to see a much brighter sentiment...” — Andreas [26:44]
7. US Fiscal Deficit: Structural Political Challenge
[29:39]
- Recent improvements in the US budget deficit trend are only marginal and mostly seasonal.
- Deep structural deficit reductions would require politically fraught cuts to defense or mandatory programs, which seem unlikely in the near future.
8. Geopolitics of Security and the Dollar
[31:44 – 34:46]
- US military protection, symbolized by aircraft carriers, underpins the dollar’s dominance in global trade. If the US withdraws from this role, it risks ceding its position as the currency of global commerce.
- No other power appears willing or able to step into this role, partly due to the military quagmire that countries like Yemen represent.
Quote:
“They patrolled global shipping lanes in return for the dollar being used in global trade... you’re basically sending countries all over the globe in the hands of China and such nations if you do not want to secure global shipping lanes.” — Andreas [32:30, 33:13]
Notable Quotes and Moments
- Andreas [02:00]: “Summertime is maybe good. Summertime may be shit.”
- Miguel [35:28]: “The only solution here goes through a nuclear deal with Iran... Could be a byproduct of the Ukraine peace treaty. And that way everything is connected.”
- Andreas [35:38]: “The geopolitical risk premium is kind of back now in the Middle East. So I think oil prices are... on the up from here. Financial conditions are easing elsewhere via the dollar... That’s why I think it’s fair to... accumulate here on risk assets.”
Timestamps for Important Segments
- [02:05] – European investment trend away from US assets (Tesla case)
- [06:13] – Middle East shipping disruption and Houthi analysis
- [09:40] – Global tariffs, impending trade war, and US strategy
- [19:27] – Inflation perceptions vs. reality (truflation discussion)
- [22:55] – How to trade the inflation gap: stocks and bonds insight
- [26:44] – Financial conditions, dollar, and global liquidity
- [29:39] – US fiscal deficit dynamics
- [31:44] – US military security and the dollar’s global role
Closing Summary
This episode delivers a nuanced, candid look at how geopolitics, real-time price data, and the “trade war” narrative combine to create a uniquely uncertain macro backdrop.
Practical takeaway: Short-term traders may find opportunity in dissonance—trading as if “inflation is lower than the headlines,” accumulating risk assets as long as supply chain shocks and dollar liquidity provide windows for rallies. Meanwhile, both hosts stress that structural challenges—whether fiscal or geopolitical—are slow-moving but deeply consequential for portfolio construction.
Final reminder:
- Trade ideas are actionable but “sometimes maybe good, sometimes maybe shit;” risk management is paramount in this new era of macro volatility.
For more in-depth analysis and future macro updates, the hosts recommend subscribing to the Pro Macro tier at Real Vision, and keeping an eye on further Steno Research output.