Fed Cuts Coming or Crisis Brewing? | Macro Mondays: November 17th, 2025

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2:14Hello out there. Welcome to another edition of Macro Mondays. My name is Mikl Olsenol. I'm your usual host here at Real Vision. And today, as usual, I'm joined by you, Andreas. Welcome to the show. Thanks very much, Michael. It's been another volatile week, Andreas. We have to face that and we'll try and take a deep dive into everything that's going on. We've got the American government on the path to full reopening. We'll try and take a dive into what that might mean for liquidity and a couple of other issues, including looking a little bit ahead at the Fed decision next month. Some interesting stuff going on, Andreas.

2:51Before we get to that, just a little reminder of everything that's going on this week on Real Vision. This is obviously our free show. We do this every Monday. But aside from that, if you're a subscriber to Real Vision, you also get access to our Ask Me Anything, which we're doing tomorrow, Andreas, you and I. On Thursday, we have a similar one with Roel Pal and Julian Biddle. I very much recommend that one. And on Wednesday, for all of you, whether you're subscribe to WillVision or not, Roel is doing his monthly afternoon drink, I think it's called, the monthly drink with Roel. That's always a fun one.

3:24So make sure to join that on Wednesday as well. Lots of good stuff. We'll get back to some of the articles that we've posted over the last week, Andreas. We're going to throw in a couple of breadcrumbs from that. But as always, and perhaps even more so during these times, Andreas, it's perhaps important to remind people of our usual moniker here that our research and trade ideas, they might be. Sometimes it may be good, sometimes it may be shit. Interesting. I saw this little clip on X earlier today, which kind of rhymed with me, how it's been trading lately, or at least following markets lately.

4:04So let me just show you this and see if you're feeling the same here.

4:10So this is how it's supposed to go. You're filling it up, getting a nice pattern here.

4:22and this is reality chasing the damn cop throwing milk all over the place so andres uh how's the past week been well it it certainly looks like my trading for the past couple of weeks that video there. I actually tried making a heart with the steamed milk for my wife this weekend in the coffee, and it also looked like that. So in many ways, I'm probably one of those. I think we're starting to see some early compelling signs of a stabilization now, but we're still not fully out of the liquidity woods, if you know what I mean, Michael. And I I think we should spend some time on that today because it really seems like the Fed decision in December, maybe even Fed action before December, will be key to defining the next steps for the market here, especially since we are running close to what I would call a pain level in dollar liquidity, especially the very narrow dollar liquidity that defines the money market rates between banks.

5:28Before we get to that, I just want to post one headline here because maybe you can explain this to me. I thought we had a trade deal with China done and dusted last month. But then suddenly these headlines that now we're going to be having a China rare earth deal before Thanksgiving. Didn't we already have a deal? What's going on here, Andreas, if you know? Honestly, I don't know. But I guess the question here is whether you can trust anything from these negotiations. the trade deal that was signed between the u.s and china during trump's first era was pretty decent on paper none of it happened in reality more or less right they didn't buy any of the promised agricultural goods and so at least they didn't buy what they promised china and i think the same is happening here uh you know one of the headlines from the trump she meeting in Korea was that China immediately needed to buy soybeans from U.S.

6:33farmers. As far as I'm concerned, we haven't seen any of that. They also promised us a 12-month detente, to use geopolitical cliches, on rare earth magnets. Suddenly Scott Besson this weekend says that they're still negotiating around this exact topic on rare earth magnets. So I don't know whether this explicitly refers to the rare earth magnets that you use in military equipment. That could be. But in any case, it goes to show that this is nothing but a handshake so far. I mean, they're still negotiating behind closed doors. But at least it seems like they've agreed upon not negotiating in public, if you know what I mean.

7:18At least they've tried to agree on some sort of rhetorical detente where they don't throw garbage back and forth on a running basis. And that has, you know, at least been temporarily helpful. Yeah, and I think there's also underscores what we talked about a couple of weeks ago, that yes, we might have some details, some ceasefires in this trade war. But in the long term, there is no alternative to the US and Europe rearming or reestablishing our own rare earth supply chain. That theme goes on no matter what deals are done with China. We might be able to buy ourselves some time, but China has decided to weaponize the supply chain and their control of the supply chain.

8:04And in the long term, there is no alternative to building up a separate supply chain. So that underscores the validity of that thematic, in my opinion, it is. Yeah, and Miguel, one thing I could add to that, and it's basically the one main counter argument against the solar trade that I've liked a lot this year, if you plan on implementing solar in large scale in the US and in Europe, you cannot avoid the Chinese supply chain either. And it is actually an issue that we base a lot of in terms of the broader energy question, right? Maybe outside of the good oil, old oil and net gas, we almost always have to include China in the supply chain when we look at this energy question.

8:52Absolutely, Andreas. Okay, Andreas, let's get back to the main topic this week of liquidity. You posted your weekly editorial this morning about whether we're out of the liquidity, so to speak. And Roel has talked about liquidity is coming, but there's a problem with the plumbing. Maybe you can, I don't know if you're not a plumber, Andreas, but maybe you can explain that one for me. So is the money coming from the government, to put it very, very simply? what's the holdup, what's the outlook here? Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet.

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10:24Yes. So first of all, is the money coming from the government? To some extent, yes. We've had this issue of the U.S. Treasury having trapped cash at the Federal Reserve as a consequence of the shutdown. And the government is fully reopened as of today, as far as I'm concerned. So it basically means that they're allowed to pay the bills again. They also get the possibility to pay some of these furloughed workers again and so on and so forth. It should bring the amount of trapped cash at the Fed down. And when the U.S. Treasury pays its bills, you essentially end up on the receiving end of that flow of liquidity in the private banking system.

11:10So when they pay their bills, it ends up either at a worker's deposit or at a bank's deposit. And in any case, it ends up in the financial system, right? So that's obviously good news. The bad news is that I don't think it's enough. And we've seen crisis meetings between the New York Fed and banks late last week because we continuously see repo rates rising above the standing repo facility that the Federal Reserve has. So the standing repo facility is at 4%, but we, for example, see the repo rates two weeks down the line pricing at 4 or 5-ish. So that is, to me, a sign that we still have almost a scarce situation in dollar liquidity, especially between banks.

12:04And the obvious question that the Fed asks these banks is, why is this facility, this repo facility, not enough? Because it intends at capping money market rates at 4%, but it does. And I guess the response that they've received, at least if I'm allowed to speak on behalf of the financial system and the banks, is that, well, the issue is that not all players in this money market have direct access to this facility. meaning that you can have repo rates priced above the standing repo facility since some of the agents of the system, they don't have access to the 4 % facility. That's at least one of the reasons why.

12:45The other reason why is that maybe banks dislike having a loan in the standing repo facility for, you know, communicational purposes. Is it a sign of crisis if you borrow from the Fed as a bank? So we've seen that issue before. Also with some of the other lending facilities from the Federal Reserve that, you know, it's not given that it's the optimal choice for a bank to use a lending facility. If the consequence of using the lending facility is that the market suddenly responds to a bank having to use such a lending facility, if you know what I mean. So that could be another reason for banks' hesitancy to fully utilize this facility.

13:34In any case, what I'm trying to say here is that repo markets still signal that we're not out of the woods fully. And it basically means that the Federal Reserve will have to act either by expanding this facility in one way or the other or by adding liquidity via purchases of assets. And I think the latter is increasingly likely. It's even increasingly likely before the meeting in December. Interesting, Andreas. Let's zoom in on the Fed meeting in December. I just want to pull up my usual polymarket chart here. You know me, Andreas, so I always lean on those. So the odds on another cut in December has narrowed dramatically to almost a 50-50 chance, according to markets, maybe even 40-60 here.

14:32Is this fair? And do you think this is what the market is currently pricing in? Yeah, well, it's pretty decently close to what's in the forward pricing in markets. Maybe the market is actually a little bit ahead of this in terms of pricing out the cut. as we speak. Well, I think this is a response to a whole range of committee members publicly stating that they're in doubt on whether to cut interest rates more. We had Collins out saying that last week. We had Schmidt saying that last week. So we actually have a handful of members now explicitly voicing their concern about this cutting cycle. We also admittedly have almost a handful more or less open deals supporting the cut.

15:21Most of those members are still in the race for the nomination for the next chairman job. We're talking Waller, we're talking Michel Bowman, etc. So it's a very divided committee. we haven't heard from the chairman himself which is probably the key here when you have a split committee it's typically the job of a chairman you know that from any board basically that it's the job of the chairman to try and form a consensus in such a case and we haven't heard from Powell yet so I would personally lean towards them cutting in December especially since the reason most of these members explicitly voicing their concern has given to us is that they're concerned about the lack of official data available.

16:11Yeah. And they're concerned about taking a decision until they know more. And they will know more by this meeting. The most interesting thing is that the inflation report will actually be released I think six hours in advance of this Fed decision. So the next official inflation print will be released ahead of the press conference. Most likely, the members will be allowed to take this CPI report into account. Remember, it's a two-day meeting, but the conclusion is revealed on a press conference on the second day. So I guess, given, you know, under the circumstances, they will probably be allowed to wait and see, or maybe they will be given this inflation data the day before to try and, you know, give them the optimal data background to take a decision upon, right?

17:05So I think underneath the hood, while all of this is happening, we run inflation data while all of this is happening, right, Michael? And it looks incredibly soft. The latest anecdotal evidence we could provide you with this morning is that Noble Nordisk, they've more than half the price of Fusenpik, the fat drug, as Trump calls it. And it's actually one of the cost categories in our now casting that looks incredibly soft now, everything related to health care, both goods and services. So I think that, you know, once we get the job report out, I think it's this Thursday, right? And once we get the inflation data, I think the committee will, on the margin, be convinced to cut interest rates further.

17:52And it's, you know, it's probably needed to really stabilize things here. is there a case of this if this is priced in at a 50-50 if we get a cut shouldn't that be a positive win or do you think we'll have the market adjust to that in the weeks leading up to I think the most important discussion now is whether this is a cutting cycle that continues into 2026 or not you know of course it's important whether they cut in December But they could also sugarcoat a hold by saying we intend on cutting through 2026 still. While if they cut and say that that's it, then I think it will actually be perceived as bad news.

18:43So to me, the most interesting thing is whether they will continue to signal that they have an easing bias and that they will continue to signal that we should rather look down than up for policy rates. on top of that is also important of course whether they communicate that they intend on expanding the balance sheet already now uh in my opinion it's increasingly likely that they'll end up taking that decision even before uh the the meeting um especially since and and you should really take uh take notice of that uh williams the head of the new york fed uh basically also you know the head of the balance sheet and the head of the repo facilities uh he's explicitly stated last week that this is a technical decision.

19:27It's not something that they need necessarily to vote upon. You can just implement that after having, you know, some bilateral dialogues with people on the committee. So I think that's a pretty strong signal that it's something that they're already looking into now. Interesting, Andreas. Okay, before we get to a handful of listener questions, Andreas, just a quick review of a sneak peek into some of the articles that we posted last week or during the past week. Today, Andreas, you obviously posted your standard signals. You go into depth with the liquidity issue. We've touched upon it briefly here, but you get a much deeper dive into that and the role of leverage in all of this.

20:09You also cover some of the bets in our model portfolio. Some of them have admittedly taken quite a beating lately. We try and dive into that, amongst others, the drone shield case, which has been quite special. and a couple of other drone stocks as well, which is a very hot topic right now. I also did a long read last week on the drone issue, a bit wider than what we've been implementing in our model portfolio. I see some trends towards an exponential adoption of drones within the military realm, particularly in the Ukraine-Russian war. So some interesting numbers there to support a case, a slightly more long-term investment case, especially if we get some headwinds into 2026.

20:56So that's for those of you on the Pro Pro, Real Vision Pro tier. Lots of good stuff here in there. Remember also that we're throwing a, as we anything tomorrow, it's at, I'm just looking here tomorrow at 3 p.m. Eastern time. So lots of good stuff. We've got to stay up late then, Miguel. Yeah, yeah, yeah, we do. There's an election tomorrow in Denmark as well. and the national team is playing. It's everything all at once. But we're doing that right here from the office tomorrow evening, European time, tomorrow afternoon, US time. So you can get your questions in there. But for those listening to this question, to this show, we've had a handful of questions here.

21:37This one I found quite interesting. The secret to being a great investor is seeing the world six months ahead. The macro investing tool at Real Vision helps you understand the macro seasons and allocate your assets accordingly. It's like having a crystal ball, pure alpha from myself and Julian Battelle. You can try it out by signing up for Real Vision, Real Vision Alpha for 30 days. The link's below. What are your thoughts on Michael Howell's view that liquidity growth is actually slowing and that 2026 looks to be a bad year for risk assets without explicit effect QE? you know i've had many uh fruitful discussions with mike howell on on liquidity over the past a handful of years and i think he's one of the best guys out there um to my understanding the way that michael howell constructs his liquidity index in that index he includes the collateral value of bonds.

22:40So what we've seen, say, over the past six to nine months, setting the treasury market aside is a bond market that has not behaved well. We've seen that in Japan. We've seen that in the UK. We've seen it in the eurozone to a large extent, and even in the treasury market from time to time, even if treasury bond yields are lower than they were at the beginning of the year. So what I'm trying to say here is that Mike Howell's liquidity index is very dependent on bond yields going lower. I'm not sure I fully agree with that method for a couple of reasons. What we've seen in Japan and Europe this year is a much steeper yield curve, meaning that bond yields have gone up mostly in the long end, but to some extent in Japan also in the short end.

23:31That filters in negatively in Mike Howell's liquidity index because of a decline in collateral values. I'm of the view that a steeper yield curve is a natural liquidity enhancer in the sense that private banks create credit when there's a steep yield curve because they can ride that carry. Let me try and explain why. If long bond yields are high relative to short bond yields, it's actually the sweet spot for private banks' commercial model. Since they thrive when they are able to borrow from the market at low rates, their main vehicle to borrow is a deposit from potentially you and I or a short -term paper.

24:20and those are very linked to the front end of the yield curve while they typically lend out further out the curve. So when you have a steep curve, they can actually write that difference in yields. And therefore, we've seen the liquidity and credit creation moving from central banks to private banks to a much larger extent in this cycle. And that is where I disagree with Michael. I think you need to accommodate to that natural amplifier for liquidity from a steeper yield curve. And it's especially been the case in Japan and Europe where we've had a very flat yield curve for a long while. So the global liquidity picture looks better than if you assess it only through the lens of bond collateral and central bank liquidity.

25:07So I mostly disagree with Mike Howell, even though his input is always very valuable. let's jump on to one of our compatriots here andreas patrick jensen asking you about solar stocks here andreas has discussed solar which is obviously a big opportunity within the broader image trend do you prefer to play it by owning more direct companies like for solar or by focusing on picks and shovels plays such as next tracker picks and shovels place i like that uh you know that obviously there is an etf covering the whole uh solar um and it's called tan i love that by the way it's a good ticket yeah and and um you know i still like the case and i think elon has been very active pushing this case also over the course of the past week you know he's basically referring to solar being energy itself and everything else being noise.

26:07Oil is solar by the end of the day, right? But setting that aside, I still like the case. I'm heavily invested in it. We have, I'd say, actually four or five cases in our portfolio with links to the solar theme. Next is in it, just to admit to that. We're still decently up on the next case. I think 20 % or something like that, 15 % maybe. by the time I'm speaking here, I would probably prefer to be exposed to several parts of that supply chain and in particular to companies with a very strong U.S. domestic footprint. It's already a strong consensus story in China. They've built out solar capacity to an extent that is almost impossible to imagine over the past couple of years.

26:59The European Union has built out its solar capacity to a larger extent than the U.S. So the big catch-up play is if the U.S. domestic market plays catch-up to the rest of the world. I have my money placed on that since I think the small nuclear reactors will disappoint in the near term. It's been the focus of the administration to try and get that theme up and running as fast as possible to accommodate the electricity demand from AI and so on and so forth. But I think by the end of the day, solar and NatGas are probably the two plays that are capable of catching up to the demand side of the electricity equation within the foreseeable time horizon, say the next 12 to 18 months.

27:50from a political standpoint. I mean, solar is more politically immune, so to say. I know nuclear is not as controversial in the US as it is in many places in Europe, but still, solar is very much the Gavin Newsom play. So even if we get a Democratic win in the midterms and even a Democratic president in 28, solar is still going to be the big one, I think. Okay, Andreas, usually when I ask for these questions on Twitter, I'm overwhelmed both by a lot of new fancy coins to buy, but also questions of when moon. I didn't bring that one, but I brought two other when questions. I'm just going to put you on the spot with these two, Andreas, because I love this from, yeah, he's called Why That a Nickname.

28:33When Repocalypse and when ISM over 50. I love the Repocalypse phrase I hadn't heard before. So putting you on the spot, Andreas, what do you think? I guess the first question refers to when the repo market blows up, right? You know, I already think that we've seen the first signs of that. I think the New York Fed is sufficiently on top of this issue for it to not spiral out of control. So I don't think we will get apocalypse by any standards. Nothing that is even bordering what we saw in 2019 where shit really hits the fan. hit the fan. When ISM over 50, it's a question I've answered quite a few times this year and I've gotten it wrong every single time.