Macro Mondays: Markets Are Screaming for Liquidity

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1:29Thank you so much.

1:40Hello out there and welcome to another edition of Macro Mondays. My name is Miguel Rosenwald and I'm your host as usual. And as well as usual, I have you with me here, Andreas. Great to have you. How are things in the studio? Well, good, Miguel. A pity that you're at home, but And it seems like you're struggling a little bit with your, with a sore throat or whatever it is again. Yeah, slightly, slightly. I'm battling that. And I've done a white shirt today. It's my first anniversary with the wife. So I, I couldn't stick to the, to the good old Stone Island jumper. Like you used to address. I had to change that out a little bit.

2:13Anyway, we are live once again. We were last week as well. That was a bit of a Mitch McConnell show. Some people thought it was, it was being streamed through Netflix. We got a lot of comments on that. Hopefully things will be running a little more smoothly this time around. Last time, Andreas, you were very quick in promising that we would be answering questions live. We didn't do that. We didn't quite have the setup for that. We do today. So please post your questions, whether on Twitter, on Real Vision or on YouTube. We will run through those on air. So feel very free to do that. And thank you all for joining us.

2:51We'll be sending to you for the next half an hour. to give you some insights as to what we are discussing with hedge funds and what we're looking at in the macro landscape, Andreas. And I want to start, as usual, with the meme of the week. I don't know if you saw this one, Andreas, but it seems to me everyone is talking about crypto, and the only ones not making huge returns on crypto are all the crypto experts, the ones who believe that crypto holds real function in the society. And I mean, it seems like over the past week in the studio or in our offices, Andres, you kept talking about Fartcoin.

3:28How's Fartcoin doing? Let's start there, maybe. Not too good, actually, if you look at the past few trading days. So, you know, Fartcoin is one of the new meme coins. and it's sort of got its name to this old coin season that we've kind of seen the first signs of over the past, say, three, four days. And admittedly, that's kind of the direction I'm leaning in now that this will turn into something that smells a little bit of 2021, if you know what I mean. Like, we're slowly but surely getting there in terms of excess risk-taking. We can also see that from some of our positioning gauges that, you know, people are moving into riskier and riskier things, which is interesting.

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5:04Not sure if you're ready? Not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytics tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading and futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Absolutely. Andres will be joined by Raul, the great Raul pal, later today, this evening, European time, later in the day, US time. We'll discuss crypto a lot more. Of course, he was bang right on his Dogecoin bet following the election.

5:48So I'm very curious to see as to what he has to say on the future for crypto, Andreas. Our crypto guy, Mass, did a little article. Just wanted to get your take on it, on how Bitcoin halving may be fueling this bull run. You got the timing quite right on exiting MicroStrategy, I know, but how do you view this, Andreas? Let me stress for now, I got the timing right. It's still trading substantially below where I sold. But, you know, MicroStrategy has been maybe the bet, say, over the past couple of months. And it turned into probably the hottest bet on earth in the aftermath of the election. Michael Saylor is very active at the moment in raising new capital.

6:36And, you know, it's an intriguing strategy. They're trying to raise a lot of money to buy more Bitcoins. And they've actually convinced pretty decently sized institutional investors to load up on their convertible node. And that strategy is interesting because it obviously entails leverage for the micro strategy setup, right? And leverage is always something you need to be careful about, especially in frenzies as the current one, right? And I'm a little bit skeptical myself around the long-term sustainability of that leveraged strategy. Why I've decided to take profits in this trade as we saw MicroStrategy's turnover being larger than the turnover in SPX for a while.

7:27That is probably a symptom of something close to a euphoric sentiment, right? and therefore I'm currently much more focused on where to add value in my own portfolio and then the macro route we run outside of macro strategy. I'll probably go directly to the source instead. Very interesting. We'll deal with more than into alternatives, Andres. I know a couple of years ago when we started doing podcasting, you did a lot of shows in Real Vision as well, that we tried to introduce the Justin Bieber rule or the monkey JPEG rule. Back then, it was hiking season. And the rule was, if I remember correctly, that once Justin Bieber's monkey JPEG fell to zero dollars, that would be the time when the Fed stopped hiking interest rates.

8:15Now we're supposedly in a cutting season. Can the Fed even cut more when we're moving more and more into heavier risk assets like altcoins, potentially monkey JPEGs even? How does this influence the decision-making of the Fed if we're trying to move the discussion back into usual macro territory? I don't think they should care a whole lot about it, and they probably don't. Financial conditions are pretty soft right now or easy, especially if you measure it from equity multiples, credit spreads, and stuff like that. And that's the kind of market gauges they're using while they're not really using crypto or Bitcoin to dollar or anything like that.

9:01And they should probably refrain from even looking at it. In my opinion, it's not really a part of their reaction function anyway. My point here is that what's ongoing in Bitcoin, to just take that example, is, to me, a symptom of the market sniffing out that the Federal Reserve will have to do something on its balance sheet, potentially already early in 2025. And given the current very weak sentiment around sovereign bonds, it's turned better over the past couple of days. We'll get back to that. And given how bonds trade versus the swap curve, I'd argue that markets are screaming for liquidity.

9:50And I think it's a very sensible approach by investors taking risk in crypto and other riskier assets to expect the central banks to dial back on their balance sheet approach. simply because they're forced into doing so by the bond market currently. And we haven't really gotten the firm signal that something is happening on the balance sheet stuff from central banks yet, but they're starting to talk about it. And that is a hint in itself. Like, say, one or two quarters ago, European Central Bank would never talk about equity. They would never talk about balance sheet risks. and they would never talk about bond markets not being underpinned by the balance sheet of the central bank.

10:41But now they're talking about it. And that's probably the first step in the journey towards acknowledging that they have to do something on the balance sheet policies. So I think that's something that you should expect within a quarter or so from the big central banks. And that is currently why a lot of people have started celebrating that a little early. So we're celebrating both Christmas season and balance sheet season and all that a little early this year. 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.

11:22So 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. Very interesting. We've been talking a lot about liquidity. I just wanted to dive a little more into this, the US growth now cast that we have.

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12:54While we are seeing a bull run in risk assets, we're not necessarily seeing a skyrocketing growth. What do you make of this? So a few interesting observations when judging the growth momentum in the US. So take a look at what happened back in April, May this year. Remember how everyone got caught wrong-footed by the re-acceleration of the economy during the first quarter of this year and into the second quarter. And then all of a sudden, we had this soft patch in US macro data over the summer, which was essentially a big hint to buy bonds. And it was basically what started the whole cutting season and all that.

13:37And then after the 50 basis points cut, as you can also see in our now casting, we got a very swift reacceleration of the economy. The economy responded to this jumbo cut from the Federal Reserve. And now, early days, admittedly, we're starting to see this growth deacceleration in the US again. We're starting to see soft signs on employment again in the PMIs and some of these indicators that we also saw ahead of the summer. And I think this is your clue to lean a little bit into bonds again, as we've done over the past few weeks. you know everyone and i stress everyone i talked to um they paint a picture of a trump administration being re-inflationary being a strong dollar case being very focused on tariffs and all that i don't think the picks for uh the treasury secretary the um secretary of commerce and stuff like that.

14:47I don't think they underpin that narrative. He could have chosen a lot more hawkish members of his administration than what he's done. And now with, and I'd like you to elaborate on that because I just saw that five minutes before walking into the studio here, that we have some sort of ceasefire on the cards in Lebanon. You know, geopolitical turmoil fading potentially. Absolutely. the administration making a U-turn on tariffs. That's my best guess that they do that. All of a sudden, it's a much more benign environment for bonds. And I actually think that if you pair that with the growth deacceleration that we're starting to see in the US now cast, we're getting a much more benign and friendly environment for bonds here.

15:36And I actually think it's good news for those of you invested in NASDAQ, crypto, etc. because we need a soft patch in data for the Federal Reserve to get sort of an excuse to do changes to the balance sheet, to do more cuts. But Mikkel, geopolitical risks, they're fading as well, aren't they? Absolutely, in my opinion. What we've seen over the past month or month and a half, perhaps, is absolutely a fading of geopolitical risks. The news, as of today, is that Israel and Hezbollah have reached a peace agreement. A couple of points on that. First of all, it signals to me that Prime Minister Netanyahu has gotten what he wanted out of this Lebanon war.

16:18It's been a huge success for him, a huge triumph, essentially. And he's shored up internal support just enough so that he can now make a peace agreement and get on with other issues. He's very much used this Lebanon war as a diversion of the Gaza quagmire. But it has been a triumph for him. Now they're able to make a peace deal, which does diffuse the situation between Israel and Iran a lot. We've talked about this over and over again. I believe that risk has been overstated massively. I think that's what we're seeing right now. Neither Iran or Israel want a direct confrontation. Iran probably even less.

16:57And that's what we're seeing right now. So geopolitical risk is fading. However, this ceasefire is not a solution to the Gaza war. It's not a solution to the Red Sea crisis. So it's not that one and all big solution to the entire Middle East situation. However, it's a very nice step in the right direction and one less thing for the upcoming Trump administration to worry about, essentially.

17:24So perhaps, Andreas, before we jump into discussing oil and gold, which will obviously be affected by this, let's just talk a little bit more on bonds here. I wanted to show you this. We do a lot of these charts on macro hedge fund positioning. This is arguably quite advanced stuff, so probably you'll just need to take us through what we're looking at. But I think it underscores the potential in the bond trade that you were just talking about, Andreas. Yeah, in some regions, it does. So every single day, we get information on the returns from macro hedge funds, multi-asset funds, et cetera. And we use that to map roughly their exposure to various assets.

18:08And this is a way of gauging how the big institutions position themselves daily. The CFTC data used by many lags, the development by seven or eight days, it doesn't include everything. So it's a good idea to find some way of measuring this on an ongoing basis. So what we see in the table here is our current assessment, given the returns that we gather, on how hedge funds are positioned in the Uribe futures, the Sonia futures, and the Sofa futures. So basically short-term interest rates in the US, in the Eurozone, and in the UK. Okay, the number four currently in the table for the Uribe contract means that hedge funds are very involved on the long side in betting on lower interest rates in the eurozone.

19:12Very involved. It's a very consensual take that the eurozone is falling apart momentum-wise. It's a very consensual take that Germany is moving nowhere. We're seeing layoffs right, left and center right now in Germany, most recently from Tussenkrop today, the big steel company. And, you know, I hold sympathy for that view, but it's also very big then. While if you watch the bottom of the chart here at the bottom of the table, we don't really have a lot of funds involved in betting on lower dollar interest rates. Rather, there is a minus in front of the positioning for the December meeting. And it's been like that for a short while.

20:00Meaning that the average hedge fund, median hedge fund, is involved betting on higher dollar interest rates compared to what is priced in. It's taken a while after that turnaround in bond yields after the September meeting to get to this kind of positioning. But now the market is clearly there. They're expecting higher dollar interest rates than what is priced in. And, you know, if you look roughly 12 months ahead, including the entire year of 2025, we're talking less than three cuts priced in for the Federal Reserve. They don't need a big excuse from either the labor market or from growth figures to do more than that, in my opinion.

20:44and yeah, we're starting to see the first sign of a stronger bond trade now. You know, I said this on the election night that I've found the market to be too concerned with the Trump administration being an unfriendly administration for the bond market. Now that we have Scott Besson in charge of the US Treasury, at least his nomination is accepted by the Senate, You have a new Treasury Secretary aiming for only a 3 % deficit. That's a major one-friendly case compared to what we have right now. You have a Treasury Secretary and a Secretary of Commerce not really overly interested in tariffs. And on top of that, you have a market betting on tariffs, betting on a stronger dollar, betting on higher dollar interest rates, right, left, and center.

21:40I think that's a very interesting backdrop. And frankly, one I also like from a trading perspective. And it would be good news for right about everything if we get some lower dollar bond yields, because we cannot cope with these high dollar bond yields for much longer if we want this rally to be continued. So how do you implement this trade-wise, Andreas? We get a couple of questions on that. How do you position for this analysis? Yeah, so we've been involved in treasuries and are involved in treasuries. I think they will perform decently well from here on until New Year's. If you like risk more, then this is an obvious catalyst for a pickup in the Nasdaq momentum again, in my opinion.

22:23To some extent also with spillovers to Bitcoin and those kind of assets. I'm less certain that there's a lot of return left in that euro bond trade. We've been riding that for a while and made okay-ish returns from it. But it looks very crowded, that trade, compared to implementing it in dollars. Okay, Andreas. Let's jump to a couple of audience questions. That's why I'm looking to the side here. We have one very important question for Andreas here. is a hot dog closer to a sandwich or to a taco in your opinion address i've heard that before is a hot dog a sandwich i'm no it's not it's not uh you know i agree you really yeah thanks for that question because he i you know at least i consider myself a subject matter expert on macro but i'm an even bigger subject matter expert on hot dogs because I eat hot dogs all the time.

23:25You know, it's kind of our national dish here in a sense. We call it a French hot dog. The one that we eat all the time. And I think it's closer to a taco, basically. And I actually take offense in calling it a sandwich. Great stuff, great stuff. From the same guy on a serious note, when you post such a great question, you get to post a serious one as well. What's Andrea's outlook on the DXY dollar strength long term? Yeah, okay. Long term is already... What is long term, right? At some point, we probably die, all of us. But for the tradable horizon, we've started implementing bets against the dollar.

24:08And a few reasons why. You know, it has caught me by surprise to some extent to see how Elon Musk and Vivek Ramaswamy have suddenly endorsed everything that's ongoing in Argentina to the extent that they have done. Kavye Mille is a strong advocate for fewer trade barriers. He's a strong advocate for deregulation. He's a strong advocate for spending cuts. And the dollar has been riding this momentum of tariffs, the momentum towards higher dollar bond yields. And if we narrow the gap between dollar bond yields and the rest of the world, I think there is a very strong case against the dollar. Then we got Scott Besant nominated as the U.S.

24:56Treasury Secretary. And, you know, he's been very vocal around how to again underpin the dollar bond market by ensuring that trade partners build up reserves of dollars. And I can assure you that the only way that you can feasibly expect foreign central banks to accumulate dollars is if you soften the dollar. You know, how on earth should they be able to accumulate dollars if the dollar gains versus everything? if the Federal Reserve tightens dollar liquidity, thereby basically withdrawing the access or making the access to dollars worse for the rest of the world. So this is, in my opinion, a strong hint that this administration will work towards a slightly softer dollar, both via trade policies, but also via foreign negotiations and via the bond deal channel.

26:03So, you know, it's been working wonders for us today. The euro versus the dollar traded like crap last week, but we're starting to get some traction in that long euro view. I understand if, you know, some people out there would prefer another currency than the euro versus the dollar. And we've implemented a directional bet in the Mexican Piso against the dollar as well on the back of this analysis. also given this potential for a U-turn on tariffs. And yeah, so far so good. So basically, if it's a credible horizon, I think the dollar will weaken. Yeah, and I think, Andreas, politically speaking, I think there is, I'm not sure quite which date, but there is some date in the spring or perhaps early months of 2024.

26:55There is some cutoff date where the Trump campaign really short of stuff, short of things. and all the remarks and all the promises made before that, I think you need to take that with a pinch of salt. I know he's been talking about terrorists throughout 2024, but not as vocally, not as directly as he did last year. So I think there is some political opening to a soft U-turn or a gradual U-turn on terrorists, essentially. I think we're seeing that on a lot of other policy areas as well, including Ukraine, et cetera. So very, very interesting to follow. So you need to look at the appointments. You need to look at the policy, not all the rhetoric, especially from the early election campaign, in my view here, Andreas.

27:39And one thing we've learned with Trump being the center of attention for at least eight years or so is that you should never take the guy at face value. I mean, exactly. Face value. That's what everyone is saying. I mean, everyone calls him a liar, and everyone still tries to take his announcement at face value. I mean, that doesn't hold up. No. And it's a weird cocktail, right? At one hand, you're calling him a liar. On the other hand, you're saying, okay, he's told us that you want to implement tariffs. Well, he could have said so because he wanted to get something in return, right? Yeah. Exactly, Andreas.

28:18I agree. One more question, Andreas, here. We're getting a lot of questions on Ethereum, Bitcoin, MicroStrategy. We've talked a little bit about that. I'll refer some of those questions to our show with Rola a little later. We're going to talk a lot more crypto there. But just one question here. What's your opinion on the ECB's warning on European debt and growth? And also, what are your thoughts on what might help European growth in the future? I know that's a big question, Andreas, but it speaks to the European case also in bonds. How do you view that? So, you know, the topic that I'm currently discussing with hedge funds almost on a daily basis is what kind of stimulus plan you should expect from the new German administration taking office next year.

29:03We obviously don't know the results of the election already now, but we'll get some more flavor from the campaigns over the next weeks on that exact question, in my opinion. I think it is likely that German politicians arrive at the conclusion that they need to do hundreds of billions worth of stimulus to recover the industrial complex of Germany. We're still talking about an industrial production, especially in what I typically label energy-sensitive parts of the industrial complex. We're talking about a decline of 20 % or so just since COVID. And it has never recovered simply because of the production costs being too high.