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- [00:00]
A
Foreign.
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B
Hello there. Welcome to another edition of Macro Mondays here at Real Vision. My name is Mikael Rustenwall, your usual host and as usual, I'm joined by you, Andreas. Welcome to the show.
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A
Thanks Mikael. It's good to see you.
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B
Yeah, you too. You too. Things are looking up a little bit today, Andreas, so let's see if we can keep the mood good ahead of a very interesting week here in the macro landscape. Of course, before we get to all the juicy stuff, just a couple of our juice reminders, etc. This is our free weekly show at Real Vision where we give some sneak peeks into our research and analysis. For the full package you need to go to the RV Pro tier. There are lots of great offers to enter the Real Vision community if you're not part of it. The community is currently being updated with a brand new platform. I think that's very, very exciting. Allows us to provide you with even more of our insights even more regularly and more direct to the case. So that's very interesting. So make sure to check out all the BL Black Friday offerings going on right now. Even with the US holidays going on later this week, we've got a really packed week ahead of us at Real vision. Tomorrow at 9am Eastern we have Raul and Julian shooting the shit at 10:00am Eastern. Andreas, you're doing your Macro Meet Micro. We'll subvert that a little bit later. And on Wednesday, just before Thanksgiving, we have Joe Bland giving a live portfolio update, Chris Bullock sitting down with Caleb Francie at 11 and trading the market show as well at 1pm Eastern on, on Wednesday. So really, really packed couple here at Real Vision going into to Thanksgiving. Obviously trying to make the most of a very, very interesting week. We're obviously also publishing all our regular articles. There's no such thing as Thanksgiving here in Northern Europe. So we're working full steam ahead with the everything you're used to receiving from us, including our model portfolio update. So Andreas, perhaps especially during these times, it's important to give you our usual catchphrase and our little FL lagging here that we try to be very, very specific, very, very actionable in our recommendations. But we might be sometimes maybe good.
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A
Sometimes maybe.
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B
There we go, gentlemen. So Andreas, I want to jump straight into what we usually call hot takes of the week. I tried to gather some, some, some, some funny or interesting charts. Charts from across the. The. From across X. One of them we had a few months back was a guy posting that October 6th would be the very, very top in bitcoin. So far he's been completely right. We laughed a bit at that. But, but, but Andreas, a lot of people on X are trying to see various patterns. We talked about October, November, etc. I tried to make a little one of myself because we talked about this last week that, that it felt like there was sort of a weekly rhythm at the moment Compile data from the last three months. We can get the chart up on the screen here for the S&P 500 and it there seems to be a trend which is not the usual trend necessarily for S&P 500 but over the past three months that we have quite nice Mondays, Tuesdays. Okay. And then we, we begin to get to get bad news out of the White House or crises across the world or just a general bad mood. Do does this say anything about the, the psychology or nervousness of Marcus lately? How do you view this? Andreas?
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A
It's actually a very good question because my initial thought when I saw this weekly pattern it by the way holds true even if you look further back than just three months. Michael Thursday has been the worst if you look at the whole year to date. My initial thesis seeing this data was that if you look at the weekly seasonality of the Trump administration, they've grown accustomed to deliver upbeat new late Sunday, early Monday while they've typically announced tariffs either Thursday or Friday. I remember back in March and April we had these Friday afternoon announcements on tariffs more or less weekly. So I think that explains at least a great deal of this seasonality through the week. So the simple reason why we're up today is that it's Monday. There's nothing more to it, it's Monday.
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B
And that kind of kills my positivity a little bit, Andreas, because if that's all there is to it then we probably have a rough week ahead of us anyway. Let's see Andreas, let's see if this holds up. This must be a different week then because you have no Thursday trading day. So yeah, let's see, let's see. Okay, dress another hot take from the Internet here. I just came across this. We're going to talk more about the December meeting today. Of course you have a couple of points on that. I saw this from various profile not only this ash crypto guy annex that suddenly the poly market odds for a rate cut jumped and everyone now we need a pump and I think maybe we have a few words of caution here. Obviously the December meeting is very, very important but it's not going to save crypto or what yenras just to get the helicopter perspective here.
- [05:28]
A
Well, a rate cut is not enough on a standalone basis. I think the key question for December is actually the balance sheet. Now a week ago many pundits concluded that too many members of the committee were against easing in December. I'm personally still in the camp that they'll end up cutting interest rates, especially after what John Williams said on Friday, the regional boss of the New York Fed disk. So I actually think it's a make of right, meaning in many ways. First of all, we need to see how they deal with this very fractured, almost polarized committee. You made this simple sketch from just the speeches that we've had say over the past couple of weeks. Four members more or less explicitly stating that they're pro cutting. Walla, Bowman, Mirand, three of Trump's lieutenants, let me put it like that. And then we have John Williams, as I mentioned on Friday, he really moved the needle on pricing. Then we have members clearly stating actually explicitly that they would probably prefer not to cut. Then we had Lisa Cook and Michael Barr out last week and both of them kind of referred to the financial excesses, valuation risks, etc. So if anything, they're probably more in the right hand camp than in the left hand camp. So. But they didn't explicitly state that they would not be willing to cut in December. And you know, this is a, a big regime shift compared to the very consensus driven Fed that we've seen under Jay Powell. If you look at the typical number of dissents back during former governor's reign, then it was much more normal to see this kind of internal divergence between hawks and doves within the committee. But Powell has been incredibly good at forming a consensus, trying to orchestrate a very uniform message among all of the members. But they're shooting right, left and center right now. And it's very tempting in my opinion to also pool these pro Carters and anti cotters from a political standpoint. Many of the members to the very right here, including Lisa Cook, as I mentioned, they've been appointed by Biden and vice versa. To the left here, they've mostly been appointed by Trump. Right. So I think it's very, very obvious that there's a political game going on now between these two camps within the committee. By the end of the day, I think John Williams is incredibly important to listen to. He's first of all known to be a close ally of Jay Powell. It's very rare that John Williams has gone on the wires stating things that haven't been at least to some extent Cleared Jay Powell in advance. So I think John Williams has said that they need to expand the balance sheet and I think he's now also very clearly stated that he's in favor of cutting near term. So might be worth listening to. And the market actually did listen to it on Friday.
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B
Some of the undecided camp here might be waiting for more data and it's a little bit unclear what data they might actually have. So I just wanted to take a quick look at our regime model. This is what we base a lot of our research on or at least used to support it. This is the regime model for the us we're running it for a couple of other countries as well. And it's essentially for people who don't know, it's essentially the likelihood of either growth, inflation and liquidity growing or not. And just look at this inflation probability here dropping like a stone. Will we see that already in inflation numbers during coming weeks or is there a bit of a lag? What do you expect?
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Yeah, so the inflation report for November will be released on day of the press meeting for the December FOMC meeting. So I guess they will be allowed to have a look at that data before taking a decision. It's worth mentioning here that we've gone from a high probability of inflation actually rising year over year to a almost non existing probability of inflation going up. So this basically means that we'll probably move from a three handle to a two handle again, right. In inflation it doesn't necessarily mean that we'll get back to target, but it just shows that inflation is not building pressures on the top side. And I think that's very relevant when you look at this decision in December. If we get a soft report that probably seals the deal. Right. In any case, we're not too far from a Goldilocks scenario. But the issue here is that actually through parts of October also the early innings of November, we it felt more like a down, down, down scenario, this one, right? With growth taking a small beating as you can see now, costs mostly due to trading volumes coming to Sutton halt due to the standoff with China. We saw inflation coming down and we saw liquidity coming down, not least because of the constraints in repo markets. So we're starting to see a little bit of light at the end of the tunnel for the repo market and the dollar liquidity market. We're seeing inflation disinflating versus its current yearly growth and we see growth sort of in a lukewarm territory right now. So we need to see the needle moving on growth as well to really get to a Goldilocks scenario where growth is picking up while inflation is doing nothing.
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B
Interesting. Andreas. Okay, before we get to a couple of listening questions, we've gotten some really nice ones this week. So we usually do, but especially today. So I wanted to set aside aside a bit of time for that. I just want to touch on one thing that I think most investors need to be aware of moving right now. And I think most people are following what's going on in Ukraine. The peace process has got new momentum after the leaked peace plan. And it seemed to me like the Trump administration sort of jumped at that opportunity. I'm not sure they leaked it, but it sort of jumped on that to breathe some momentum into this process. And you know, Andres, it's very, very hard to predict this because we don't know what's going on inside the tremul and we don't know what's going on inside the mind of Vladimir Putin. But I mean, are right now and I'll expand on this in my the Drill article later this week. Essentially we have a US Peace plan that a lot of people are criticizing for being sort of dictated by Russia. So we have that plan. They took that plan to Geneva to meet with Ukraine and now we're hearing that out of this meeting with Ukraine, they've agreed on a plan. So there should be a lot of momentum here. There should be a plan that both sides are more or less agreeing to. So, so we don't know if the Russians are sincere in this, if the Ukrainians or if they can find common ground. But it seems to me like there's a good chance that there's at least some chance that this could be very, very quick and a lot of stuff could happen over the next week. So really, really something, something to consider. I've been banging the peace drum for a long, long time. So I've worked on that scenario for a long time and we'll expand on it a little bit later. But just a heads up for investors that this, that this could be another one of those geopolitical game changes like we've had earlier this year. But this perhaps with a positive outcome for market, breathing some positivity into markets. So a developing story. We don't know what's going to happen, but one to watch, obviously.
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Yeah. And Mikael, as far as I'm concerned, there's a soft deadline on Thursday for these talks. Yeah.
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There'S a lot of momentum, a lot of short term sort of pressure to get this done some one way or another. It might not get done. It might all blow up. But there is a chance that this could develop and that's obviously another game changer for markets.
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A
You sound increasingly like Jim Carrey when.
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You describe these negotiations. So there is a chance, right? There's a chance, yeah. Well, I'm hoping for peace. But let's see, let's see. Okay, Andres, I want to move on to some listener questions that we've gotten in here. We have a lot obviously on on on liquidity etc. Let's start out with these two that are grouped together. It's going to be a little bit much to to read so I'll try and try and do relatively quickly. You can view it on the screen as well. From Theta Besant expects I'll try and do them in the right order here. I'm not sure which is the right order anyway. How likely are how likely are we to see elevated sofa stress again at month end? If so, that could likely market bottom as a lot of options exist to support TGA drawdowns, new SLR coming up and live qe. So do you see this as the buying opportunity and how do you see the surface status right now, Andre?
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A
Yeah, I mean if you look at refill rates a couple of weeks forward, we're certainly not completely out of the liquidity which yet despite the TGA shrinking by roughly 110 billion by now compared to the peak during the shutdown. So we have seen some liquidity being added to dollar markets. We're still say between friends, a couple of hundred billion from going above paying levels again in the overall dollar money market liquidity. This is why I still expect the Federal Reserve to do this light technical QE to get the balance sheet back to a size that they can sort of deal with the repo markets with in relation to the supplementary leverage ratio, the slr. I think this is a key question for next year and it is, you know, it's a trend that is starting to catch some momentum also with some of the governors talking about the balance sheet policy of the Federal Reserve. I wrote a whole story on this on Friday that we're starting to see, especially some of the lieutenants, the Trump lieutenants, you know, asking for a smaller balance sheet in return for very swift rate cuts. So if they can deliver on that cocktail, bringing the balance sheet size down while they deliver a lot of rate cuts, they think that kind of policy mix is more aimed at Main street rather than Wall Street. And I think there is some merit to that. Let Me say a few words on this supplementary leverage ratio easing. I think it was back in the early summer this year that the Federal Reserve hosted a special meeting on this topic and they ended up proposing some revisions to the supplementary leverage ratio and the supplementary leverage rat. This is essentially a piece of legislation or capital legislation that decides how much capital you need to set aside as a liquidity buffer in for example, your high quality liquid asset book. So again, it is a piece of legislation that decides how much capital you need to set aside when you run risk as a bank. And the proposed changes to this supplementary leverage ratio would lower these capital requirements for the so called G sips. So these systemically important banks and I think as far as I remember on the holding level, the current requirement is 5 and will be reduced to a range of 3.5 to 4.5. So we're talking about a sizable reduction in percentage points. And if you look at the subsidiaries, we're talking about a drop from 6 to 3.5 to 4 and a half the same range as mentioned. So to assess what this means, you simply need to estimate the risk weighted assets of banks because that's essentially the liquidity you need to set aside or the capital you need to set aside is a function of how many risk weighted assets you have on your balance sheet. And based on my back of the napkin calculation, I think every 100 basis points reduction in the surcharge of the supplementary leverage ratio unlocks say ish 150 to 200 billion dollars. So at the very least we're talking 250, maybe even 300 billion worth of unlocked capital capacity from these banks. And I actually think the most important conclusion of that is that that capacity will be available for lending. Of course there is also this discussion on whether they will be allowed to hold Treasuries and their high quality liquid asset books without having to set aside capital for that. And I also think that's important, but maybe not as important as the surcharge on a broader scale. So overall we're talking at least a couple of months of peak QE from the COVID era in terms of how much capital this frees up. And again it goes hand in hand with the wish to try and limit the amount of intervention from the Federal Reserve in the private market. And instead they want these banks to be incentivized to hold Treasuries. So sort of an indirect qe, if you know what I mean. They want the banks to do it. And on top of that they will ease their capital requirements to allow them to push more money out into the system. Very, very interesting when the exact timing of this implementation will be as alluded to here, referred to first quarter, I think that's likely.
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B
Now for something completely different here. Very interesting question. We got in from a guy called Sir William. I think it was on the real vision platform here. I don't know how much you followed this address. So a little bit of a curveball. Sir William is, as the name suggests, UK based, heavy investor in Tesla bitcoin strategy and he is a bit frightened of the upcoming government budget that's going to be announced on Thursday. Afraid of a bond market revolt perhaps. Also reminiscing back to the Liz Trust days here. We don't know exactly what's going to be presented but there's been a lot of talk on wealth tax and mansion taxes and I saw one calculation from the labor from one of the earlier tax commissions that, that you could put a wealth tax of 1.12% on assets over 10 million pounds could bring in a lot of revenue to, to, to, to balance the budget here. How screwed is Sir William using his own words here? Rate his crudeness.
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A
And I actually don't think Tesla Bitcoin and Micro Shreddy are super sensitive to this budget from the UK administration. Overall I think it's, it's getting increasingly hard to be upbeat on the UK outlook, especially fiscally and the gilt market is suffering as a consequence of this. We've also seen the spread widening materially between Treasuries and gilts and yield terms this year and I expect that to continue. So rate my scrutinist, you've chosen the wrong place to live. Can I be that blunt? I don't necessarily think it's a biggie for your portfolio.
- [21:39]
B
That's a positive. At least this one was interesting. Andres from Trev Barger here. What's the probability that the bitcoin market structure changes, meaning that liquidity is no longer the main driver for Bitcoin and that marginal liquidity is choosing to go to other markets, data centers most notably perhaps on a permanent basis. Is there something to listen dress?
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So I think the big question for 2026 is whether this trend towards the Federal Reserve not being as active with its balance sheet as it has been in the past and this whole trend of legislators and commissioners trying to push private banks to do the liquidity injections in the economy, whether that alters the picture from an asset allocation perspective because it's not the same as if the Fed injects Liquidity, or if a private bank does it, a private bank is much more inclined to lend that out to the real economy, data centers included, and it is less clear that it goes directly into asset inflation when you do it that way. We only have a sample size of one yet because actually this year the Fed has been pretty hawkish on its balance sheet. They've been very slow in terms of responding to the repo market stress, but we've actually seen a pretty material liquidity injection from private markets despite all of this. And we've seen international equities outperforming even tech in the US We've seen international equities outperforming Bitcoin. And maybe that's not a coincidence. It's something that I've started to ponder whether to do something about structurally in my portfolio. But I think the make or break is the decision in December on the repo market and the balance sheet. Because John Williams, for example, is still in the old school camp fighting his 20082009 PTSD. When you have PTSD from 2008, 2009, all you do is to expand the balance sheet of the Federal Reserve. I still think they have one expansion left, at least a technical one there, and that should be pretty good news for bitcoin, at least for the next three, four months. But I think it's an interesting discussion whether this trend away from the Fed balance sheet to the private sector balance sheet is something that alters asset allocation structurally and something that I'm still in your leanings of completely figuring out, to be honest.
- [24:25]
B
Okay, Andres, let's round off with a couple of questions slightly more related to our model portfolio. We do have a bunch of nuclear and solar bets in there. Andreas, a question from Jack Carr here. If we go into an economic slowdown, would you add or de risk to those bets in nuclear and solar?
- [24:47]
A
I think it's quite evident that those bets are positively correlated to the business cycle. So. So especially solar is very positively correlated to the business cycle. It's something that you typically expand during a business cycle optic. And that is to some extent also true for nuclear. It by the way holds true for most either direct commodity bets or commodity linked bets. Right. And the question is then, is a slowdown the base case here? I'd say no, but the market has clearly moved in that direction. From a pricing perspective, if you look at at our live costs of the US economy, the growth momentum is not really moving. But we have some early solid signals from the manufacturing PMIs, from the regional Federal reserves out this month. If you take the three that we've seen so far, I actually think just as I speak here, we received the fourth from Dallas, and on average, they do decently strong. We have three out of four of the surveys doing pretty well. So I think there's Now I sound like Jim Carrey. I think there's a decent chance that we get a spike in the ISM manufacturing once it's released early next month.
- [26:10]
B
Interesting stuff, Andreas. That's all we had for you this week. Thanks a lot to you, Andreas, for joining. Thanks to everyone for tuning in here. Remember to sign up to Real Vision. Try and catch Andreas Micro meets Macro Macro Beach Microsorry tomorrow and all the other great shows in there. And all our research, obviously, look out for the Black Friday offerings. Thanks for today. We'll see you next week.