Why the Market is Panicking—And What Comes Next w/ Andreas Steno

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1:40Hi, I'm Raoul Pal, and welcome to my show, The Journeyman. As you know by now, it's my journey into the exploration of the nexus of macro crypto in the exponential age of technology. So I've been traveling a lot in the last few days and I've actually come down with the flu. So I was supposed to be interviewing Andreas Steno-Larsen myself, which I will do in a couple of weeks. Andreas is part of Real Vision Pro, a good friend of mine, and a great business cycle analyst, strategist, and hedge fund manager. And I think you'll get a lot out of that conversation. But to tee you up with that, I wanted to show off some of Andreas's skills by what goes behind the pro tier when he gives his State of the Union every month.

2:24So this is a special for you to give you an insight into Andreas's thinking in how he looks at the world and how it fits in to the world that Julian Bittell and myself look into at Global Macro Investor. You see, we partner in the Real Vision pro tier to provide you this kind of holistic view of what's going on and the opportunities. Andreas tends to focus more on Europe, but he still uses the US as a backdrop. He's also very global. He's also multi-asset class, including crypto. So I think you'll get a lot out of this. And then in a couple of weeks time, Andres and I will sit down and chat further.

3:00And I think it will give you another framework of understanding that you need to navigate these times. Enjoy. Join me, Raoul Powell, as I go on a journey of discovery through the macro, crypto and exponential age landscapes. In The Journeyman, I talk to the smartest people in the world so we can all become smarter together.

3:24Hi, everyone, and welcome to the State of the Union here at Real Vision. We obviously had the actual State of the Union speech exactly a week ago, and oh boy, we've seen material developments in especially U.S. equities since then. And the Trump administration is currently suffering from a really bad momentum in equity markets. And we're trying to assess why today and whether we're close to reaching the bottom in this guided tour around the global macro market. My name is Andreas Dino, and I'll be with you for the next roughly 30 to 45 minutes. And please ask your questions along the way. We're going to cover a lot of ground, both in the US, but also in the rest of the world.

4:08And yeah, I'm open to questions on everything related to macro and financial markets and everything in between. So what is going on right now? Why do we have a recession scare in the US? Why do people sell their assets in the US? Which is pretty evident if you look at the price action over the past couple of days. I think we need to understand one thing, first and foremost. A lot of people have been front-running the tariffs. And I have one chart with me on page two, Brian, showing exactly why that is. So ever since the election result became known, we kind of knew that tariffs were a part of the Trump policy mix, at least to some extent.

4:58We didn't know the extent of it. We didn't know the timing of it. We didn't know the geographical reach of it, but we knew that tariffs were coming in one form or the other. And executives in the corporate space, they haven't been living under a rock for the past three to four months. Obviously, they've seen these tariffs coming and they've imported everything with the tariff risk related to it already ahead of the tariffs implementation. That's why we see such a massive deficit in the goods balance in the U.S. through December, January and February. So basically everyone at C-level jobs took a decision to bring in stuff to the U.S.

5:42before these deadlines. And that obviously gives some sort of artificial push in a positive direction for the U.S. economy because all the books are filled up. You see a lot of imports coming in. You see a lot of artificial activity because of this front running of tariffs. There is obviously a headache on the other side of this now that we actually reached the point where tariffs are being implemented. We have the steel and aluminum tariffs going live tomorrow. We have had tariffs going live on China through February. We've had parts of the tariffs on Canada and Mexico going live here around the calendar turn.

6:23So we have tariffs live now. So is this front running still happening or do we see some sort of fading activity because of the headache on the other side of this front running? And my best guess is that it is exactly what we see right now. We're seeing a slowdown in the US because of all of this front run activity ahead of the tariffs implementation. and a more timely gauge of that is to look at inventories of for example metals and i have a chart on page three showing the changes in the inventory for example on gold i could have shown copper i could have shown steel aluminum etc to kind of showcase the same trend we saw this massive front running through january february and now we're seeing the other side of that essentially as tariffs are now being implemented.

7:14There are no reasons to front run anything anymore. And we have inventories loaded up with stuff as a consequence of this front running. So basically, this means that we've moved activity from the next, say, six to eight weeks back in time. We've basically moved that activity back into January, December, et cetera, because of the front running of tariffs. it basically means that artificially speaking activity will look incredibly low here in february and march we're obviously getting the february numbers uh here in march and we'll get the march numbers through april and i think it will look very bad because of this front running uh the subsequent headache so it's more uh look at this from an accounting principle right um you've basically stolen a bit of activity from February and March and taken that activity back in time.

8:10It doesn't necessarily mean that this is a true recession. It doesn't necessarily mean that this is a major growth scare. It just looks like one. And that is my main working thesis right now that we've basically talked about some accounting principles here. We see no activity now because everyone front-loaded their activity because of these tariffs incoming. So what does that mean for inflation? What does that mean for bond yields? What does that mean for the dollar, crypto markets, et cetera? We'll get back to that in a second, but I'd like to stress one thing. And for those of you who listened into all of my shows here at Real Vision, there will be a few repeated points here, but it's just so important to underscore this relevant point around inflation coming up.

8:56Because everyone and their mother and all mainstream economists now expect inflation to pick up because of tariffs. And while that is the straightforward conclusion, I think we'll see the exact opposite, at least for the next couple of months. Hi, Raoul here. Listen, I think we've got until 2030 before the economic singularity arrives. Now, it might not be the exact date, but it's around then. So we have about six years to figure out how to unfuck our future. I've put together a report to help you called Prepare for 2030. It's going to help you take the first steps in that journey to make sure you're secure past 2030.

9:39So just click on the link below and start your journey now. And let me try and walk you through why that is with a chart on page four. So simply speaking, when you add an import tariff, you obviously increase the import price index. So when China exports something to the US, there is now 20 % added to that price as soon as the good will cross the US border. But if I'm right that we saw a lot of front running, a lot of front loading of import activity, which is fairly evident from the data that we track, we do not see a lot of imports blowing through in march in april in may because of this front loaded activity so the import at the higher price level is basically a future discussion rather than a discussion for now because of the front loaded import activity so when you take all of these import tariffs at face value you'll probably get to a weighted average of an of roughly 5%, a little bit more than 5 % in terms of increased import prices.

10:52But given that a lot of imports have been front-loaded, you'll not see that effect this month. You'll not see it next month either. We're rather going to see much smaller effects because of this front-loaded activity. So the two lower scenarios that I've painted here with much smaller increases to the import price index are much more feasible, in my opinion, because of this dynamic effect where you've seen front-loaded activity. On top of that, you see a nasty demand effect right now. The demand is slowing in the US also because of the Doge efforts. And of course, when we talk about import tariffs, a lot of executives will already have taken decisions to reroute some of the trade to avoid the tariffs.

11:38We saw that during the first Trump era as well. When Trump added tariffs on China, China started exporting to Mexico. Mexico then exported to the US to circumvent the tariffs. And we're going to see the same again this time around until you get global tariffs. As long as there are tariff-free trade routes, you'll see those routes being utilized by executives. It's like trying to contain water. You cannot really do it if there's a way for water to escape. And there is a way for the water to escape these tariffs still. This is exactly why the Trump administration is trying to put pressure on Canada, Mexico, etc.

12:22to add tariffs on China so that China cannot just reroute the trade activity via other countries. I think ultimately, this is going to be a big surprise to the market. If inflation comes down the next couple of months, it will wrong foot right about everyone because it is the straightforward conclusion that prices will have to increase. But if they actually decrease or they do not increase at all, we're going to see some material market effects of that in the direction of lower bond deals, weaker dollar, etc., which is basically needed right now to underpin a very, very weak development in U.S.

12:59equity markets. Typically, I start out this show with a sentiment check in equity markets and crypto markets for that matter. I don't think it's really needed this time around, to be honest. And I would typically have worn my red glasses in response to this terrible sentiment out there. But I think it's just too damn serious to be joking about it right now. I think I speak on behalf of a lot of people when I say that we're getting tired of this, especially since the flip-flopping on timing, the flip-flopping on the extent of tariffs, the flip-flopping on the geographical extent of the tariffs, it's just so hard to maneuver.

13:40And all of the professionals I speak to within the asset management industry, they just avoid taking decisions to buy stuff in the US right now because of the uncertainty. So my sincere hope is that once we get past 1st of April, with the deadline on reciprocal tariffs and all of that, the Trump administration is done talking about tariffs and they've reached their goals. That is my sincere hope now, because we simply need some certainty. And, you know, when we look at the global heat map right now of returns, I have that on page six, we're talking about, you know, the worst start of US equities relative to worldwide equities in a long, long while in a calendar year.

14:27So at the very top of the leaderboard, we have EPOL, the Polish Equity Index. And as you can see, we have SPY, SPY, towards the very bottom of the leaderboard, which is the US index. Only India is suffering more than New Zealand. So we have Poland, Germany, EWG, MCHI, the Chinese index, like doing 20 % better, 30 % better even in some instances than the US index. I don't think that was exactly what Trump promised people. And I guess at some point, he'll have to take notice of this. I know that Besant, Outlaw, Nick, Trump, et cetera, they tried to tell a story to us. Okay, this is short-term pain because we want medium-term gains.

15:13And I think there is some merit to that. But at some point, obviously, they don't want to see this anymore. So fingers crossed that they actually stop this flip-flopping on tariffs by April. So setting all of this aside, how bad is the U.S. economy actually doing? Is it fair that we see all of the calls for a recession or that again? My short answer to that is basically a resounding no. If we look at page eight, we have the U.S. now casting avows. And the light blue line here is the growth momentum. So everything above 0.5 is basically above normal. And as you can see, we've gone from in January having exceptional growth momentum to now mediocre growth momentum.

15:59It's not like we're through the floor. So I think this is a correction because of exceptionally high expectations for this golden age that Trump announced when he won power. But it's not a recession. and we're basically, in my opinion, still talking about, as I said, from an accounting principle, activity being moved backwards in time, stolen a bit from this quarter. And therefore, this is not an actual recession. We may get a really bad GDP print, but it's more like a periodization issue rather than an actual slide in activity because of all of this front loading. So what's the outcome of all of this?

16:41and what's the bottom line when you look at financial markets. I have my eyes glued on 375 for bond deals. And I think that's very important here. Bond deals are actually coming down. And that's much needed to regain momentum a bit further down the road. Scott Besant is very much aware of this. He's also in favor of targeting the longer-term bond deals rather than pushing the Fed to cut a lot, especially after what happened during the autumn when the Federal Reserve cut by 50 basis points and mortgage rates exploded. So is he actually on top of bringing bond yields lower? My opinion is yes. Let me show you three charts on why that is.

17:24First, the chart on the so-called truflation measure versus bond yields in the U.S. The truflation measure is a measure of online prices from a lot of suppliers. And as you can see in the dark blue, we've actually seen quite a substantial decline in that measure. It's kind of the same vibes we're getting from our own online price scraping. Not as substantial as this inflation measure, but the direction is the same. And as you can see, it's got a tremendous track record in terms of forecasting 10-year bond yields with a short time lag. So I think we're heading below four, as you can see on the left-hand scale for the 10-year bond yield.

18:02And prices are actually coming lower here in February and March. which is a very contrarian take. Not a lot of people are aware of this. When you look at traded prices such as oil, for example, on page 11, we're also talking about oil prices coming down exactly as Trump promised. And we're seeing levels that are very low in a historical context, even comparing it to pretty weak periods. There is typically a very strong correlation between oil markets, the light blue, and 10-year bond yields in dark blue, as well. And it's also pointing to, say, 3.75 for the 10-year bond yield. So I think bond yields will come even lower than what we've already seen.

18:44Again, a very contrarian take because a lot of people expect tariffs to bring about higher bond yields. And finally, we can see that the market is now starting to accept this on page 12. So we have the inflation swap, which is basically the traded inflation price versus the generic 10-year bond yield. And both are coming down in tandem now. And I think we should expect it to continue. Maybe we have 50 to 75 basis points left in this trade. So, you know, if you're a little bit scared of what's ongoing right now, buy treasuries. I think that's an okay bet. It's not going to bring about no double-digit returns, but it's going to bring about some returns here because it's got best and basic ones to bring bond yields lower.

19:30to ensure that there's a decent momentum in the economy, that financial conditions easen into the second half of the year. And he's actually getting exactly what he's after. And all of this obviously also spills over to the US dollar. I've been banging the drama on a week, a dollar, since the start of the year. I know Raoul has done the same. And we're starting to see exactly that playing out in the light blue, which is the dollar index. Last week's performance was probably the weakest in a few years in the dollar index. And it was quite a landslide, both against the euro, against the Japanese yen, even to some extent against some of these trade partners where you're threatening them with tariffs all the time.

20:12So even the dollar is now starting to weaken, which is much needed for China or Japan, et cetera, to be able to accelerate their economies again. and I think this is a very, very important point also from a global perspective that if the dollar weakens, we actually see some momentum in the global economy three, four, five months later and I'll get a bit more exact on exactly when to expect this weaker dollar, these lower bond yields to kick in and to underscore and underpin the developments in US assets again. But before we get to that, Let me just briefly give you an update on dollar liquidity developments because we know how important they are to crypto markets and to NASDAQ, etc.

20:59And I think two out of three agents that we track in terms of dollar liquidity developments are now adding liquidity. First of all, the US Treasury slash Scott Besant, they're adding liquidity now. That's why Scott is smiling here. And Scott is smiling because the TGA is going down. The TGA is Treasury General account, the amount of dollars that they hold idle at the Fed. And they're bringing this idle cash pool lower now because of the ultimate debt ceiling deadline on Friday. As soon as that deadline is in place, we'll see this plummet towards zero. A lot of liquidity will be added as a consequence because private banks will be on the receiving end when Scott Besson is not issuing.

21:43also bringing one deal slow alongside it. So thumbs up on Scott Best's liquidity adding strategy right now. What about the J-man, Jerome Powell? Is he adding liquidity right now? He is not adding liquidity. We're basically stuck close to the zero low bound on the overnight reverse repo facility. And the Federal Reserve will have to decide here in March whether to end QT. And I actually think that they will end QT because of what's ongoing with the TGA, because of what's ongoing with liquidity developments on other balance sheet items of the Federal Reserve. And that is probably what they can do to sugarcoat developments right here and right now.

22:26So we obviously have the meeting upcoming in a few weeks and I think they'll end QT. So Jerome is a thumbs down right now, but I think he'll be at least, at the very least, flatlining liquidity developments from March onwards. which um finally jamie diamond and his ilk in the private sector on page 16 are they adding liquidity um and we're starting to see bank credit going up and what is bank credit it's basically credit that you and i get when we go to uh our bank asking for a loan for our um as me um or for household etc right so they can add money to the system by giving your credit uh and the demand is there for loans.

23:08And we're starting to see the development picking up in terms of private credit as well. So Jamie is also a thumbs up right now. So two out of three agents are adding liquidity, not in a fast pace, but they're adding. And as you can see, we're a pretty early cycle in this. We're starting to bottom out. So cyclically speaking, we're still in the early innings of liquidity cycle here, which is comforting despite everything that's ongoing out there. And I get why most people are a little bit of scared of what's ongoing but if you look beneath the hood if you look at the quiddity developments i actually think there's a recent um optimism at least if you have a time horizon of three months plus have you ever wanted to trade bitcoin but haven't dared try with plus 500 futures you can trade crypto without the hassle of opening a wallet with just a few clicks you can register and start practicing with their free and unlimited demo see a trading opportunity, you'll be able to trade it in just two clicks.

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24:50So when do we catch the falling knife? Let me show you one chart on why we're in accumulation zone already now. We started accumulating a little bit last week, probably a bit too early, my bad. But the next chart is basically the reason why. So when we look at the dollar returns, so basically the US dollar, and we look at that return profile in relation to, for example, the Bitcoin return profile, Well, we're talking about a lag pattern of roughly 90 days. So the dark blue line is the return profile of the US dollar, and the light blue line is the return profile of Bitcoin. And when you lack return profile of dollars, 90 days, you get a really stubborn pattern.

25:38So you need easing financial conditions on the dollar side, basically debasement of the US dollar, 90 days ahead of the Bitcoin price regaining some activity momentum. So when is the actual bottom here? I'd say first or second week of April. That is about as precise as I can be right now. So maybe less than a month away. So, you know, just to avoid being wrong-footed on the timing, I'm accumulating a little bit slowly but surely through March as a consequence of this chart. And as you can see, it takes off materially into May and June. So, you know, stay patient. Don't fuck this up. I actually think there's a reason to accumulate into April.

26:27The tax season in April is always a tricky one, but into April, we're starting to get that positive impulse for a weaker dollar for lower bond yields. And then finally, in the US dollar market, I have a few single name charts that I want to touch upon before we move to the rest of the world. And if you bring about chart 20, Brian, the meta planet chart is really interesting some of you have heard about the japanese michael sailor and meta planet is basically a copycat out of japan out of japan for micro strategy is it's sort of a japanese bitcoin treasury in a sense but it's been trading incredibly well until we saw this landslide into march right and i think if you really want to to find something that is completely bombed out.

27:18And if you want to take risk into this recovery, this is a place to look. It's kind of an equity leverage of the Bitcoin play. And I think it's a play with more upside than microstrategy if I'm right on the timing in April. So that's one thing to consider. Early days, but worthwhile accumulating a little bit there. And then if you look at the mind medicine trade, which I still have my eyes on. As soon as Trump is done talking about tariffs and as soon as he allows Bobby Kennedy to take a bit of limelight, I think this is the exact case that you need to look at. It broke 10 briefly, which was the exact trickle level that made us enter.

28:04It was a false flag. Sorry about that. We're starting to find some firm footing around the level of six here. But again, we need to be a little bit patient. We need to get tariffs out of the way and we need to get a recovery ongoing. But this is still a very, very asymmetrical trade for the rest of the year. And it is tradable in options-based if you're not willing to take the full directional risk now. Enough about the dollar market, enough about the US because the US has been underperforming. But I don't think Europe is immune to what's going on in the US now. Because the US is obviously the biggest export market for Europe.

28:41It's obviously the biggest export market for China. And this whole front-loaded activity ahead of the tariff deadline that we saw in January, February, etc., it obviously allowed European equities to perform. And I think if you go to page 23, Brian, that this is the exact reason why we've seen a growth pickup in Europe. The light blue line here is our growth now cast, so basically daily observations from Europe. And we're close to the roof here. it almost doesn't get better than this we've gotten a lot of orders from the u.s because of this front-loaded activity and on top of that trump has sort of forced europe into taking a lot of investment decisions on in the defense sector in the infrastructure sector etc and i actually have a lot of to say about that topic we can do that another time but you know the bottom line is that trump has actually forced europe into taking decisions which is good by the end of the day.