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- [00:07]
A
Hello out there. Welcome to another edition of Macro Mondays. My name is Miko Rosenwald. We are live on Real Vision and I'm joined as usual by my co host Andreas. Welcome to the show, Andreas.
- [00:18]
B
Thanks, Mikkel. What a week.
- [00:21]
A
As usual, Andreas, we have so much to cover. Usually when we did this show pre the second Trump term here we were talking about, oh, these are the numbers coming up next week and looking at our macro model, there's no, no time for that. It's all breaking news. It's all headline hoggy and wow, have we got some headlines, Andreas. Usually when we have a government shutdown, we have a new Fed chair announced that would be completely breaking breaking news on this show. I'm not sure we even have time to get to that. So, so let's see. Andre has so much to talk about. A war in Iran maybe coming up. I don't know, so much stuff going on, Andreas. But that's, that's just good. So much to talk about, so much to analyze and decomm and we're trying to do that. Having some mixed luck recently in our portfolio, like most people, I suppose. But there you go. Just a reminder before we get started, everyone, this is our free show at Real Vision. We publish three articles each week at least, if not sometimes more during these times. And that's mainly for the pro chair in Real Vision if you want to get the full access to our research and analysis. The proge here also includes our model macro portfolio that's up it every week and is the expression of all the, the crazy ideas that we have in here. That means that we are very, very skin in the game. We also make these investments ourselves and that also means that we feel it when our investments are. Sometimes some time is may be good, sometimes may be. I'm glad our producer called that. That was a bit of a sketchy layup, but he called it nonetheless. Okay, Andreas, so much to unwrap here. Should we start on a positive note with the ISM numbers just out and then we'll get to silver afterwards?
- [02:14]
B
You know, that's why I'm looking at all sorts of stuff on the screens now. I almost don't have the time to do this Show because the ISM came in at 52.6, new orders came in at 57.1, which is almost up 10 index points since a month ago. And you know, we're talking about fairly low inventory still. We're talking about price pressures that have sort of flatlined and employment is even doing a little better than what's been the case for the past quarter or so. So yes, it is here. Ism is above 50. We've had to be patient. I think the very obvious trigger is this bonus depreciation window which opened up, I think it was on the 19th of January. It basically allows companies to do capex this year in a highly tax efficient way. And it's obviously something that is designed to push the economy towards a very strong cyclical comeback ahead of the midterms. So we've been waiting for this. I think this is something that is highly underappreciated by the market, especially since the US cycle has been left a little bit behind on the platform relative to the cycle that we've seen outside of the US, especially in 2020. So big news.
- [03:34]
A
Yes, absolutely, Andreas, that's a huge jump from the forecast. So obviously this bonus depreciation issue has been, as you say, widely underreported and underestimated. So how quickly can we see this translate? Because this is what we're all hoping for, obviously. How quickly can this translate into our backs?
- [03:54]
B
Well, at least if you look at it historically, the ISM manufacturing index, to be very precise, has been one of the key gauges to assess whether we're at the bottom or the peak of the overall investment cycle. And when you look at the sensitivity to the ISM manufacturing across a range of assets, we're typically talking about assets that are sensitive to the business cycle, if they're sensitive to on ground capex, if they're sensitive to wage increases, et cetera, in a positive sense, and therefore stuff like Russell midcap equities, also the technology space, bitcoin, not least various base metals, potentially even silver. We'll get to that. They typically thrive when the ISM index goes up. And we've spent probably 36, maybe even 40 months now in this weird no man's land where we've been ranging around 48, 49, something like that. And now it finally seems like we're breaking higher. And the reason why I say that we're breaking high is that if you look at the details, such as the orders component versus a still weak level of inventories, the report today suggests that we're going plus 4, sorry, 55, not 45, 55 basically in the matter of months from now. So this is big, very big news.
- [05:20]
A
Yeah, and a huge jump on consensus. So great stuff, Andreas. Very, very happy to start the show on a bit of a positive note after what happened last week, but let's just try and unwrap that a Little bit. Andreas. We had a, was a 27% drop off in silver. We have the chart here on, on, on previous single day crashes in Silver and this is the, the biggest one by far we've seen comes after obviously a, a frenzy, a FOMO rally. We talked about that it might have been obviously also hitting very, very hard in other areas. Andreas. So even though you've caught a lot of flack for exiting Silver at one point proved out to be not, not the worst timing in the world, but we still got hit in a lot of other assets. Andreas, let's just try to unwrap this. How big is this single day crash and how could it happen?
- [06:19]
B
Yeah, so, I mean, the historical context is pretty clear here. I borrowed this one from Katusa Research, but I obviously double checked the numbers and at least during modern financial history, where we can actually prove this with time series data, we've never seen anything like it in silver. Remember that silver is also nominally a bigger asset class than it was in 1980, where we had these three material drawdowns during the Hunter brothers debacle there. But overall, I have to say that I think it's very tricky, if even possible, to find a drawdown that compares in terms of its nominal size across any assets ever in history. This is absolutely bizarre. You could, of course, debate whether it's fair to say that Silver is the second biggest asset class in the world, because it's not like all of the silver on ground is tradable. I'm not sure whether I can trade your silver spoons or whatever you have back at home, but the point is still that it is at least supposed to be a big and relatively liquid asset class. And a drawdown of 30% intraday is unheard of, Absolutely unheard of. I think a lot of people are licking their wounds today. We had a very, very nasty opening overnight. A lot of people were obviously scared of what was going to happen today and I think we probably bottomed that. A spot drawdown of 15, 16% today, and we're roughly flat now. So, I mean, even today we've had intraday volatility that kind of compares to the, to the Brother silver crash in 1980. So there's nothing normal about this. And I'd like to show a few volume charts from Friday Mickle, just to give you people a glimpse of how bizarre it was and how bizarre it is. Basically, I think on page three here we have the turnover in the SLV etf. So basically the single biggest retail vehicle of silver, and we're talking plus 40 billion traded in that just on Friday. I think this roughly compares to a market that is roughly 40% of the physical silver market during a year, let me put it like that. So it goes to show that a lot of people are involved that are typically not involved. And on top of that, this is, I'd say between 25 and 30 times the normal daily turnover in this ETF. So this whole notion that no one was involved ahead of last week, it's utter nonsense. Right? Where this leaves us is a bit tricky because what mechanically happens when you get such a volatility shock as we got on Friday, is that all exchanges will have to increase margins. We'll see that again today, both in Shanghai and Comex. Meaning that you simply need to set much more capital aside side to hold the same position in the future. So at least the paper market will be highly prone to fund managers taking risk off the table, both on the long side and the short side because it simply got more expensive to hold that risk. And on top of it, a lot of people work with internal value at risk guidelines, volatility guidelines that will obviously also tell them to lower their nominal exposure to the metals market. Amidst all of this happening, I actually think it was quite interesting to see on Friday that some of the liquidity proxies that we track in listed names, for example private credit names, they started to recover a little bit on Wednesday, Thursday, Friday, when we had this bizarre trading ongoing in metals. For what it's worth, I actually think it's a good thing if we manage.
- [10:18]
A
To.
- [10:21]
B
Get a wash out of this bizarre metals positioning without too broad ramifications for us. It's overall, it basically means that capital can seek a home elsewhere and a much more efficient home in many ways.
- [10:36]
A
I just want to take in two listener, I won't say questions, maybe more commentaries that we had here on the whole silver story. So first we have one from David Kiss. I hope we can get it on screen because I didn't capture it one second. It's a little too small to be here. I was a bit sore in Andreas for getting me out of the silver trade a bit early, but now I really want to buy him a pint. Looking forward to the show, so thanks for that David. We appreciate that you don't have to buy as a pint but Andreas, you do you feel redeemed a little bit. You, you, you caught a lot of flack for getting out of silver at an early point.
- [11:11]
B
He can buy me a pack of cigarettes in case, you know I, I'm in the process of, of quitting smoking and I'm actually, but having said that, you know, I think I DCA out of this position during the first week of January. And you know, currently we're not too far off that exact selling point of mine. So I mean, there's no need for me to take a victory lap on the back of that. I'm happy that I managed to highlight some of these extreme positioning gauges ahead of what happened on Friday. I personally don't have a strong directional view on silver right now because you know, given the volatility profile we see right now, we can go 30% up or 30% down without it being a major move at least if we're talking about days, weeks here. So I prefer to put my capital to work in niches and spaces where there's a better sharp ratios or better ratio between returns and risk than what we see in silver right now. But I think it's difficult to say whether metals overall have peaked or not given what we just saw from the manufacturing cycle in the US for example. And I labeled my editorial today, apparently we were all long silver even if we didn't know that we were on Friday because quite a few trades that were popular, they got absolutely killed just because of that volatility shock. So I think ultimately we should all, at least if we're net long markets, we should hope for slightly more calm developments in the metal space because that's simply something that will be helpful across assets.
- [12:58]
A
Yeah. And I can sense you're doing a bit of a layup here. Andreas, to, to, to one of our stories. Looking forward. I just want to get in one more commentary on silver here to round it off from a guy called hosh40 on x if we can get it on screen here. Hosh says okay guys, I think everyone is bored if you're talking about silver now, mate. So we will listen to hush. No more about silver for now, but perhaps some other metals here. Address. We'll get a screenshot on screen here from, from I think it's Reuters today of all places. But the news occurred today that the Trump is going to launch a 12 billion dollar mineral stockpile to boost US manufacturing countering China. So this obviously speaks directly into the decoupling theme that we have going on in our model portfolio. We have a lot of bets in the US Metals, US manufacturing space or the refinement space as well. So how big is this and can this drive that part of the metal sector out of the silver sell off?
- [14:02]
B
Yeah, So I mean, we don't have a lot of details on the metals that are supposed to go into this new strategic stockpile, but I'll be surprised if it doesn't at least partially refer to copper. And of course, we've seen discussions on rare earths over the course of the past week. Especially Reuters have been incredibly active both in guiding and misleading investors at the same time around these rare earths. They had a story out, I think it was midweek last week around MP Materials, the company that got a stake from the US treasury last year and included in that state, they made a deal on a price floor surrounding their metals processing, et cetera. And Reuters suddenly reported that that price floor would be scrapped basically by the Congress and that the Congress would no longer support price flows. And then all of a sudden they u turned on that and said that the administration was Looking into Sector 232 price flaws across the bearer space, et cetera. So I essentially think after that initial story from Reuters that the administration is trying to boost the confidence around this whole operation warp speed that they launched last year. It's a pretty damn firm deadline that we have to do something on these supply chains because we got a year from China in return for a few gifts the other way, if you know what I mean, when we had this standoff between Trump and Xi back in October. So China is obviously weaponizing this supply chain ex silver mostly, but also to some extent including silver. And therefore, if we want to avoid being dragged around by China in these geopolitical negotiations, we obviously need to secure some supply chains in the West. And this is another initiative pointing in that direction. Mikael, let me ask you in that context because a lot of people read the whole Iran turmoil into this decoupling between the US and China. Iran is obviously a big supplier of energy to China, both directly and indirectly. What's going on there? I mean, it seems like at least if you look at, for example, Polymarket, that the strike is not imminent, at least what do you expect from Iran? And also, please put it into context of this China story.
- [16:29]
A
Sure. So two things that we know. We know that the US have spent the last month, essentially, especially since the Venezuela operation, building up the capacity to do a very big strike on Iran. Again, we're not talking a ground invasion. We're talking more like a Venezuela style or like the attacks in the late spring last year in Iran. But we know the US is building up this capacity. Does that mean that they will use it? No, this is about opening up doors for the President opening up options for him to choose from. Still the buildup is happening and once it's there, it obviously makes it easier for the President to take this decision. That's the one thing we know. The other thing we know is that obviously this is going on relatively openly. The US Is having talked with Iran negotiations with a gun to the head, but negotiations still. We don't know exactly what these negotiations entail. Obviously they were born out of the widespread anti regime protests in Iran a few weeks ago. The US responded to a huge number of incarcerations and the fear that the Iranian regime would strike down harshly on the arrested protesters and execute mass, mass executions essentially. So that's obviously step one, I think for the Trump administration to stop that, that's sort of a humanitarian goal almost which we're not used to from Trump, but seems to be step number one, stopping the executions, getting some sort of decent deal for the incarcerated protesters. Step two is likely the nuclear question that's always on the table when discussing when negotiating with Iran. And I think this is being framed as a new nuclear deal means that you could tap into the previous frameworks. So we will probably have some settlement around the nuclear question. I don't think the Iranian regime is realistically trying to obtain a nuclear weapon anymore. So that could be a low hanging fruit for these negotiations. Then comes the more interesting parts. First of all, oil. And that's where this ties into the China story because right now Iran delivers about 20% of China's oil imports. If the US can tap into that and remove those barrels from China's control, that means that a, China cannot get these with, with discounts. And I mean the two in a, in a conflict scenario. This is not, these are not barrels that the Chinese can count on. And, and that's obviously a huge strategic boon for the US to, to, to if these, these barrels can at least be pumped out on the, the, the world market or can, can be put under, under partial US control, maybe some US companies can get in there and help the Iranians boost their production even further. So that's going to be a very, very long process to get this done. Once again, this is like Venezuela. This is not a huge boost of oil onto the world markets because this is decades of animosity we're talking about solving, but it could be part of it. And the last part, which is the most interesting for me is that we could see some opening, some mutual opening from the US and Iran towards each other. So we could see the regime acknowledging that they have to open up, that they have to reform slowly, gradually. On the other hand, they could get some acceptance from the US that okay, we're not going to push for a regime change. We're going to accept that this regime is there for a while. If it begins to reform, maybe we have some leadership switches and then we can begin to reintegrate Iran into the world market. Because at the end of the day, I think what Donald Trump is trying to do here is saying, okay, we know there's been a lot of bad blood, we know the Iranian regime is a horrible one, but this is all about pulling them away from China, just like just as he's trying to do with Russia. So is he going to get there? I don't know. Right now it seems like he's willing to give talks a chance before striking. I think a lot of people, including myself, believe that he could have used this weekend to strike. He didn't. It could come later this week, but that all depends on the talks. So for investors right now you pretty much have a scenario where I don't know if it's 50, 50 or if it's 60, 40, that's very, very hard to tell. There is a realistic chance that the US Strikes Iran. We pretty much know the playbook for that. I laid it out in my drill article last week as well. There's also a scenario where we get some kind of new nuclear deal that's still very, very positive, I think for US Oil companies, just as the situation was in Venezuela, but obviously not as conflict oriented a scenario as a US Strike. So the US Strike would even more feed into our drone bets, some of our decoupling bets where say a deal scenario would be one of the long term inclusion of Iran into the world market or the Western markets. So very, very interesting developments in Russ, to be honest, I don't know where this is going to go over the next week, but we're going to be following it closely. You've deemed this, I think, the Iran trade and it's been doing incredibly well during the course of this round of tensions ever since the Iranian protest broke out just after New Year's. It's the breakwave tanker shipping etf. And I believe Andreas, in my view, and this might be wrong, I'm speculating a little bit here that this is mostly tied to the conflict scenario maybe. What do you think?
- [22:12]
B
Yeah. So I'm just looking at it live right now. It's down 10% since the market opened. Right. So I think we're right that it is the trade that is sort of the closest connected to the conflict scenario, the civil unrest scenario, the scenario where the Houthis get involved in the Red Sea again, and maybe even a scenario where the risk premium of sailing through the Strait of Moves will increase a lot. We obviously saw this buildup of of U.S. navy ships during the course of last week and this trade just kept on going. I never managed to get into it. I don't like to buy it now Even with this 10% drawdown, especially given the context that you just provided for Iran. Is there a solid shipping case if we get to this almost Goldilocks scenario where Iran is included in global supply chains again and where Iran is allowed to also export to other countries than the countries that couldn't care less whether they're sanctioned or not? Sure. It is also a very rosy scenario. Right. Will China just accept that without any repercussions? I'm not entirely sure about that. So I think I'm staying hands off that trade now, especially since I missed it, just to be honest.
- [23:34]
A
I agree, Andreas, but we're obviously covering that on Real vision, especially in the notes section as well, when, when things begin to move fast. Okay, Andreas, we have a new feature announced. We only have five minutes to talk about it. What a bit of a lukewarm response by markets. I think a lot of people went back in the history books to see, to see earlier remarks by Kevin Walsh, fear that he's a bit of a hulk. What do you make of this, Andres?
- [23:59]
B
I. I think the most odd thing about the market reaction to Kevin Walsh being nominated late last week is that everyone started looking into his before the Fed turned into a Trump politicized organization and all of that. Warsh was on the committee back around the great financial crisis and said a lot of things about QE when it was launched and he's generally not a fan of a large balance sheet. The point is just the tide has turned since 2010 11. The world is very different to that time and Kevin is very different to that time. I'm of the view that he may turn out to be the biggest loyalist of them all, especially since he's very well connected to Trump's voice at home. He's close to Eric, he's close to Don Jr. Kevin Walsh's father in law has been involved in some of these Greenland talks, by the way. So I mean, we're talking about a loyalist. We're talking about someone close to the Trump family. And I think that's very important to Trump because he wants someone he can Pardon my friends, someone he can control. I mean, he's not searching for another bureaucrat that will suddenly diverge from Trump's loyal agenda just because the data says so. And Kevin Walsh has been incredibly vocal about the possible economic mix where we see a big productivity boom fueled by technology, so low inflation basically and high growth and the lack of a need to respond to that in interest rate space. So I think this guy will bring interest rates lower even though we'll have a boom this year. I also think that he is flexible in terms of his balance sheet view. He's probably mostly subscribing to what I will call the Steven Mirren school of thought. The school of thought where they, they'll prefer if they get commercial banks to create the money instead of Fed. But whether it's the Fed or the commercial banks, I don't think that matters a whole lot. If you look at it from an aggregate perspective, it may matter a little bit in terms of how to asset allocate. I'm probably of the view that the closer we are to good old school Federal Reserve QE where they just buy everything, the more bizarre risk taking we get. While if you do classic credit expansions via the commercial banking system, you need to be a little bit more invested in the real world and less in memes. So in that sense, there's probably a takeaway from an asset allocation perspective. But this guy's not a hawk and trust me, if he's trying to hook things up, he'll get a very rough time with the Trump family.
- [26:54]
A
Absolutely, Andreas. So this underscores a lot of our context for 2026, a lot of our outlook for that Trump getting his guy in there. He obviously still needs the majority in the board, but absolutely big step in that direction of further rate cuts, more liquidity to markets looking very, very good. We had an interesting, just one little tidbit here as well. We had an interesting development because the Democrats want to a special runoff in the Texas, I think it was the 8th state Senate district. Very, very small election in. I can't remember which city it was, doesn't matter. But a very, very important bellwether for, for. And I'm sure that the Republicans are taking great notice of this. And this only increases, this is my point. This only increases their incentive to get the economy rolling because it seems like by now they can't win this election on immigration, which I think Trump had hoped for. They need the economy to rolling as well to win the midterms and that should work in favor of our backs to get back into that picture. Andreas, any final notes on this very, very hectic weekendres before we turn it off?
- [28:04]
B
I mean I'm actually very comfortable with the outlook right now. I think it was very satisfying to see the ism finally playing ball. We've had that thesis say since sometime in the autumn that we needed to get to this bonus depreciation window and the tax incentives to do actual capex this year. I still think it's a very underappreciated story that we do see on ground domestic CapEx in the US this year, strong cycle and the Federal Reserve that will sort of back up that cyclical development. And it could be a little bit amusing if this is the exact point where this capex domestic PMI story starts to impact asset prices. Right at the point where we're receiving insults right, left and center for not being right about would be almost magical. But let me try not to jinx it too early here.
- [29:02]
A
Fair enough. Addressed. That's all we had for you this week. Hopefully we'll have an interest in equally interesting week next week, perhaps without these massive sell offs. But anyway, looking forward to next Monday. Thanks a lot to you Andreas for joining. Thanks everyone for chipping in with questions and joining us along the way. We'll be back next week.