Is the Soft Landing a Pipe Dream?

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1:40Is the U.S. soft landing a pipe dream? Hi, everyone. Welcome to the Summer Friday edition of The Daily Briefing. With me today is Nicole Acterson, author of The Crypto is Macro Now newsletter, which you can find on Substack. Hi, Noelle. It's great to see you. Maggie, really good to see you too. So before we jump into the markets, I just want to take a moment to get a personal check-in with you. Because you recently went public on Twitter explaining that you are undergoing chemotherapy, hence the new hairstyle. So how are you holding up? How are you feeling? That's really kind of you to ask, Maggie.

2:14Thanks. I appreciate it. And probably should fill in listeners that are on podcast and not seeing this on video, what we're talking about. For those that look different than the last time I was on your show, I have no hair anymore. I am rocking the bald look. And for background, back in April, I was diagnosed with stage two breast cancer, started chemotherapy end of May, hence the loss of hair. And I would deny that it was a blow to learn that I was going to lose my hair. No one likes to have their identity impacted like this, the way they look, especially when it's out of their hands. But once I got my head around the fact that this was going to happen, I decided to have fun with it.

2:54And to be honest, it is fun. It's a change that I didn't ask for, but once you have to, you know, just let rip and enjoy it, it's definitely low maintenance. I live in Spain. It's really hot here. And I will tell you, this hairstyle is super convenient, but also maybe it's more than that. I want to do what I can to help normalize this. Cancer is such a taboo subject because it's very personal and it's scary, but it's just for it to be. It's something that happens to people. It's no fault of theirs. It touches everyone at some stage or another, either personally or through people they know. And it's something we should be able to talk about.

3:35I was worried in the early days, I'll just digress very slightly here, that people would see my bald head and think of me as a cancer patient, that they would see me as ill. But I've discovered that's not the case. And that deserves talking about. So I'll give you a very quick, before we move on, the other day I was heading out and I was in the elevator of my building heading down. It stopped at one of the lower floors and a neighbor I hadn't seen for a while got on and he did a double take and he then pointed to my head and said, is that voluntary? And it was no judgment, no awkwardness. He was genuinely curious.

4:09And I answered, well, losing the hair wasn't voluntary, but wearing the baldness is. And that made me realize that one message I do want to get out there more, Maggie, is that we have the choice. As women, you know, a lot is tied up in our identity and we do work on our looks and especially hair. I have a whole box of hair products that probably we'll be using again for a while. But society doesn't expect of us necessarily what we think it expects of us. The initial reaction is to pretend that nothing has changed and look just the same as always. But that's not authentic. That's not the case. Many women would rather not attract that kind of attention.

4:51I totally get that. That was definitely me at the beginning of this journey. But we do have a choice. We can embrace change. And questioning assumptions is something that all of us should be doing on a regular basis, whatever. Yeah. Absolutely. Absolutely. And I'm sure you're finding that the thing that people value you for is actually your personality and your brain, which is mighty indeed. And that's refreshing, right? That's refreshing. It's liberating. It's liberating as well to just start worrying. It's more fun. Again, I know it's easy for me to say and not everyone, you know, a lot of people will struggle with this in different ways, but we do have more choices than most of us think.

5:36Well, it's an incredibly optimistic spirit to attack this with. And I think I speak for the entire RV community when we say that we're behind you in this fight. I totally appreciate you being so transparent on your purpose because you're right. how many people have been affected personally or have had family members and being open and normalizing this conversation is amazing. The fact that you're working through this and willing to join us and share your knowledge is amazing. I often say - Love talking to you, Maggie. Love talking to you. Yeah. Well, I often tell people that your newsletter is one of my go-tos in the morning.

6:17There isn't anything else that gives us the smart macro and digital asset analysis, especially for those of us who are trying to learn on this as I am. And so you're way ahead of your time. You're totally badass and we're your biggest fans. So thank you. Thank you, Maggie. That means a lot to me. Thanks. I appreciate it. All right. Let's jump in. It's a little interesting now. Yeah. Yeah. It is. It's good. And your spirit's infectious. So let's jump in and tease some of that knowledge out of you while we have you here for the limited time we do. So we're more than midway through the U.S. session.

6:53Stocks are up, the Dow and S &P leading. Natsuk's a little flat, but so far staying in the green. It's a 10th day in a row the Dow's been up. We also have Bitcoin up, oil up, treasuries are mixed. What's top of mind for you now as you look across the markets? The risks that we're not pricing in. Let's face it. We were all focused on all sorts of risks just a few months ago. Well, we seem to have forgotten about them. I was reading this morning that most analysts and economists are now moving towards the soft landing consensus. I read earlier today that retail investors are more optimistic now than they have been at any time in the past 27 months.

7:28And this is just sending off a lot of alarm bells because you look around at what's happening in the world and even just in local earnings stuff, things are not great out there. Sure, we have inflation coming down. We have strong consumption in the US. We have liquidity is easing. We have financial conditions are looking pretty good at the moment. There's very little signs of stress in the financial markets. But that's today. You know, pricing ahead, which is what markets are supposed to be doing. There are clouds gathering on the horizon. I see two big risks, Maggie. We can get into more detail on them if you want.

8:01But the two big risks that I see that I don't think are priced in are earnings disappointments and inflation coming back. Wow. Okay, that's interesting. So let's break them down. In terms of earnings, I mean, so far, it seems like it's been pretty good. And people have been talking about the fact that corporate balance sheets look OK. Where do you see the disappointment coming in? Is it across the board? Is it in certain sectors? What has you worried? One statistic I've been thinking quite a lot about recently is that the number of U.S. bankruptcies in the first half of 2023 is the highest since 2010, according to S &P Global Intelligence.

8:40since 2010. And Maggie, this is when consumption is good. This is when employment is strong. We have the highest number of bankruptcies since the tail end of the last recession when things are good. Now, this is largely because of the interest rates, which we know are going to be remaining higher, probably higher, in fact, than the market is currently pricing in for not higher, for longer. You know the refrain. And bankruptcies are likely to impact employment. We haven't seen that yet, but we know it's coming. That's just simply how it works. And once we start to see unemployment take up, we can look at the chart.

9:15It moves fast. It always moves fast when it starts to take up and it becomes a self-fulfilling spiral that there's not that much we can do anything about. Bankruptcies will trigger more unemployment, which will rein in spending, which will trigger further contractions, possibly more bankruptcies, et cetera, et cetera. consumption is looking good today, but six months from now, the chances are very likely will not be nearly as strong because we're going to start to see that show up in the unemployment. And even just starting to see that, Maggie, is going to impact the stock market because the stock market right now is pricing in continued strong jobs market.

9:53When that is the stock market, one thing we tend to overlook is the impact the stock market has on our spending habits. When things are looking great, we feel more flush. We're going to spend more. When we see headlines, even if we're not personally invested in stocks, when we see headlines about strong corrections, and you can just imagine those headlines now, right? Well, then we're going to rain in spending even more, and the cycle, and it continues to spiral down. That's not even taking into account things like student loan repayments, further squeezing consumer credit. The earnings revisions are going to be driven by a hit to consumption, which is going to be showing up in further bankruptcies, contractions, and the unemployment taking up.

10:35And when the earnings start to disappoint, that is going to hit the valuation, and that is going to further hit spending, which is going to further hit unemployment. Yeah, it becomes a sort of reinforcing cycle, doesn't it? Exactly. And sentiment is driven by many things, but one of them is very much also the herd mentality. We're hearing that there is a soft landing coming. The economists are smart. They must know what they're doing. Therefore, we can rack up debt on the credit card, no problem. But just look at auto loan delinquencies, credit card debt that isn't being paid off. There are clouds looming on the horizon.

11:12Yeah. And we heard from Amex today that that consumers are starting to pull back. So you are getting that little bit of, you know, anecdotal Amex off 4 % today. They miss revenue. You're getting a little bit of that anecdotal starting to pop through. I think some of it might be skewed by the fact that you do have the wealthy still spending, though. You do, and the wealthy will always be wealthy, but that's not enough to keep the economy going, especially when so much emphasis in the media and in all sorts of analysis and on the guests that you've had. We do place a lot of importance on the jobs market, as we should, because that is what keeps us going, right?

11:50But consumer weakness, not enough yet to lose a needle, but when it comes, and I'm sure it will, it'll be fast. Yeah. So would you expect to start hearing that coming through in some of the earnings call? Should we be listening for that? Because if you're a CEO, you think you want to start reining in those expectations, right? Yeah, we're already hearing it. I mean, I don't know if you heard the Netflix call, but we saw what the Netflix call did to the stock price and the earnings of Netflix beat expectations. They beat expectations and the stock price plummeted because of what was said on the earnings call.

12:25And this is Netflix, which is not exactly a big ticket item. Yeah, no, that's very true. Yeah. And they've been making progress converting people. All right. So earnings potentially worrying. Inflation. Why do you see that coming back? It seems like it's finally moving in the right direction, moving in the Fed's direction. What's going to cause the U-turn? It's very good news that it's in the right direction. But let's face it, we know that core inflation is always sticky. The sticky inflation is starting to move, which is really exciting. But there are a few things that I'm keeping my eye on.

12:58One is the geopolitical risk. We saw the wheat price jump 10 % this week alone because of the attacks on some Ukrainian ports, as well as Russia escalating the language around some of the communications that's during on ships sailing into the ports. This is probably going to escalate even further, let's face it, because the war is getting somewhat exhausted and different measures need to be applied. This escalation is going to impact wheat prices, which, OK, doesn't make it through to the core inflation, but wheat prices definitely impact the misery index. And if you're spending more on wheat, you're spending less on other things, which is good for inflation, but really bad for political turmoil, really bad for currency volatility, etc.

13:40And this is not even taking into account the weather, Maggie. I don't know if it's hot where you are. It's really hot where I am. And we're seeing headlines about record heat in Europe, North America, and Asia, which is going to impact crop prices for sure. Also going to impact other commodity prices because we need to count on the waterways staying open for transport. We're seeing that already looking like it's not necessarily a given trend. You can't transport copper, for instance. Copper prices are suddenly going to start shooting through the roof. So we have weather, we have geopolitical risk, and we also have the base effect.

14:16So just over a year ago, energy prices peaked. So getting a year-on-year improvement from that has not really been that difficult. And that has been the main driver of the correction in inflation that we've seen with this inflation. That wouldn't be surprised by the end of this year to start having year-on-year increases again on the energy price, especially since the signaling coming in Saudi Arabia is that they want a higher energy price and they will do what it takes to get that. We also have the United States with record low energy stockpiles at a time when its production is declining. So we have supply issues.

14:50We probably have spikes in demand coming because although we hear a lot about the demand for energy during winter, in summer, especially the one we're living now, you need air conditioning. You need to be able to cool your commercial centers and your factories. So we cannot be certain that it's very unlikely the price impact on the inflation that we've seen so far will continue going forward. So I do expect that we will get inflation coming back. And the market is so not prepared for that. So I was just going to say that so not prepared for that. In fact, Christopher in the chat says Noel has identified what the bulls want to ignore.

15:28and Christopher, I was thinking of you listening to Noel because you and Beau and a couple of our other regulars have been worried about what they see as this sort of bullishness or enthusiasm or risk on attitude, soft landing, throw whatever term you want on it. But people kind of looking aside from that, what's the timing of that, Noel? Because I think this is kind of important. If we start to see it come back, So what's the timing and what market is sort of most exposed to that surprise, I guess? I'll give you an if-then sort of answer to that. The current geopolitical situation continues as is.

16:12I expect we start to see an uptick in inflation towards the end of the year, if only for the base effect. We are going to have consumption coming down hard and that is going to impact services, which has been the sticky part. But commodities are really important in terms of all sorts of services as well. One thing we are not paying any attention to, Maggie, and I'm bewildered by this, is we know the war is going to end at some stage. Let's hope it's sooner rather than later. The sooner the better. But when the war in Ukraine ends, that is also a very strong inflationary event because there's going to be such a scramble to rebuild, a scramble for commodities.

16:49There's going to be easing. It is going to be inflationary. It's funny you say that. There was a point where we talked about the war all the time. It does not come up. The geopolitical conversation, as is often the case, has sort of moved to the back burner just because it's not new. Exactly. And as human beings, we are hardwired to assume the status quo will continue. That's just simply how most of us think. But we know that change happens. We didn't, OK, we saw the war coming, but we didn't see it coming. Just like we can see the end coming, but we're not seeing it coming. if that makes any sense at all.

17:26Yeah, it's just until it happens. So this might be a sort of interesting point to bring up something that Andrea said. Andrea Stenolarsson just dropped the latest installment of Stenolarsson today. I think it was today or yesterday. And he's been thinking about the conditions that could lead to a recession as well. Let's listen to a clip from that. I actually think it's a prerequisite for this ultimate recession that we get this pickup in activity. We get this positioning towards a bull market and we get sort of a laid back attitude towards risks again. What happened throughout the first half of the year was that too many people were too worried about the whole situation.

18:09And you never get a recession in such a scenario where everyone has planned for one. The recession can only arrive if it's a surprise. We need an external trigger and it's very tricky to get an external trigger if everyone is already worried. So I think this rally in equities that is still likely could sort of pave the way for a positioning and a laid back attitude that could ultimately trigger a recession. But that's a discussion for later. For now, stay invested. I think that's the main conclusion here. 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.

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19:41Okay, that's actually the first time I'm seeing that. And obviously, Andreas has been teaming up with Darius on the shirt conversation, because that's amazing. He's rocking his summer shirt. That full episode is available on our website. If you're not a member, scan the QR code. I think Raul said there's some trials for something crazy, like a dollar or something. And a quick reminder, if you are a member, a programming note for you. In addition to Seto Signals, Andreas, there's a deep dive into Andreas's macro framework that is part of our academy sessions. So that's on Plus. So if you're thinking about upgrading to Plus or locking in your membership, you need to do all that before the 24th because things are going to change after that.

20:26We've been letting you know all week, but if you've been distracted or were on vacation, make sure you go to the link that was either just up or will be up, and Brian will put it in the chat so that you can go ahead and do everything you need to do before anything changes. Okay. So, Noelle, interesting conversation. I mean, interesting thought, rather, from Andreas that you can't have a recession when everyone's expecting it. And that's kind of what was happening, wasn't it, in sort of the first half of the year? Absolutely. And then like, you know, well, watch cot never boils kind of thing. And sure enough, he's right.

21:02I totally agree with them that it's when we are distracted and when we are comfortable, Maggie, that the highest risk is actually hidden in the market. And we are, let's face it, pretty comfortable. What's also interesting, I don't know if you saw this data point, but the divergence between the pessimist forecasts for the S &P and the Optimist forecast for the S &P is at its widest point in something like a decade. There's a 30 % difference in S &P targets for the end of the year. 30 % is nuts. I mean, it's a bear market embedded in that difference right there. Yeah. And we've seen it because we have different camps that come on and have different viewpoints, at least on the timing.

21:43And that's what's been so hard on the timing of what happens. I want to get a question in here from Mike. He says, given the amount of dollar debt and that OPEC kept a floor under the is keeping a floor under the oil price. Why is there such a massive crowd thinking the dollar is going down? Good question, Mike. It's an excellent question. Thanks, Mike. But I think, again, there's so much that goes into where the dollar is going to go. And part of it's geopolitical. Part of it is monetary demand, et cetera. I think what is really behind this is it's not so much about the dollar heading down with the oil price manipulation, if you want to call it that.

22:22It's that when things are good in the United States, there's actually no reason for rates to continue to go up and that all eyes are on Japan. And we found out today that they're not going to be tweaking their yield curve control this particular session. But people are now looking to September to the next time when the Japanese start raising their interest rates. At a time the United States might start lowering its interest rates, then we are going to get a big flow out of the dollar. The dollar is the world's safe haven currency. And I do buy into the smile theory, which is that you want to be in the dollar when things are really bad.

22:58You also want to be in the dollar when things are really good. But when things are good, but there's turmoil elsewhere in the world, but not so much, then there are other more interesting alternatives to be in. We have rates continuing to go up in Europe. We are probably going to see some tightening in Japan at some stage. Therefore, voting dollars becomes less attractive. This can change fast, though. A bit of geopolitical tension, and we can see that really quickly, which will beget more geopolitical tension because much of the world has dollar debt, which will suddenly become harder to service.

23:29And if you have to choose between paying your debt and buying wheat, you're probably going to choose to buy wheat. And right now, one of the things driving global liquidity is the lack of financial market stress. Again, that can change really fast should we see any more sovereign default. Yeah, wow, that's an interesting, well, we'll got to get back to that the minute you mentioned that. The problem is when there's financial stress these days, we often don't get any notice. It does seem to, that's why, that's why it causes it. Just want to circle back because Christopher just said I was with Andreas until his conclusion.

24:03And you said, I think that you're thinking the same thing. So remember, Andreas is saying, oh, you can't have a recession. Maybe these conditions will actually lead to it. But for the moment, I remain invested. Do you think that that this is and this is Andreas or watching the market on a shorter term and not wanting to kind of get in the way of the rally, I think, although I'll let Andreas use his own words around that. You don't agree with that, Noelle? Personally, I don't. I do have to caveat that nothing I say is investment advice. Andreas is much, much better at that than I am, I am sure.

24:35But I am not invested in the stock market at the moment because I know that I can't time this very efficiently. We all know how fast things turn, as we've been talking about here. And turning the top, I'm not even going to try. I am really not a very good trader. So it's, you know, but then again, there's serious career risk in missing the last leg of this rally. This is something that people are going to have to decide for themselves. I think that's one of the reasons why the stock market has continued to go up against all logic, in my opinion, was because people are realizing, oh, I'm missing this.