Macro Mondays: Forecasting Markets in a Volatile World

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1:29Thank you so much.

1:40Hello there. My name is Mikkel Rosenwald. Welcome to this week's edition of Macro Mondays. And welcome to you, Andreas, as usual. Thanks, Mikkel. We are sending to you live on various platforms from beautiful Copenhagen. Andreas, no drones in the skies over Copenhagen, as far as I could see, all blue skies almost today yeah for the first time in a while yeah absolutely andres speaking of blue sky uh i want to start with this chart that you posted all over the place today uh are you a blue sky kind of guy or are you still still an ex guy i don't even have a user no i don't either it's uh it seems like we're having quite a drop off here is it uh are we just looking for this?

2:21Is this natural? Or what do you think? So I guess this is the like daily like activity on Blue Sky. And we had a peak right around the election date. And I guess it was related to the whole wave of people leaving X because of the election result. Because Elon bought a Govi, which is in many ways a fair description of what happened. But I mean, Elon even kind of accepts this himself, right? He did spend a lot of money to buy at an election because I think he includes Twitter in that equation. But look at Tesla. I mean, you know, it's been a net-net fantastic trade for him. Great return on investment on that.

3:07Yes. So, you know, we've had a lot of discussions on this, especially in Northern Europe. I don't know whether it's as big a trend in the US. Maybe you guys can tell us out there, but a lot of people in Northern Europe left X to join Blue Sky. But mostly people from like legacy media positions. And, you know, I kind of dislike when people have to, you know, take to Twitter to tell the Twitter audience, okay, I'm no longer at Twitter. I'm over here. And then keep tweeting about being over here because no one's over there. Right. And that's kind of what's happening. It's the new moving to Canada thing, I guess.

3:48Yes. Okay, André, enough about social media. This is a macro podcast. After all, we'll get to a lot more macro topics as usual. Wherever you're watching us, please feel free to pop in with questions. We'll get around as many of them as possible. And also remember that this is just a sneak peek into the loads of analyses that we publish on the Pro Macro Tube within Real Vision. So we'll give you a little sneak peek into our thinking, our view on the macro world, and you can get all of it on Real Vision.

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5:29Not all applicants will qualify. Plus500, it's trading with a plus. So, Andreas, I have something new for today. Yeah. New concept for the show. Guess a chart or guess an asset. we have a look at this chart I know it's drawn out a little bit what are we looking at here? it's easy actually oh it's too easy it's Fartcoin it is it's Fartcoin you know it was easy because that color coding is is from I think the online version of Coinbase it's not the correct yeah okay okay okay point taken point taken we'll improve on next time but I mean Andreas what are we looking at we talked about this in November.

6:16What's happened here in December? Is there any logic behind this? Or is it simply a banana zone? I mean, it kind of looks like a banana. It is. And Mikkel, speaking of the banana zone, right, and the crypto space, we have Bitcoin trading at 106k, something like that, as we speak. And we've had a tremendous weekend in the Bitcoin space, also spilling over to the price action today. it was exactly as we hoped for basically a final Santa rally let's see whether January will be a little less upbeat when it comes to risk assets I guess it all depends on the non-farm payrolls report we'll get on Friday the 3rd of January in my opinion we're starting to see some signs of weakness in hiring again in the US and that's of course the thing to watch ahead of that January meeting at the Federal Reserve where no one expects them to do anything at all.

7:20We had this typical pre-announcement article by Tim Rouse from the Wall Street Journal ahead of the meeting on Wednesday. And to me, it seems like a lot of the members of the committee, they want to either skip a meeting or like, quote unquote, pause the cutting cycle if they get the opportunity to do so. So we need some bad data now. We all need to hope and pray for some bad data if we're investors. Yeah, to get the cuts. Yeah, to get the cuts, right? We'll get a cut on Wednesday. And I don't think they will rock the boat on Wednesday. After all, he wants to play the role as Santa Powell, right?

8:03Not the Grinch or whatever it's called, that Christmas movie. So I feel pretty confident about Wednesday being more or less a nothing. Berkow will get that Santa rally. But yeah. Why do we even care about macro when Fartcoin is doing this, Mikkel? That was your analysis on Fartcoin. Yes. I mean, it doesn't have to be any harder than that. You know, I texted Raoul, the founder of Real Vision and CEO, and just told him, why have I made a hedge fund? Just trade. A total waste of money. We are hearing that from potential investors. as if we're completely honest. Everyone in their mother believes, oh, I can do 80 % per year myself.

8:41Why would I bother with a 15 % strategy? And it's, yeah, that's just the environment right now. Everyone in their mother is making shit tons of money on Peppercoin and fried chicken and what have you, smoking chicken. So, okay, Andreas, let's run through a couple more charts. Maybe this is a good time. We're talking about Fatcoin to issue our usual disclaimer that we're honest here. We're basing this on a lot of very thorough research. But at the end of the day, these trade ideas might be... Sometimes it may be good. Sometimes it may be shit. Hi, Raoul here. Listen, I think we've got until 2030 before the economic singularity arrives.

9:23Now, 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. So just click on the link below and start your journey now. That's it. Thank you, Brian. Thank you, Gennaro Gattuso. So, Andreas, I wanted to go ahead to a couple of charts on the inflow into equities, because we wrote on this in our Friday catch-up article on everything we've told hedge funds last week.

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11:03What are you looking at with regards to the inflow into, this is the SPX ETF, inflow into equities essentially? You know, it's been through the roof since the election basically. And it's a little bit scary, right? When you look at positioning data on US equities right now and then all transparency, we're along ourselves, right? So it seems like we're all in the same boat. You know, we're buying NASDAQ, we're buying crypto, we're buying blockchain, we're buying quantum computing. That's the new thing. You know, if you put quantum in your ticker name, then you're good to go, right? You can sell chicken or whatever.

11:42AI's done. It's all about quantum now. So it's a tremendous rally. And flow-wise, it's one of the most pronounced rallies that we've ever seen. It's not 2021-like yet, but we'll get there, in my opinion. I spent most of the weekend thinking about whether this was a 2021-style market all over again. And I think there are some clues in that direction. Most of last week, we had discussions with counterparts on whether we were seeing the early innings of some sort of rebound for inflation as well. and remember 2021 was a very very strong investment year but also a year with central bank easing into an inflation cycle that's it yeah maybe we should just remind everyone of the four percent rule that we introduced last week yeah sure and i mean as long as we're below four percent in u.s core inflation you're good to go on long risk assets uh if we get above four percent it's a completely different environment but we're not we're not there yet and i don't even think will get there soon.

12:49So, you know, take a look at these flow numbers. Do you want to lean against it? No. Pissing against the wind? Yeah, you should do that unless you like the taste of pee, I guess. But point in case here, the flow is magnificent. If you look at the incentive structure of a lot of professionals in the institutional space trying to close the year with solid returns, they're basically lacking this move in many ways so they just have to buy into year end and yeah to try and catch up with with their benchmarks right that's basically everything you you're guided by when you're a professional manager you need to beat your benchmark at least try to not to be too far away from it and they're behind benchmarks in many ways after this massive flow story from november and onwards so i guess it's very hard to find something negative to say until New Year's, and then we'll have to look at it again in January.

13:45Absolutely. Andres, before we get to looking further ahead at 2025, I just wanted to throw up a couple more charts here. You posted this chart on the U.S. equity sectors, the beta to the ISM spread, which I found really interesting. Could you just explain this chart for us? Okay, so this is basically a heat map. the top of the list is basically the best trade in case ISM manufacturing rebounds and the business cycle rebounds, right? So it is a strong case for the infotech space, right? The Nasdaqs and so on and so forth. But we have a few interesting observations from this heat map as well. Not least when it comes to trades that are not super exhausted as the Nasdaq trade might be.

14:36So look at the materials sector fund, basically a fund invested in companies involved in raw materials, the processing of raw materials and all that. It's not up a lot this year and it's kind of lacking behind the move that we've seen in many other sectors. I think this is a great pick if you want to add some equity exposure in the US right now. And look at the bottom of the list, We have real estate utilities, so sectors that typically thrive if we're closer to 0 % interest rates. They've also struggled a little bit the past few weeks, but we're far from negative territory on the year. And in these sectors, especially utilities have performed very well.

15:24So I guess there's some merit to this relative trade between stuff that is linked to the business cycle and stuff that is negatively linked to the business cycle in a sense. So being long materials and shorting, for example, utilities or real estate, I think that looks compelling here. We had the S &P PMIs released just before we went on air and no one cares about them in the US. I don't know really why. basically because we have the ISM numbers. And we haven't gotten those for December yet, obviously. So we'll have to wait for early January. But yeah, we're basically buying everything that's towards the top of this leaderboard.

16:06That's the short story. Another way to look at that is world equity indices. So geographical ranking, essentially the same analysis. South Korea on top, is this some sort of lack from the, we had the coup d 'etat, A couple of weeks ago, do you think there's still some lagging from that? You know, South Korea has traded very weak for a long while. And it's, you know, it's a mixture of political uncertainty paired with tariffs, paired with South Korea being stuck in between the US and China on everything chips and AI related. So it looks tremendously cheap to buy South Korea. It's, by the way, not the easiest country to buy.

16:53loads of capital restrictions on the currency, hard to buy single stocks out there. So you probably need to do it via ETFs or index funds. But I haven't managed to convince myself to buy it yet. To be honest, we're monitoring it and added it to the watch list on Friday. But it depends on China. to some extent, right? You can also see that China is typically a strong bet if the business cycle improves. And again, back to this discussion I had with myself over the weekend, if this is 2021 all over again, what's cheap then? Well, everything not US is cheap because 2021 led to a repricing of, in a positive sense of everything on earth.

17:45If we're heading towards such a situation again, it's a much better bet to buy China, South Korea, bumped out European indices such as France, Italy, etc. But you won't get me to buy a lot of that before Christmas. Maybe next year because the flow situation is always very important to monitor in this regards and it's just much, much stronger in the US right now. Let's stick with China a little bit, Adres, because we've talked a lot about this potential bazooka. It's almost like crying wolf now. well it's been like that for a while yeah we didn't get we didn't quite get the stimulus plan we were hoping for some hints at devaluation what do you think is coming out of China I don't know and you know that's the honest answer I don't know they offered very few clues around the actual size of the stimulus plan when they when they released the yeah the press release after the meeting last Thursday and it was just a word salad once again.

18:53It almost sounded like it was written by Kamala Harris or Tim Walz, right? There was nothing concrete out there from China. Loads of promises, no numbers. So the market went bananas exactly a week ago on the prospects of some sort of plan coming out on Thursday. and then we got this you know 20 page word salad again and again loads of promises loads of you know I'm tempted to say empty promises right but again like 20 pages of stuff where when I read it you know it was like most of this should work already right if you're an industrialized nation it's not like it's it's something brand new you're describing here so we need some numbers from China and we haven't received any firm numbers in months.

19:48Our now costing is absolutely on the floor in China because of the lack of details from the Chinese Politburo. And it's, you know, from various discussions with funds that we have as clients in that region, it seems like the base case is now that we'll have to wait until the NPC in March to get some numbers on this stimulus plan. So I'm annoyed, to say the least. I see that we get a question coming in on copper. Thank you for reminding me about that, Ralph. You know, we actually made some money on the copper trade, but we took it off. I think it was on Wednesday last week because of the lack of clarity on the direction in China.

20:34And when they changed their tune on monetary policy last Monday and the market went bananas, I think we spiked 10 % enhancing. I managed to convince myself, okay, something is actually coming this week. And no, no. So again and again and again and again, we're just disappointed with the lack of details. I don't know what you make of it, Mikkel. It's so annoying. Yeah, and it's incredible to me because perhaps they're going to reach their growth target, but can they do that next year? What's the target here? It's quite mystifying for me as well, to be honest with what's going on there politically.

21:10And we're not really hearing anything about whether this is a weakening of Xi or a new agenda within the Communist Party. So one guess is that they're anticipating a move from the U.S. on trade. Yes. And that they're holding back to have this as potential responses. But yeah, I mean, let's see what happens there once Trump takes office. So Mikkel, you know, if you were an advisor to Xi, would you advise him not to reveal any numbers around the stimulus plan ahead of tariffs? Is that why? I kind of get the incentive structure behind that logic. Yeah, but I mean, would it be that horrible for the US if the Chinese promoted a percentage of stimulus package?

21:57I think a devaluation would be a much more aggressive move in that manner. So, I mean, yeah, they kind of need it. It's very hard to gauge the political atmosphere within China. Obviously, it's much easier. In a country like the US, you just have to open your X and you get flooded with all sorts of shit. So it's very, very hard to gauge if there's really an internal pressure for this. Is the house on fire out there? Yeah, it's simply really hard to tell. But it's a major joker leading into 2025, in my opinion. for world markets. So Andreas, did we cover the copper question? Do we need to be using more specific?

22:38I find the copper trade cheap still, but I'm not in it. That's the short answer. So we took profit on it towards the end of last week. And simply because I got annoyed with the lack of details from China. And as you can see again today, everything with a slight China-linked trade tweak. So we need some numbers from China. they need to firm up their plan. And I honestly don't know when to expect such headlines. If we turn back time to November 2008, they changed the tune on monetary policy exactly as they did last week. And then they actually delivered a plan was it a handful of days after? So I don't know, maybe we'll, you know, next Monday when we host this show again, we're like, okay, we actually got some details now.

23:28but try read China Daily or Global Times, the English versions of it. I don't speak Mandarin, so I can only read the English versions of their communist newspapers. They don't offer any clues at all. It's simply impossible to figure out. It's really tough. So Andreas, this is going to be our last show of the year. We'll be back in the new year, but I think we should use this occasion to just take a glimpse into 2025. Yeah. So if we really, really try and look at the entire year, I know that that's much longer than our usual horizon for guesses here, but where are we in the cycle? Where are we in the bull run that we've seen over the past two months?

24:13Overall speaking for 2025. Okay, so let's start with the consensus for 2025, right? You know, I had the opportunity, since we run a fund and a strategy now, to read through the 25 outlooks from all of the big investment banks because they sent them to me now, right? And they all agree. As per usual, right? We don't have any like differences between the big banks. They kind of stick to the same storyline, all of them. Which is for next year, we'll get a business cycle recovery. It will be hard for the Federal Reserve to keep cutting interest rates. They want to pause because of inflation re-accelerating to some extent.

24:55So we'll get a very, it's called a shallow cutting cycle next year. We get 20 to 25 % equity returns again. They all agree on that. They all agree on the business cycle recovering, leading to inflation spiking somewhat. But it's a very vague outlook, right? It's just, okay, the same as this year-ish will happen. And then, of course, the next question from you to me is, what's your outlook? and I'll have to admit that it's not too far from that shitty consensus, right? But I have a few things that I'd like to highlight ahead of 2025. You know, we're either in a 2007-like situation or in a 2021-like situation.

25:43And both are good for now. I don't think it will be smooth sailing throughout the year. I think we will have a very nasty sell-off into the early spring because of the tax season being one of the bigger tax seasons in history. And I think we'll have some hiccups because of inflation flaring up here and there. But overall, you should not be scared about inflation returning. And, you know, I've said the same thing to my clients last week. Don't be scared of goods inflation. And I'd like to show a chart on it, because, you know, It's the same discussion we had back in the first Trump era. Tariffs, trade war, whole supply chains will take a hit and all of that.

26:32And take a look at goods prices in the US during that Trump reign. It was just flat. And then Anthony Fauci got the brilliant idea to close down the entire society at the same time as handing out, as the government was handing out money to spend, and you could only spend them online, more or less. Then we got a spike in goods prices. But it was driven by the lockdown, paired with money creation. And then again, after we opened up the society, nothing happens to goods prices, right? It's flatlining. And I think they will remain flatlined, even with tariffs added. Of course, if you quadruple tariffs, something will happen, right?

27:14But the point is, as long as tariffs are measured, parts of the bill will be swallowed by the Chinese producers anyway. The government, yeah. Yeah, and the government ultimately. A part of the bill will be swallowed via the exchange rate effect. So you'll simply get a stronger dollar versus the yuan. You've already seen how China, they've tried to sort of warn the US that the yuan will weaken in such a situation. Well, it's not really a big surprise. The same thing happened in 2016. or in 2018 rather. So my point is goods inflation, I mean, in a mostly globalized world where we get more and more productive when we produce stuff, not something you should be really scared about.

28:00And if you add the productivity gains that we've actually seen this year because of AI and all that, so this mix, getting above 4 % inflation again, it will require some sort of bizarre money printing potentially paired with, do I dare say it, climate lockdowns. That would scare me if we get to some sort of light lockdown scenario because of the climate, something like that. That would scare me from a good inflation perspective. It would scare me if we got back to handouts as we had in 21 with checks being sent to households right, left and center across the globe. But we're not there. And I don't even, Trump is not talking about it.

28:43they're talking about trying to bring the deficit down, which is the exact opposite of what happened during the pandemic, right? So, yeah, long story short, don't fear goods inflation unless Anthony Fauci is back on your TV screen. So that should mean an extended environment for cutting, essentially. Yeah, I tend to think so. Also because they need to cut to help out on the budget side. take a look at the next chart, Mikkel, because if you look at the inflation outlook in the US, and we had the inflation report out Wednesday last week, and it was actually pretty benign if you set aside the spike in goods inflation, the first spike in goods inflation that we've seen in a long while.

29:32And judging from those patterns in the price inflation on housing costs and insurance costs, It's basically the two main culprits of this inflation wave back in 2022. I think we're in for some good news soon on inflation because the backlog in the construction sector is mostly gone now, so meaning a lot of new apartments will reach the market now. We're talking about a much, much smaller immigration wave now compared to nine months ago. Biden actually did manage to sort of control it before leaving the White House.