0:07

This is Macro Voices, the

0:09

free weekly financial podcast targeting

0:11

professional finance, high net worth

0:13

individuals, family offices and other

0:16

sophisticated investors. Macro Voices is

0:18

all about the brightest minds

0:20

in the world of finance

0:22

and macroeconomics telling it like

0:24

it is. Bullish or bearish.

0:27

No holds barred. Now, here

0:29

are your hosts. Eric Townsend

0:31

and Patrick Sorezna. Macro

0:35

Voices episode 475 was produced

0:37

on April 10th 2025. I'm

0:39

Eric Townsend. Bloomberg macro strategist

0:42

Simon White returns as this week's

0:44

feature interview guest. Simon and I

0:46

will discuss the Trump tariff tornado,

0:48

treasuries, why the basis trade is

0:51

blowing up and much much more.

0:53

and I'm Patrick Sorexna with

0:55

the macro scoreboard week over

0:57

week as of the close

0:59

of Wednesday April 9th 2025.

1:02

The S&P 500 index down

1:04

377 basis points trading at

1:06

54 57. This poorly reflects

1:08

the historic volatility experience throughout

1:11

the week. Peak to Trof we

1:13

saw more than a

1:15

15% drop followed by

1:17

a strong Wednesday recovery

1:19

seeing the third largest

1:21

single day since 1990.

1:23

We'll take a closer

1:25

look at that chart

1:27

and the key technical

1:29

levels to watch in

1:32

the post game segment.

1:34

The US dollar index

1:36

down 76 basis points

1:38

trading to 1.02. The

1:40

May WTO crude oil

1:42

contract down 1.3. Peak

1:44

to trough we saw

1:46

more than a 23%

1:48

decline or $17 before

1:50

Wednesday's recovery. The May

1:53

Arbob gasoline down 1245

1:55

basis points trading at

1:57

204. The June gold

1:59

contract two hundred and seventy

2:01

five basis points to three thousand

2:04

and seventy nine the may copper

2:06

contract down seven hundred and three

2:08

basis points trading to four nineteen

2:11

pique to trough more than a

2:13

twenty percent drop before the short-term

2:15

lows were established uranium down a

2:17

hundred and fifty basis points trading

2:20

to sixty four forty and the

2:22

US 10-year treasury yield up 25

2:24

basis points trading at 433. Trouble

2:27

emerged in the bond market plumbing

2:29

driving yields higher. The key news to watch

2:31

this Friday is the consumer

2:33

sentiment numbers and next week

2:35

we have the core retail

2:38

sales and the Bank of

2:40

Canada and ECB monetary policy

2:42

statements and press conference. This

2:44

week's feature interview guest

2:46

is Bloomberg macro

2:48

strategist Simon White.

2:51

Eric and Simon

2:53

discussed the current

2:55

market volatility, liquidity

2:58

tightening, the basis

3:00

point trade, and

3:02

more. Eric's interview

3:05

with Simon White

3:07

is coming up

3:10

as Macro Voices

3:12

continues right here

3:15

at macrovoices.com. Joining

3:18

me now is Simon White, macro strategist

3:21

for Bloomberg, and for those of you

3:23

lucky enough to have a Bloomberg terminal,

3:25

also the author of the macroscope column.

3:27

Simon prepared a slide deck to a

3:29

company today's interview. Registered users will find

3:32

the download link in your research round-up

3:34

email. If you don't have a research

3:36

round up email just go to our

3:38

home page macrovoices.com. Look for the red

3:40

button above Simon's picture that says looking

3:43

for the downloads for the downloads. As

3:45

we get into the discussion of treasuries

3:47

in just a few minutes just follow

3:49

along with us in the slide deck.

3:51

Simon feels to me like one of

3:53

those weeks when decades happen. We're recording

3:55

this interview early on Tuesday morning. so

3:57

you and I have only experienced one

3:59

day. of this week. On that

4:01

day we had at one point

4:04

a five and a half percent

4:06

move up on the S&P 500

4:08

futures in the course of six

4:10

minutes. followed by a retrace of

4:12

those 300 points up we came

4:14

back down 200 points in six

4:17

minutes took another 15 minutes to

4:19

get the remaining 100 points for

4:21

a complete retrace that was after

4:23

somebody third hand hearsay said they

4:25

thought they heard somebody else say

4:28

something about what might be on

4:30

President Trump's mind and then the

4:32

White House said it was fake

4:34

news and it all retraced. Needless

4:36

to say, it's a headline-driven market.

4:39

Then we had Kier Starmer basically

4:41

announced the end of globalism, but

4:43

kind of a profound thing to

4:45

say. And that was just Monday.

4:47

I can only imagine what happens

4:49

between now and Thursday when our

4:52

listeners actually hear this interview. What's

4:54

going on? What should we make

4:56

of this? Obviously... President Trump's tariffs

4:58

are kind of the key driver

5:00

in it, but how should we

5:03

think about these markets with just

5:05

so many crazy things happening all

5:07

at once? Well, thanks for having

5:09

me on again, Eric. I think

5:11

we actually spoke, not the last

5:13

time, but the time before the

5:15

last time, just when the pandemic

5:17

started. So very similar circumstances, and

5:19

I think the Lenin quote about

5:22

decades and weeks was being used

5:24

then, and it certainly... appropriate, the

5:26

amount of uncertainty has ratcheted up

5:28

by a huge amount. And it's

5:30

hard to tell really exactly what

5:32

the main aim is. I mean,

5:34

my initial thinking was when, you

5:36

know, the tariffs were announced, the

5:38

aim was to reduce trade deficits.

5:40

So for the US to reduce

5:42

the trade deficit, but I'm wondering

5:45

really if they want to close

5:47

them all together, which is obviously

5:49

a very different set circumstance as

5:51

if that's correct. then Kier Starmer's

5:53

notion about the end of globalization

5:55

is right too. But again, we

5:57

really don't know. I think there

5:59

are definitely some more ideal... people

6:01

within the Trump administration obviously Navarro

6:03

for one of them and they

6:05

maybe do look to close the

6:08

trade deficits altogether whereas you know

6:10

Trump obviously is renowned for being

6:12

open to deals and perhaps if

6:14

the right thing comes his way

6:16

he won't be quite as ideological

6:18

but no nonetheless these are big

6:20

changes and I think one kind

6:22

of analogy that's fairly relevant right

6:24

now is Brexit I mean it

6:26

was almost 10 years ago. that

6:28

the UK voted to leave the

6:31

European Union and the principal motivations

6:33

behind Brexit were renegotiation of the

6:35

relationships with your trading partners and

6:37

taking back control of your borders

6:39

and you know that's really not

6:41

dissimilar to what's happening in the

6:43

US right now. The fundamental difference

6:45

is, it didn't work out well

6:47

for the UK certainly in the

6:49

first couple of years because capital

6:51

started to leave, but the fundamental

6:53

difference. with the US would normally

6:56

be that the US is insulated

6:58

from such effects because the US

7:00

has the reserve currency and there's

7:02

always a demand for its assets.

7:04

But I think, you know, like

7:06

many, many things that we are

7:08

used to taking as rules of

7:10

thumb, I really don't think we

7:12

can take that as for granted

7:14

anymore. So I don't think we

7:16

can take that for granted anymore

7:19

that there's going to be the

7:21

same requirement for or desire for

7:23

US dollars and dollar assets as

7:25

there once was. Now there's a

7:27

few things here that make it

7:29

even more interesting as in the

7:31

last few years the US has

7:33

been running enormous current account deficits.

7:35

So normally the sort of the

7:37

rule of thumb if you like

7:39

that the dollar rallies in sort

7:42

of risk off events is based

7:44

on the fact that dollars normally

7:46

essentially a funding currency. People tend

7:48

to borrow the dollar so there's

7:50

a structural short in the dollar

7:52

and when you have a kind

7:54

of financial... shock that we're seeing

7:56

similar to right now, that short

7:58

is covered. But when you've had

8:00

so much capital coming into the

8:02

US and then... numbers are huge.

8:05

That can easily overwhelm any short

8:07

covering that you, you know, structural

8:09

short covering that you might normally

8:11

see. And I think that's kind

8:13

of what we've been seeing. So,

8:15

you know, the DXY has reversed

8:17

most of its, you know, post-election

8:19

before the election and after rally,

8:21

you know, it's kind of reverse

8:23

most of that. And I think

8:25

that's really, this, there's a sign

8:27

that the dollar is no longer

8:30

what it once was. As I

8:32

say, the current account deficits are

8:34

huge. Now, most of that money

8:36

coming into the US has not

8:38

been for bonds in recent years.

8:40

It's really been equity. So most

8:42

of those deficits have been funded

8:44

by equity. So we've had something

8:46

like $9 trillion of inflows into

8:48

US equities since the pandemic, doubling

8:50

its size. And there's now over

8:53

$18 trillion that foreigners hold, something

8:55

like 16%. of the total of

8:57

US equities outstanding. So that's a

8:59

lot of potential capital that can

9:01

come out. Now, equities are kind

9:03

of in the heat of the

9:05

storm right now, but it's kind

9:07

of clear, I think, certainly to

9:09

me, that why should treasuries be

9:11

exempt from this? Now, the demand

9:13

for treasuries had slowed, certainly reserve

9:16

accumulation really began to sort of

9:18

gradually ease after the financial crisis,

9:20

but that really accelerated in the

9:22

wake of the Russia-Ukraine war after

9:24

Russia's... assets, reserve assets were seized,

9:26

and then that confidence in the

9:28

dollar was kind of further undermined

9:30

with the recent rumblings we've had

9:32

about a Maralago accord. Essentially, you

9:34

know, you cannot take it for

9:36

granted that the dollar is a

9:39

politically kind of meddle-free instrument anymore.

9:41

So that's really kind of scared

9:43

the horses, not just amongst emerging

9:45

markets and people that might be

9:47

considered foes of the US, but

9:49

also amongst friends too. So there's

9:51

a real... fundamental kind of rethink

9:53

here about what the dollar is,

9:55

about whether people need to hold

9:57

as much as it as they

9:59

once did. And obviously that applies

10:01

to treasuries. And that's compounded when

10:04

it comes to the US by

10:06

the massive fiscal deficits that the

10:08

US has been running. So already

10:10

I would say that treasuries were

10:12

facing a demand problem. You know,

10:14

the US has been running

10:16

7% fiscal deficits. You know,

10:18

treasuries aren't particularly attractive with

10:20

a 7% fiscal deficit. Then, you know,

10:22

if we get a recession, I can

10:25

get into that in a bit more

10:27

detail later on. If we get a

10:29

recession, I mean the fiscal stabiliser alone

10:31

would take that fiscal deficit into

10:33

double digits. Now inflation is

10:35

already elevated and when inflation is

10:37

elevated, the other rule of thumb

10:39

that people are probably quite used

10:41

to is that treasuries are a recession

10:44

hedge. I mean when inflation is elevated

10:46

that that's just not the case.

10:48

You tend to get bonds and

10:50

stocks moving positively correlated. Simon,

10:52

let's talk a little bit more about

10:54

the fiscal deficit. How wide can again?

10:56

Well it's a very very good

10:58

question I mean automatically fiscal stabilizers so

11:01

that alone I think would take it

11:03

clearly into double digits if you go

11:05

to the slide deck on on slide

11:07

three the chart on the left shows

11:10

what the fiscal deficit has done in

11:12

previous recessions in the US and you

11:14

can see there just on average it's

11:16

drops about four percentage points so with

11:19

us already at seven that takes us

11:21

just based on that average to 11%

11:23

that's a massive, massive number. I mean,

11:25

I think the only time that's been

11:28

exceeded was in the pandemic as post-war.

11:30

So these are really, really big numbers.

11:32

And as I say, already, the market

11:35

was becoming hesitant about funding

11:37

the government at 7% deficit. It's

11:39

probably going to be even less

11:41

happy about funding an 11% deficit.

11:43

So this is something that's, you

11:45

know, problematic. And when inflation

11:47

is elevated, stocks and bonds

11:50

tend to be positively correlated, which

11:52

means they can. fall together. And

11:54

that's something we've already seen this

11:56

week. You know, we had this

11:59

massive move and... Treasury yields, so Treasury

12:01

yields, saw their second largest open to

12:03

close rise. Again, since the pandemic, you

12:05

have to go back to the 17th

12:08

to March. That was a 30 basis

12:10

point rise. It's really close to unprecedented.

12:12

So, you know, these are massive moves

12:14

and the kind of axiom that treasuries

12:17

in the dollar are safe havens. I

12:19

don't think we can take that as

12:21

red. So how is this going to

12:23

play out? I think the key thing

12:26

to watch right now is not so

12:28

much the stop market, all that is

12:30

important. it is the dollar and the

12:32

administration has made quite a few quite

12:35

clear that the the reason why they're

12:37

less interested in the stock market than

12:39

people would have thought we were as

12:41

ultimately the stock market is owned by

12:44

way fewer people in the US so

12:46

the vast majority of stocks are owned

12:48

by like the richest 10% of households

12:50

if you look at what matters to

12:53

you know what are probably more likely

12:55

to be Trump's base there are sort

12:57

of middle income bracket it's small businesses

12:59

it's real estate it's real estate And

13:02

that's clearly where the administration are putting

13:04

their focus on. So the dollar, if

13:06

it carries on weakening, will amplify the

13:09

effect of tariffs. And you can see

13:11

again, going back to the deck on

13:13

slide three, the chart on the right,

13:15

you can see there that the dollar

13:18

leads import prices. So if the dollar

13:20

continues to weaken, that's really going to

13:22

be an effect on US consumers. And

13:24

there's way more US consumers. than people

13:27

that own equities in the US and

13:29

obviously that ultimately translates into vote. So

13:31

I think you want to keep an

13:33

eye on the dollar for you know

13:36

how much if you like political pain

13:38

the administration is willing to take and

13:40

the thing is if the dollar keeps

13:42

selling off it might you know give

13:45

them a convenient off-ramp because if the

13:47

dollar is weaker that the euro is

13:49

stronger that you end stronger and you

13:51

know the administration can say you know

13:54

what we've kind of got some of

13:56

what we want here your guys' currencies

13:58

are stronger, ours are weaker, and therefore

14:00

we're not going to have some of

14:03

the more onerous tariff rates. to say

14:05

it's really not clear what the plan

14:07

is here, whether we're going for the

14:09

ideological, let's close the deficits altogether, or

14:12

there really is the potential here for

14:14

making a deal and trying to come

14:16

up with some sort of happy medium.

14:18

I think you hit the nail on

14:21

the head when you said that the

14:23

issue is that it's not at all

14:25

clear here. It seems to me that

14:28

what's going on, you look at something

14:30

like fiscal deficits and you say, okay,

14:32

so maybe the president is really trying

14:34

to build a very large revenue stream

14:37

around tariffs. Okay, we'll try to grock

14:39

that possibility. Oh, wait a minute. No,

14:41

he was just trying to get people

14:43

to come to the negotiating table and

14:46

the market says... Mr. President, you've got

14:48

to tell us what to expect. You've

14:50

got to tell us what the plan

14:52

is, because the markets hate uncertainty. And

14:55

it seems to me President Trump is

14:57

saying, no, I don't have to tell

14:59

you anything. It's the art of the

15:01

deal, baby. I'm not showing my cards.

15:04

So you'll have to guess. That's not

15:06

what markets like, and it's not what

15:08

markets are used to. Am I right

15:10

to think that that's what's what's going

15:13

on here? to give markets the kind

15:15

of policy forward guidance that is normally

15:17

expected in previous administrations? Well, whether that's

15:19

his intention, that's certainly what's happening. And

15:22

as you say, the markets are poor,

15:24

uncertainty. They find it's impossible to price

15:26

in, you know, the classic black swan,

15:28

unknown, unknown, all these sort of things

15:31

are extremely difficult for markets to price

15:33

in. And this is kind of what

15:35

we're seeing, you know, right now. tariffs

15:37

were kind of worse than people expected

15:40

and the notion of a Trump put

15:42

is clearly you know the strike price

15:44

is not kind of near where people

15:47

thought it might have been and that

15:49

probably also applies to the power put

15:51

he's just focused on the economy right

15:53

now which by the way is always

15:56

lagging so the economy looks okay now

15:58

but this is this is the kind

16:00

of where we are right now really

16:02

right so we're seeing these sort of

16:05

cascading falls in markets we're seeing the

16:07

stock market on an intrepase basis. it's

16:09

gone into correction mode. It's not done

16:11

that on a closed basis quite yet,

16:14

but we're really in that period where

16:16

economies and markets are becoming highly entangled.

16:18

And that's a very kind of dangerous

16:20

time because that's the time when you

16:23

can have these negative feedback loops that

16:25

develop very quickly between the economy and

16:27

the market where, you know, the stock

16:29

market sells off. That does a huge

16:32

amount of damage to sentiment. people end

16:34

up pulling back spending, investment, that feeds

16:36

into the real economy. And then the

16:38

real economy data starts to deteriorate, the

16:41

stock market then looks at that data

16:43

and then sells off again. And you

16:45

have this kind of self-reinforcing feedback loop

16:47

that often culminates in a recession. And

16:50

if we go back to the slide

16:52

deck, they go to slide six. There's

16:54

really kind of a misunderstanding, I think,

16:56

how the market thinks recessions work. The

16:59

market tends to think... that economies kind

17:01

of go from a linear process. They

17:03

go from a non-recessionary state to a

17:06

recessionary state in a very linear way.

17:08

They actually do so in a very

17:10

non-linear way. And the chart on the

17:12

left on slide six really kind of

17:15

demonstrates that quite well. So the top

17:17

part is what actually happens. And the

17:19

white line is kind of what the

17:21

market thinks happens. And the top part

17:24

is probably one of the best real

17:26

time based on hard economic data. indicators

17:28

of a recession and that's the percentage

17:30

of US states with significantly rising unemployment

17:33

claims. And you can see that number

17:35

is either very very low or it's

17:37

very very high. It's rarely in between.

17:39

And when it goes past a certain

17:42

threshold it tends to rise almost all

17:44

the way and that tends to coincide

17:46

with the recession. And that's again how

17:48

economies actually work. Recessions are regime shifts.

17:51

what the market tends to talk about

17:53

is recession probabilities evolving smoothly. So the

17:55

bottom part of that chart shows the

17:57

FY feds probability indicator which I think

18:00

is based on the yield curve and

18:02

you can see that more. kind of

18:04

smoothly moves up and down. Where we

18:06

are right now is we're at that

18:09

point where the flux point where the

18:11

probability can go from being still quite

18:13

low. So from an organic perspective, you

18:15

look at what's happening in the real

18:18

economy, you know, the probability of a

18:20

kind of recession next year for months

18:22

is still fairly low, purely looking at

18:25

the economy. But given what's happening in

18:27

the market, that can rapidly rise very

18:29

quickly. And it would go from maybe

18:31

being like a 10, 20% probability to

18:34

like an 80. 90% probability. So we're

18:36

in this kind of maximum time of

18:38

uncertainty and maximum time of danger where

18:40

you really have to keep an extremely

18:43

close eye on the soft data. And

18:45

the soft data is the market data

18:47

but it's also the survey data. So

18:49

the ISM, the PMIs will be extremely

18:52

important in the next couple of months

18:54

because they will tell you how bad

18:56

sentiment has been impacted but not only

18:58

that. they'll tell you exactly what the

19:01

market's going to be, they're going to

19:03

be looking at the ISM and the

19:05

PMI to see how badly sentiment has

19:07

been impacted. And if that is deemed

19:10

to be too bad, the market will

19:12

sell off even more and we'll get

19:14

one of these negative feedback looks and

19:16

very quickly we're in a recession and

19:19

you know the market is down roughly

19:21

17-18% now like Pete Detroff. As I

19:23

say in a close to close basis,

19:25

the average recession you know equities will

19:28

sell off more than that. you know

19:30

the average is you know at least

19:32

30% that sort of range certainly more

19:34

than you know 17% so we really

19:37

are at this time of peak uncertainty

19:39

and peak kind of fragility for the

19:41

market Tell me if I'm assimilating this

19:44

correctly, but it sounds like what you're

19:46

saying. If I think about how we

19:48

got here, you know, it's not really

19:50

recession risk that got us into this

19:53

sell-off. It's President Trump not being willing

19:55

to give the market a clear indication

19:57

of what was coming next and give

19:59

that forward guidance that markets need to

20:02

avoid uncertainty. So it would be very

20:04

easy to write this off. by a

20:06

president with very unconventional forward guidance policies

20:08

if you will. But then that feedback

20:11

loop that you talked about potentially kicks

20:13

in and the big sell-off that we've

20:15

already had of 17 or 18 percent

20:17

is very possibly enough to catalyze the

20:20

recession and becomes a self-fulfilling prophecy at

20:22

that point. And it sounds like we're

20:24

right on the hairy edge of that

20:26

happening. Is that a fair way to

20:29

interpret what you said? That's exactly right.

20:31

As I say, we're at this point

20:33

where market and economy are highly entangled

20:35

and one can drag down the other

20:38

very, very quickly, which is why, as

20:40

I say, for me, the key data

20:42

points are the ISM and the PMIs

20:44

to gauge sentiment and the unemployment claims,

20:47

because that's your kind of most frequent

20:49

hard economic data point, given it comes

20:51

out weekly. And so, and as say,

20:53

I would look at that by state.

20:56

you know not just a headline number

20:58

but also what's happening by state so

21:00

we really are literally in the next

21:03

three or four weeks it's kind of

21:05

like we'll know what's going to happen

21:07

whether sentiment has been damaged past the

21:09

point of no return if you like

21:12

it's even if Trump came out and

21:14

reversed a significant amount of the tariffs

21:16

that have been announced you know there's

21:18

too much damage being done and we

21:21

can still go into recession but we're

21:23

right in that flux point where we

21:25

just don't know. Now I noticed that

21:27

you're talking about the Trump put in

21:30

terms of trying to discover a strike

21:32

price on the Trump put. I've heard

21:34

a lot of other commentators use the

21:36

same kind of language. It seems to

21:39

me that President Trump has actually been

21:41

very clear saying, and actually Secretary Bessent

21:43

as well, have said, look, we've got

21:45

a certain set of goals, we want

21:48

to get the dollar down, we want

21:50

to get long-term treasury yields down. We

21:52

don't care what happens. to the stock

21:54

market. So it seems if you took

21:57

him at face value, there is no

21:59

Trump put at all. Do you think

22:01

that that's just a bluff and there

22:03

really is... a Trump put and the

22:06

strike price is a secret or what

22:08

do you think? Well I think I

22:10

think yeah clearly I think it was

22:12

totally wrong to expect that Trump won

22:15

as in his first presidency was going

22:17

to be like Trump too and the

22:19

whole notion that everybody again a rule

22:22

of thumb people jumped on was that

22:24

the the stock market was his scorecard

22:26

but I remember looking at this back

22:28

in in January and before this really

22:31

hicked off to the extent it has.

22:33

And there was a really interesting chart,

22:35

unfortunately I don't have it in the

22:37

deck, but it was, you looked at

22:40

NFIB small business optimism versus the essentially

22:42

proprietor's equity in small business. So essentially,

22:44

even though these companies are unlisted, the

22:46

Fed measures essentially how well they're doing

22:49

is as if they did to have

22:51

equity that was on a market. And

22:53

there was a huge gap. So the

22:55

NFIB small business optimism has. a huge

22:58

Trump, not really Republican, it's more like

23:00

a Trump bias. So both times when

23:02

he was elected, NFIB jumped much higher.

23:04

And when Biden was elected, it actually

23:07

dropped in 2020. But it's going in

23:09

the opposite direction to this, the actual

23:11

equity of these businesses. And so that

23:13

was a real kind of hope reality

23:16

gap. And I think, you know, this

23:18

is an issue when most of your

23:20

base are... in the middle income bracket,

23:22

so the two cohorts that voted for

23:25

Trump more than any other cohorts were

23:27

those in the middle income brackets. And

23:29

these are people that are going to

23:31

be more impacted by either they own

23:34

a small business or they work for

23:36

a small business. I mean, there's something

23:38

like one in four of the workforce

23:41

are working for businesses with fewer than

23:43

10 people. So this is much more

23:45

significant and you look at who owns

23:47

the equity market, it's the top 10%.

23:50

and it's hugely skewed towards that top

23:52

10%. And funly enough, in recent weeks

23:54

and months, you know, you've had percent,

23:56

mainly best cent to be fair, going

23:59

down this line, talking about... small business.

24:01

Talking about that's what matters. Talking about

24:03

real estate, that's what matters because the

24:05

middle income and the middle wealth cohorts,

24:08

but most of their wealth, is in things

24:10

like real estate. So they're much more focused

24:12

on that. That's not to say that there

24:14

is no strike for the stock market,

24:16

but I think it was obviously misguided to think

24:18

that it was as high as people who thought

24:20

it was. So we're in that kind of them,

24:22

you know, to borrow the mean that has been

24:24

used a lot on Twitter as we're kind of

24:27

muck around to muck around. and find out

24:29

that's the more palatable version of

24:31

the meme of course. But we're kind of

24:33

in that in that phrase now where the

24:35

stock market is trying to probe perhaps where

24:37

this this put lies. But as I say

24:39

we're in a very point of peak flux

24:42

where by probing too deeply it could

24:44

well trigger the recession which kind of

24:46

puts as a certainty that the market's

24:48

going to sell a lot much more.

24:50

So it's going to create more damage

24:52

and perhaps it bargains for.

24:54

Simon, moving on to page 7 on

24:57

the slide deck, the liquidity screw is

24:59

now tightening. I think we noticed that

25:01

in terms of what's happening in the

25:03

market. What's driving it? Yeah, I mean 100%

25:05

but what's really interesting about this

25:08

is liquidity thing had begun to

25:10

tighten really before this all happened,

25:13

as in before the last few

25:15

weeks, developments with tariffs etc.

25:17

So lots of people have many

25:19

different ways of measuring liquidity. I always

25:21

stick to what I think is. one

25:24

of the best because it has the

25:26

most leading properties when it comes

25:28

to actual asset prices is excess

25:30

liquidity and that's the difference between

25:33

real money growth and economic growth

25:35

and the notion behind it is

25:37

quite intuitive you know what money

25:39

is created in excess of the needs of

25:42

the real economy is excess and it tends

25:44

to find its way into into real

25:46

assets so the chart on the left and

25:48

slide seven. you can see there that excess

25:50

equity has a very good lead for about

25:53

three to six months with equities. And that's

25:55

kind of what you'd expect to see. So

25:57

it's not just the case of like liquidity

25:59

being that's not enough, because banks create

26:01

liquidity, the central bank creates liquidity, but

26:04

it's only when that liquidity is growing

26:06

in excess of what the real economy

26:08

is eating up, that it then leads

26:11

to higher asset prices, risk asset prices.

26:13

And, you know, this really was kind

26:15

of, you're back in early 2023s when

26:18

it began to turn up. So the

26:20

market bottomed in late 2022, and it

26:22

was always a lot like any bottom.

26:25

There's a lot of hesitation. Is this

26:27

the bottom... Will the market, you know,

26:29

will it make another bottom? And it

26:31

kept on sort of creeping higher and

26:34

higher, but then around then, early 2023,

26:36

excess liquidity started to turn up. And

26:38

really, since then, that's been your probably

26:41

best medium-term guide of the rally continuing,

26:43

is this rise in excess liquidity. But

26:45

at the beginning of this year, so

26:48

I'd say mid-January, you really start to

26:50

see a kind of fairly sharp decline

26:52

in excess liquidity. partly based on the

26:55

fact that liquidity is in money growth

26:57

and in the excess liquidity measure you

26:59

look at M1 and wasn't growing quite

27:01

strongly as it was before but because

27:04

it's based on a uses a trend

27:06

basis that caused like quite a rapid

27:08

turnaround. So you had the kind of

27:11

ex ante conditions for weakening and stock

27:13

market before all this tariff stuff happens

27:15

because excess liquidity is really like a

27:18

safety net. So we're now in a

27:20

sort of worst of all worlds that,

27:22

okay, we're getting this terrible tariff news,

27:25

which would be bad one way or

27:27

the other for stock markets. But in

27:29

a way, it's kind of worse because

27:31

excess liquidity is not there to provide

27:34

the safety net as it once did.

27:36

And on top of that, it's not

27:38

just volume measures of liquidity, so excess

27:41

liquidity is really a volume measure. Price-based

27:43

measures of liquidity are also declining. So

27:45

the chart in the right is the

27:48

global financial tightness indicator, which is essentially...

27:50

diffusion index of central bank rate hikes.

27:52

Again that had been indicating more loosening

27:55

conditions for most of the last year

27:57

and a half two years and that

27:59

too has started to turn down which

28:01

means rates are becoming more restrictive. And

28:04

that's basically on the back of global

28:06

central banks have really stopped cutting. So

28:08

they'll stop cutting, one or two actually

28:11

start to hike. Now we'll see what

28:13

happens with this going forward. You know

28:15

what central banks are going to do

28:18

in terms of responding to these, the

28:20

tariff announcements. But the problem again is

28:22

it. inflation is much more elevated than

28:25

they would like. So we've got that

28:27

in the US this week. In fact,

28:29

we have the latest CPI data. But

28:31

that's really a problem for central banks.

28:34

They cannot probably cut as much as

28:36

they would like to. And so that

28:38

means that rates are probably going to

28:41

remain more restricted than the otherwise would

28:43

be. And as always in life, things

28:45

happen at the last point when you

28:48

really want them to happen. So this

28:50

is the last time you really need

28:52

liquidity to be tightening. there's rates to

28:55

become more restrictive, but yet that's that's

28:57

where we are. So we've had this

28:59

brewing inflation for a while. We've had

29:01

this massive surge in excess liquidity and

29:04

it's all started to turn down, you

29:06

know, just in a couple of months

29:08

before the sort of huge change that

29:11

President Trump has announced with these very

29:13

onerous tariff announcements. Tell me about the

29:15

death of the fiscal sheet code on

29:18

page eight. So this is the other

29:20

thing that is not working in stock

29:22

favor as well. So, you know, the

29:25

elephant the room, for most of the

29:27

last two or two years, again going

29:29

back to this massive fiscal deficit, it's

29:31

impossible to get away from the fact

29:34

that it's been hugely supportive for assets.

29:36

So in one clear way, it's probably

29:38

supported profit margin. So there's the Kaleki

29:41

Levy profit equation, which basically shows that

29:43

the savings of households and governments, along

29:45

with corporate investment, dictates corporate profits. Now,

29:48

households have been on net saving, but

29:50

the government has been doing the opposite.

29:52

And obviously, if it wasn't for the

29:55

government after the... after COVID, after the

29:57

pandemic, we would be in a very

29:59

very different situation. But the government has

30:01

been spending handover fist to say he's

30:04

been running these very large deficits and

30:06

that's enabled profits and profit margins to

30:08

be larger than the otherwise would have.

30:11

So that's really what we've seen in

30:13

terms of keeping stocks elevated, but second

30:15

derivatives are what matters for risk assets

30:18

and already that fiscal impulse is fading.

30:20

So the chart on the left there

30:22

shows how the fiscal deficit is changing.

30:25

So the fiscal deficit is still high

30:27

but it's not getting much much higher

30:29

and that's why you got that second

30:32

derivative is dropped by down and you

30:34

can see there it's got a reasonably

30:36

close relationship with equities. But the other

30:38

side of this is very interesting as

30:41

well so the chart in the right

30:43

shows gross issuance of treasury bonds and

30:45

bills versus the stock market. Now before

30:48

you know in a sort of pre-GFC

30:50

world you didn't really see this relationship.

30:52

But what's happening now is obviously the

30:55

government is expanding its fiscal deficit which

30:57

means issuance has risen markedly as well.

30:59

But at the same time we've had

31:02

this huge kind of revamp or overhaul

31:04

if you like of the repo market.

31:06

So repo is now the kind of

31:08

principal money market instrument and we've seen

31:11

this massive huge increase in repos and

31:13

the repo market repos are now much

31:15

more money like than he once were.

31:18

So they are. much more fungible in

31:20

the way that they, you know, that

31:22

their collateral arrangements are much more seamless.

31:25

So in many different ways, they can

31:27

be much more used as a substitute

31:29

for high-level money. And I think it's

31:32

impossible to get away from that, that

31:34

has to be part of the reason

31:36

why when the government has been expanding

31:38

its fiscal deficit and has been issuing,

31:41

you know, so much more a debt,

31:43

that that is not like what would

31:45

happen before, that would say idle and

31:48

bad balance sheets, the velocity of your

31:50

like of that that that debt. would

31:52

be quite low but the repo market

31:55

enables what was one sort of idle,

31:57

if you like money sitting on people's

31:59

bound sheets, to be used in other

32:02

forms and ultimately support the market. So

32:04

I think that's kind of what goes

32:06

behind that chart in the right there.

32:08

You see a fairly good leading relationship

32:11

between ups and downs in gross issuance

32:13

and the stock market. And now of

32:15

course that fiscal impulse is fading. Yes,

32:18

issues overall are still high, but again

32:20

second derivative, it's turning down. So this

32:22

again is all coming at the backdrop.

32:25

with the tariff announcement. So we had

32:27

the liquidity, things were already tightening at

32:29

the beginning of the year, fiscal is

32:32

already tightening, so monetary and fiscal tightening,

32:34

and the whammy, if you like, is

32:36

now these much worse than expected tariff

32:38

announcement. So it's really kind of the

32:41

worst of all worlds for markets. Moving

32:43

on to page 9 you talk about

32:45

the swelling basis trade which has grown

32:48

to a trillion dollars starting to unwind.

32:50

For anyone who's not a fixed income

32:52

person the basis trade refers to traders

32:55

who are exploiting disparities between the cash

32:57

bond price and the futures implied bond

32:59

price. So in the futures and the

33:02

cash markets don't line up you arbitrage

33:04

that difference out. Why is that grown

33:06

to a trillion dollars and why is

33:08

it starting to unwind and why could

33:11

that get nasty? It's a great question.

33:13

The basis trade has been around for

33:15

obviously a long time, but it's probably

33:18

still the key kind of source of

33:20

potential financial instability. And you only have

33:22

to go back to look at what

33:25

happened in March 2020. So in the

33:27

very early days of the pandemic, it

33:29

was almost certainly a basis trade unwind

33:32

that really pushed the Fed to have

33:34

to come and backstop the treasury market.

33:36

So we saw that the fastest and

33:38

largest. buying of treasury debt the Fed

33:41

has ever embarked on something like end

33:43

up being over four trillion dollars and

33:45

the reason is it just that the

33:48

market was it just couldn't absorb the

33:50

the unwind of that trade. Now the

33:52

problem today is that the trade is

33:55

probably twice the size it's probably of

33:57

the... of something like a trillion dollars.

33:59

And the second thing is that dealer

34:02

balance sheets, primary dealers, are more congested

34:04

than they were back then. And these

34:06

primary dealers, they are, if you like,

34:08

the first line of defense to try

34:11

and help absorb any of this basis

34:13

trade unwind, but given their balance sheets

34:15

are so congested, they won't really be

34:18

in a position to do so. But

34:20

the reason why the trade as, you

34:22

know, as I say, almost doubled in

34:25

size. is there's been this kind of

34:27

symbiotic relationship that's opened up between bond

34:29

funds and hedge funds and the primary

34:32

dealers and it's very interesting it was

34:34

something I wasn't actually aware of and

34:36

I was looking at just general sources

34:38

of demand for bonds and someone got

34:41

in touch and he said have you

34:43

looked at bond funds they are not

34:45

buying as many bonds they're buying futures

34:48

now and it's very interesting so is

34:50

again the elephant in the elephant in

34:52

the room. is the fiscal deficit, is

34:55

massive government issue. So the government has

34:57

been issuing so much debt. The aggregate

34:59

bond indices, which are made up of

35:02

corporate debt and government debt, have been

35:04

filling up with government debt. So if

35:06

you look at the chart in the

35:08

right there, the blue line, this is

35:11

on slide nine, shows that the percentage

35:13

of the aggregate index, which is government

35:15

debt that is now close to 45%.

35:18

The problem is that depresses the return

35:20

of the aggregate index of bond funds

35:22

I've been trying to enhance their returns.

35:25

by buying more credit. So high-yield credit

35:27

and lesson grade credit. These have much

35:29

lower duration than the aggregate index, but

35:32

they want to be duration matched. So

35:34

they have to buy a duration hedge.

35:36

Regulations have changed. Normally they would have

35:38

to go buy like an off-the-run bond

35:41

off a bank, but now they don't

35:43

need to. They can just go ahead

35:45

and use futures, treasury features. And that's

35:48

what's been happening. So the chart on

35:50

the left on slide nine, you can

35:52

see asset managers, which are basically bond

35:55

funds. Longs and features as risen markedly,

35:57

that's been almost exactly matched by F.

35:59

hedge funds short because the hedge funds

36:02

are happy to take the other side

36:04

of this. So they are happy to

36:06

basically provide this balance sheet service for

36:08

a fee of course which is the

36:11

basis and and they've been doing that

36:13

in other in ever greater sales. So

36:15

they basically short the futures against the

36:18

bond funds and then what they do

36:20

is the repo in the treasuries, the

36:22

cash treasuries from the primary dealers. And

36:25

if we go to slide 10 we

36:27

can see this whole carousel. in play

36:29

in the chart on the right-hand side.

36:32

You can see that the asset managers

36:34

net long in treasury futures has risen

36:36

roughly in line with the primary dealer

36:38

repo and likewise the leverage funds, the

36:41

hedge funds short in futures, has risen

36:43

in line with the repo as well.

36:45

So we've had this symbiotic relationship between

36:48

these three parties. Now that's great when

36:50

things are benign. The problem is of

36:52

course when things become like they are

36:55

today, the risks rise markedly. And as

36:57

I say, the problems today versus March

36:59

2020 are that it's twice the size

37:02

that the trade is much much bigger.

37:04

And primarily dealers are not really in

37:06

the same position to even help try

37:08

and absorb as much of this unwind

37:11

as they would have done in March

37:13

2020. And even that, of course, wasn't

37:15

enough. You know, the chart on the

37:18

left there shows that dealer sheets, they're

37:20

now a lot of inventory on their

37:22

balance sheets. I think I'm not quite

37:25

sure a hundred percent the reason, but

37:27

it's partly to do, I think. with

37:29

less foreign demand for bonds. So they

37:32

obviously have to go there and they

37:34

have to backstop the auctions and also

37:36

the illiquidity and off the runs as

37:38

well. Maybe they're getting lumbered with more

37:41

off-the-run debt, but whatever the reasons we

37:43

can see that their holdings of treasuries

37:45

and other bonds are much higher and

37:48

that's leading to their balance sheets being

37:50

congested. And this is a big issue.

37:52

Brookings paper came out with a very

37:55

controversial... suggesting that maybe the feds has

37:57

to introduce explicit facility to backstop the

37:59

basis trade. So either they would go

38:02

into the market and take the other

38:04

side of the basis trade if there

38:06

was a systemic event or they could

38:08

give hedge funds direct access to the

38:11

standing repo facility. Either way it's it's

38:13

kind of crossing the rubicod. I mean

38:15

the Fed has obviously done indirect bailouts

38:18

of hedge funds LTCM being one of

38:20

the most famous examples and you can

38:22

argue what happened in March 2020 was

38:25

an indirect bailout but they've never done

38:27

a direct. bailout of hedge funds, but

38:29

the costs are potentially vast. I mean,

38:32

if you don't backstop this basis trade,

38:34

it has the potential to do a

38:36

massive amount of damage, and the longer

38:38

term costs of, say, just doing more

38:41

QEE, especially when the Fed's been trying

38:43

to run down its balance sheet, really

38:45

wouldn't want to do that. You know,

38:48

that's probably not something they would like

38:50

to do. So something it seems highly

38:52

unlikely and would be deeply controversial, is

38:55

something that you cannot rule out, because

38:57

this trade as a say so big.

38:59

and where we are right now in

39:02

this very kind of fluid environment, things

39:04

could potentially unravel quite quickly. Simon, before

39:06

we close, I want to touch on

39:08

a piece that you recently wrote for

39:11

Bloomberg talking about the alternatives to US

39:13

markets. I think this is a really

39:15

important point because for really as long

39:18

as most anybody can remember. the US

39:20

market was pretty much the place to

39:22

be. If you were an international investor

39:25

who had the physical ability to invest

39:27

in any market you wanted, it was

39:29

really hard to beat US markets. Why

39:32

do you say that there are now

39:34

alternatives? Is this about the potential loss

39:36

of dollar hegemony or is there something

39:38

else driving it? What's going on and

39:41

what does it mean for investors? Yeah,

39:43

I think that's exactly right. I mean,

39:45

what prompted this piece was... a lot

39:48

of what we've discussed today in that

39:50

the dollar is no longer, you know,

39:52

what it was. I'm not saying that

39:55

people can completely divest out of dollars,

39:57

obviously. It's still the biggest market, but

39:59

it's not the... does not apply anymore.

40:02

There is no alternative to the US,

40:04

does not apply anymore. So it was

40:06

worthwhile looking at other markets given that

40:08

when, you know, as much as it's,

40:11

there's a lot of volatility and flux

40:13

right now, it also offers opportunities and

40:15

this is the sort of time when

40:18

you really want to try and take

40:20

advantage of those opportunities. So, you know,

40:22

first of all, obviously the concentration risk

40:25

in the US was so high. And

40:27

so, you know. the MSCI world got

40:29

up to 75% US waiting, which is

40:32

obviously just this fast, it's huge. So

40:34

there was a huge concentration risk, so

40:36

that reason alone would be a reason

40:38

for thinking about diversification. And then we

40:41

had the prospect of fiscal stimulus in

40:43

other parts of the world. So the

40:45

US was talking about fiscal tightening and

40:48

the rest of the world was talking

40:50

about fiscal stimulus. So that I think

40:52

it started to trigger, if you like

40:55

a flow of capital capital. from west

40:57

to east. And therefore you're like, okay,

40:59

so where should I put my capital?

41:02

So obviously Europe is the obvious place.

41:04

And I think, you know, I'm saying

41:06

it's the outside the US, one of

41:08

the deepest and most liquid markets. But

41:11

there might be other places too that

41:13

offer more diversification because at the end

41:15

of the day, Europe and the US

41:18

have been pretty much tied at the

41:20

hip. So first of all, I looked

41:22

at essentially correlations of different markets. and

41:25

which markets popped up has been the

41:27

kind of the most anti-correlated to the

41:29

general markets by general just mean the

41:32

overall global markets which are mainly dictated

41:34

by US and Europe and the ones

41:36

that popped up were things like Indonesia

41:38

and China, Korea and also Latin American

41:41

countries too. And so I think these

41:43

are interesting and a lot of these

41:45

as well they have much cheaper valuations

41:48

than the US so just looking at

41:50

things simply like... P ratios, again Indonesia,

41:52

Colombia, Korea, China, much cheaper than the

41:55

US and European markets too. And the

41:57

second thing as well. as well as

41:59

the currency effects are often boost emerging

42:02

market terms when you have money. A

42:04

lot of the return you make is

42:06

actually on trying to find if you

42:08

find a currency that looks structurally cheap,

42:11

then you've got a much better chance

42:13

of enhancing your returns. And again, you

42:15

know, some of the cheaper currencies that

42:17

popped up there, Korea, Indonesia, Chile, you

42:19

know, if you look this from a

42:22

structural perspective, so looking at the real

42:24

effective exchange rates on a long-term basis,

42:26

these currencies are very cheap. Unlike

42:28

the US again, the US's currency is

42:30

quite rich on a structural basis.

42:32

And then you're looking at, you know,

42:34

current vulnerability. So again, in the

42:36

current environment, you probably don't want

42:38

to be running too big a

42:41

surplus. And so you want to

42:43

be looking at countries that are

42:45

fairly balanced overall. And things like,

42:47

you know, again, Indonesia and

42:49

Latin American countries like Chile

42:51

and Colombia. come up. And Latin

42:53

America, I think, is actually interesting

42:56

in its own right from a more

42:58

of a geopolitical perspective. They've

43:00

been rising lately. I think there's a sort

43:02

of a notion that we're going to have

43:04

a kind of, you know, you mind your

43:06

backyard, I mind my backyard, kind of

43:09

world where China has its backyard and

43:11

Europe has its backyard and the US

43:13

has its backyard and part of

43:15

the US's backyard is Latin America.

43:17

So maybe there's a kind of

43:19

notion that these... countries might kind

43:21

of ultimately end up benefiting from US

43:24

trade in the way that other parts of the

43:26

world are. So I think this is this is

43:28

definitely the sort of time you won't be

43:30

looking at these alternatives and these

43:32

are the ones that popped up as

43:34

Indonesia, Korea and some Latin American

43:37

countries that looked the most

43:39

interesting. You're talking about how

43:41

someone who has the latitude to

43:43

choose their markets would make intelligent

43:45

decisions. As I think maybe bigger

43:47

picture about the way that Kier

43:49

Starmer and Scott Bessent are talking

43:52

about the end of globalism. Are

43:54

we headed back to, you know,

43:56

not for the last few decades,

43:58

but way back when... It used

44:00

to be that European asset managers invested

44:03

in European markets because that was their

44:05

mandate. That's what they were allowed to

44:07

do. And North American asset managers invested

44:10

in North American markets because that's what

44:12

they were allowed to do. Are we

44:14

headed toward that? Is that kind of

44:16

globalism going away or are we only

44:19

talking about trade globalism as we talk

44:21

about this trend shift? Yeah, I mean

44:23

it's the flip side isn't it? I

44:26

mean I think we're trade nationalism and

44:28

capital nationalism are two sides of the

44:30

same coin. So, you know, capital will,

44:33

there probably will be more capital that

44:35

will be invested at home. There'll be

44:37

more things to invest in, like if

44:40

other parts of the world are boosting

44:42

their fiscal stimulus. I mean, we've talked

44:44

about your military spending in Europe, but

44:47

now we've got this global tariff shock

44:49

potentially, you know, it's going to really

44:51

encourage other countries to think about boosting

44:54

fiscal stimulus. So there'll be more reasons

44:56

to bring capital home. And I think

44:58

if capital doesn't come home willingly, then

45:01

you're going to see more financial repression

45:03

financial repression. financial repression. So we're going

45:05

to see more insistence that essentially capital

45:08

comes back to help this fiscal stimulus,

45:10

the borrowing that will be needed to

45:12

run this fiscal stimulus. So it will

45:15

be definitely a lot more siloed world

45:17

and things like financial repression will be

45:19

a tool that I think governments will

45:22

use and maybe ultimately the US itself

45:24

will have to use that if the

45:26

US overvaluations there, you know, cause more

45:29

downturns and the fiscal deficit 11% you

45:31

know that that pushes even the US

45:33

to look at financially repressing to try

45:36

and bring capital home but yeah capital

45:38

nationalism I think is definitely something that's

45:40

going to be a flavor of what's

45:43

going to happen in the next few

45:45

years and that really is the flip

45:47

side of this trade nationalism the big

45:50

question is whether these deficits are zeroed

45:52

or not I don't think that's the

45:54

case I think that's basically impossible unless

45:57

we all go back to Atarky but

45:59

it just depends on how far these

46:01

deficits are closed. how much of these

46:04

imbalances are resolved that really will dictate

46:06

how the world will actually look like.

46:08

Simon, I can't thank you enough for

46:11

another terrific interview. Before I let you

46:13

go, tell our listeners a little bit

46:15

more for the benefit of those who

46:18

do have a terminal subscription, what they

46:20

can find on your macroscope column on

46:22

the terminal, and for people who don't

46:25

have the terminal, where can they follow

46:27

your work? Thanks, Eric, again, for having

46:29

me on, and as I say, a

46:32

pandemic, a good forum. picking the most

46:34

volatile times. Yeah, I write the microscope

46:36

column on Bloomberg. I also write for

46:39

the Market's Live blog, which is also

46:41

on Bloomberg as well. So they are

46:43

my main contributions on the Bloomberg terminal.

46:46

Patrick's the resident and I will be

46:48

back as Macro Voices continues right here

46:50

at macrovoices.com. Now

46:56

back to your hosts, Eric Townsend

46:58

and Patrick Sorezna. Eric, it was

47:00

great to have Simon back on

47:03

the show. Now let's get to

47:05

that chart deck. Listeners, you're going

47:07

to find the download link for

47:09

the post-key chart deck in your

47:11

research roundup email. If you don't

47:13

have a research roundup, that means

47:16

you have not yet registered at

47:18

macrovoices.com. Just go to our home

47:20

page, macrovoices.com, and click on the

47:22

red button over Simon's picture, saying

47:24

looking for the downloads. All right,

47:26

Eric, let's start off with your

47:29

thoughts here on the equity markets.

47:31

Well Patrick I am really kicking

47:33

myself for how I handled the

47:35

whipsaw that we all just experienced

47:37

in equity markets and I don't

47:39

mind publicly admitting how badly I

47:42

screwed this up because frankly I'm

47:44

pretty confident that I did better

47:46

than most. I think that what

47:48

we're going through here is a

47:50

deer in the headlights moment in

47:52

market history where professional investors simply

47:55

aren't taking the risks that have

47:57

already been made plain as day

47:59

clear to heart. Ever since the

48:01

end of January I've been rolling

48:03

my eyes and shaking my head

48:05

at other investors when I read

48:08

their comments presuming that there's a

48:10

magical Trump put under this equity

48:12

market and I'm just shaking my

48:14

head in reaction to the general

48:16

level of complacency that's existed in

48:18

the finance community ever since the

48:21

election. Look this couldn't be more

48:23

clear. President Trump and Secretary Bessent

48:25

told us in plain English. multiple

48:27

times that they have major plans

48:29

involving aggressive tariff policy. They want

48:31

a lower dollar. and lower bond

48:34

yields at the long end of

48:36

the curve, and they're willing to

48:38

sacrifice the stock market in order

48:40

to achieve those goals. In other

48:42

words, they warned us multiple times

48:44

that this was coming, but nobody

48:47

listened. I privately ridiculed other investors

48:49

for being too complacent and not

48:51

taking this clear message to heart.

48:53

But did I adequately hedge my

48:55

risks? No, why not? Well, I

48:57

guess because like everyone else, somehow

49:00

I managed to subconsciously downplay the

49:02

extent of market risk that was

49:04

being created by Trump and Besson's

49:06

very clearly telegraphed plans to get

49:08

aggressive with terrorists. Now, yes, I

49:10

hedged... downside risk in my portfolio.

49:13

But I did that with put

49:15

spreads rather than outright puts and

49:17

with a lower strike price of

49:19

5250 on the June E-mini S&P

49:21

futures contract. Now look, the reason

49:23

that we sometimes get fancy and

49:26

use put spreads rather than outright

49:28

puts is because we like to

49:30

tell ourselves that we're smart enough

49:32

as professional investors to use technical

49:34

analysis to tell us what the

49:36

downside target's going to be, knowing

49:39

that it can't go any lower

49:41

than that because we're so smart

49:43

we know where the levels are

49:45

in the markets and we can

49:47

save money by hedging more efficiently

49:49

with spreads than without right puts.

49:52

Well, that line of reasoning ignores...

49:54

the true nature of the risk

49:56

that we're hedging against. The name

49:58

of the bowl in this China

50:00

shop is Donald Trump. Anyone who

50:02

thinks that technical analysis is going

50:05

to determine where a market move

50:07

ends in reaction to Donald Trump

50:09

prosecuting his agenda that he went

50:11

out of his way to warn

50:13

us weeks ago was coming and

50:15

would jeopardize the stock market. If

50:18

you think technical analysis is going

50:20

to keep that under control you're

50:22

crazy. But I still hedged with

50:24

put spreads rather than outright puts

50:26

and my lower strike ended up

50:28

being several hundred points above the

50:31

actual mark. bottom. Now in fairness

50:33

I can't say all professional investors

50:35

screwed this up Patrick I've got

50:37

to hand it to you buddy

50:39

because you perfectly called this you

50:41

told our macro voices listeners several

50:44

months ago when the S&P was

50:46

still at all-time highs that it

50:48

was time to hedge, then you

50:50

covered your shorts on Monday right

50:52

at the market lows and went

50:54

aggressively long and participated from the

50:57

long side in this huge reaction

50:59

move up. Needless to say, you

51:01

and your subscribers were very well

51:03

rewarded for playing this perfectly. My

51:05

hat is off to you and

51:07

I wish I had followed suit.

51:10

And for anyone who doubts that

51:12

chronology, it's all documented in Patrick's

51:14

YouTube. channel videos which are completely

51:16

free. But for the rest of

51:18

us who frankly should have known

51:20

better and didn't hedge adequately for

51:23

the extent of what just happened,

51:25

I think we should reflect a

51:27

little more on the lessons learned.

51:29

The biggest point I want to

51:31

make now is this isn't ending.

51:33

This battle does in fact appear

51:36

to be ending, but it's the

51:38

first of many battles in a

51:40

war that will likely be waged

51:42

for years. And just in case

51:44

anyone still isn't listening, Trump and

51:47

Bessent have said clearly they are

51:49

willing to sacrifice the stock market

51:51

in order to achieve their goals.

51:53

If you didn't get that memo

51:55

the first five times, and I

51:57

admit that I didn't It's time

52:00

to take it to heart now.

52:02

I am still today reading professional

52:04

commentary about how the market just

52:06

found the strike on the Trump

52:08

put. Bull shit! That's not what

52:10

happened. I couldn't possibly disagree more

52:13

with that interpretation. I say what

52:15

just happened is that it just

52:17

got even clearer that there is

52:19

no Trump put under this market.

52:21

Trump is going to do what

52:23

he wants to do in his

52:26

heart of hearts to make America

52:28

greater again in his interpretation of

52:30

what that means. Just look at

52:32

what happened on Monday after someone

52:34

leaked a rumor that Kevin Hassett,

52:36

director of the National Economic Council,

52:39

supposedly said on Monday that Trump

52:41

was mulling a 90-day ceasefire on

52:43

tariffs, the S&P shot up over

52:45

300 S&P points in six minutes,

52:47

then as soon as the White

52:49

House said it was fake news,

52:52

the S&P retraced the first 200

52:54

points, downside, in six more minutes,

52:56

and then it took another 15

52:58

minutes to fully retrace all 300

53:00

points back down to the downside.

53:02

Now I for one... don't believe

53:05

that that was fake news. I

53:07

think it was an intentional trial

53:09

balloon, intentionally staged by the Trump

53:11

administration to test how the market

53:13

would respond to a 90-day ceasefire

53:15

on tariffs announcement. That's speculation on

53:18

my part, and I certainly can't

53:20

prove it. But when you consider

53:22

that the exact thing that Trump

53:24

really did announce on Wednesday was

53:26

identical to the supposedly fake news

53:28

that we had on Monday, it

53:31

seems highly suspect, to say the

53:33

least. point I think everyone should

53:35

really take to heart is Trump

53:37

and Bessent are engaged in guerrilla

53:39

warfare and if I'm right they

53:41

don't think twice about intentionally whipsawing

53:44

the S&P up five and a

53:46

half percent in six minutes then

53:48

back down to a full retrace

53:50

in the next few minutes after

53:52

that they're not worried about the

53:54

damage that that does to traders

53:57

nor did they think twice about

53:59

the fact that they knew all

54:01

along that their tariff negotiation strategy

54:03

would do this to the markets.

54:05

Their response to that is not

54:07

to avoid hurting the market. It

54:10

was to tell us in plain

54:12

English that they were going to

54:14

do this so that we would

54:16

have the opportunity to hedge our

54:18

risks appropriately. I for one didn't

54:20

take that message to heart and

54:23

I learned my lesson from that.

54:25

So the message to take to

54:27

heart now is they won't hesitate

54:29

to do the same thing again

54:31

or even something more disruptive to

54:33

markets. if that helps achieve their

54:36

bigger picture goals of how they

54:38

want to restructure the monetary system

54:40

and balance of power in world

54:42

trade. So what that means for

54:44

those of us trading markets is

54:46

we're playing soldier in a hot

54:49

war zone where people with bigger

54:51

guns than us are going to

54:53

continue shooting live rounds over our

54:55

heads. Okay, had to get that

54:57

off my chest because I for

54:59

one feel like a complete fool.

55:02

I fully understood all of this.

55:04

I made fun of other people

55:06

for not... taking Trump seriously and

55:08

then I didn't hedge adequately for

55:10

what just happened. There is no

55:12

Trump put folks. Anything can happen

55:15

here. Patrick now I'm going to

55:17

put you on the spot since

55:19

you can afford to be on

55:21

the spot having just made a

55:23

fortune in both directions on this

55:25

trade. For someone with my views,

55:28

which is, look, obviously, the battle

55:30

is over. We're very much, momentum

55:32

is now up with this 90-day

55:34

ceasefire. I want to wait out

55:36

this giant sigh of relief bounce

55:38

that's now underway in markets, but

55:41

whenever we get to a... point

55:43

of a top on this sigh

55:45

of relief here, I want to

55:47

figure out how to hedge and

55:49

fully hedge my risk and I

55:51

don't mean just against the next

55:54

little whipsaw that might come in

55:56

the next week or two. I'm

55:58

talking about putting on a hedge

56:00

that will protect me from what

56:02

could be several more of these

56:04

events in coming weeks and coming

56:07

months. I'm hesitant to again use

56:09

put spreads mostly because they don't

56:11

fully realize their potential until just

56:13

before expiry because the time value

56:15

still on my put spreads I

56:17

ended up only realizing about two-thirds

56:20

of that difference even though the

56:22

market was trading several hundred points

56:24

below my lower strike so in

56:26

people who understand options understand why

56:28

that's the case so I think

56:30

it's outright puts well gee I

56:33

think outright puts just got a

56:35

whole lot more expensive here so

56:37

Patrick give me an upside target

56:39

on the S&P for where you

56:41

think I should start scaling into

56:43

a new basket of downside hedges

56:46

and tell me in professional investor

56:48

terms how to best structure a

56:50

hedge now that the jig is

56:52

up and I'm obviously no longer

56:54

likely to have the opportunity to

56:56

buy e-many S&P future puts and

56:59

implied vols in the teens like

57:01

we had the chance to do

57:03

when you first recommended it to

57:05

our macro voices listeners. Those are

57:07

all great questions. So let's break

57:09

this down. First of all, what

57:12

are the levels we should be

57:14

looking for? Well, the interesting part

57:16

is we already hit some of

57:18

the upper levels that we were

57:20

originally expecting this market bounce to

57:22

go to, like the 5500 to

57:25

5700 area. I mean, can the

57:27

market go to 5800 for sure

57:29

it can? But generally, once we're

57:31

in that 55 to 5700 zone

57:33

above on the S&P, those... Those

57:35

are all levels where once again

57:38

it becomes tactical to be considering

57:40

new hedges. The type of hedges

57:42

that we put on is going

57:44

to be very reliant on where

57:46

we are in volatility. And right

57:48

now with the VIX still up

57:51

in the 30s, it is very

57:53

challenging to just buy a straight

57:55

output option like you were suggesting.

57:57

And you were also talking about

57:59

some of the downfalls of using

58:01

spreads. Well there's a couple consider...

58:04

when hedging would spread. One, you

58:06

know, do you decide that you

58:08

want to hedge for your return

58:10

at end, which is that you're

58:12

willing to hold the spread till

58:14

it's expiration in that it will...

58:17

be in the money and that

58:19

intrinsic value will be captured as

58:21

a way of reducing the overall

58:23

losses you're incurring on other investments.

58:25

But when you're being tactical, with

58:27

the intention of closing the spread

58:30

halfway through at a moment when

58:32

the market hits a particular target,

58:34

like you suggested, you are a

58:36

point where you're not realizing the

58:38

full-profit potential of that spread. And

58:40

that's normal. So one of the

58:43

things that I often do is

58:45

that if I know that I'm

58:47

going to be tactical about a

58:49

spread hedge, then I estimate what

58:51

will be the profit of that

58:53

spread when those target levels are

58:56

being hit. and if I don't,

58:58

if I feel I need more

59:00

hedge, then I'll just simply buy

59:02

more spreads to ensure that your

59:04

total dollar payoff at a tactical

59:06

time is what you were originally

59:09

targeting. Now, overall, this environment still

59:11

is one where spread trading is

59:13

a more tactical way of approaching

59:15

your hedges, especially at these elevated

59:17

levels of volatility. But it's not

59:19

just volatility. It's also the skew.

59:22

We have a very steep skew

59:24

in the markets where those really

59:26

far out of the money puts

59:28

are paying rich premiums, making the

59:30

spreads usually have very good payoff

59:32

profiles. One of the things you

59:35

can do is simply widening the

59:37

spreads even further, rather than let's

59:39

say doing a... 500 S&P point

59:41

widespread, you might end up doing

59:43

700 or 800 point spread to

59:45

allow there be more room for

59:48

intrinsic value to be built and

59:50

you're often not sacrificing a lot

59:52

and widening that spread because of

59:54

the steepness of that skew. And

59:56

so this is where I still

59:58

think the spread trades are a

1:00:01

way to go. Now if you

1:00:03

want all of the downside gamma

1:00:05

of a protective port. Then the

1:00:07

alternative is that you go back

1:00:09

to a caller strategy like we

1:00:11

talked about selling call premium in

1:00:14

a way to help finance the

1:00:16

cost of the downside put hedges.

1:00:18

And so it's a way of

1:00:20

offsetting some of those costs. And

1:00:22

in a period where if you

1:00:24

are in the mindset that this

1:00:27

isn't over and that there's more

1:00:29

vulnerability to the markets, then selling

1:00:31

some of the upside. especially

1:00:33

after a huge rally like

1:00:35

we've seen, is something that

1:00:37

may be acceptable to many

1:00:39

investors. Lots of really different

1:00:41

ways to approach it, but

1:00:43

I would say as we

1:00:45

get here in the next

1:00:47

week or two to levels

1:00:49

on the upper end in

1:00:51

that 5,700 give or take

1:00:53

area is a level where

1:00:55

it does make a lot

1:00:57

of sense to re-engage hedges

1:00:59

going into the summer. Now I

1:01:01

wanted to quickly look at the

1:01:04

charts on page two here, Eric,

1:01:06

and I wanted to show that

1:01:09

the S&P 500 bounced right off

1:01:11

of that 5,000 level, right at

1:01:13

the level where we highlighted for

1:01:16

members just last week. Now that

1:01:18

we've got this bounce in the

1:01:21

market approaching that 50-day moving average

1:01:23

up above and the Fibonacci retracement

1:01:25

zones, this is going to be

1:01:28

a level where once again we

1:01:30

should see the mark start to

1:01:32

struggle with overhead resistance and be

1:01:35

far more trade range bound. Now

1:01:37

while I don't see a huge

1:01:40

upside in the market, it is

1:01:42

also likely that we could spend

1:01:44

weeks grinding up here and that

1:01:47

the most immediate downside risk is

1:01:49

not as highly probable. And because

1:01:52

just the market is so exhausted

1:01:54

from the selling and having discovered

1:01:56

all these lower levels, it often

1:01:59

spends time. consolidating these things in.

1:02:01

and so we'll be looking for

1:02:03

where and how far this rally

1:02:05

goes to project out where are

1:02:08

some of the further downside targets

1:02:10

going into the summer if this

1:02:12

does end up being something much

1:02:14

more like a bare market. On

1:02:16

page three I have that volatility

1:02:19

index and one of the things

1:02:21

that spurred me to profit take

1:02:23

when I did was the huge

1:02:25

spike in volatility. We have not

1:02:28

seen a spike of volatility of

1:02:30

this magnitude since COVID. and then

1:02:32

you have to before that go

1:02:34

all the way back to the

1:02:36

financial crisis. The type of volatility

1:02:39

spikes was extraordinary. Typically this is

1:02:41

that fear moment in a market

1:02:43

where short-term lows are established and

1:02:45

the VIX really this time around

1:02:48

did help identify that very moment.

1:02:50

And so I think that there's

1:02:52

a very good chance here now

1:02:54

that volatility could consolidate back into

1:02:56

the 20s. that would actually increase

1:02:59

the likelihood that a major low

1:03:01

could be in and that the

1:03:03

market is pivoting in the 20s

1:03:05

or whether or not we go

1:03:07

back into the teens because if

1:03:10

we see volatility go all the

1:03:12

way back under 20 down to

1:03:14

the 18 or 19 or something

1:03:16

like that then that would actually

1:03:19

increase the likelihood that a major

1:03:21

low could be in and that

1:03:23

the market is pivoting but if

1:03:25

we see sustained higher levels of

1:03:27

volatility where the market is rallying

1:03:30

even for several weeks and just

1:03:32

holding up at these zones but

1:03:34

volatility stays at 25 or 27

1:03:36

percent. Then that tells me that

1:03:38

there's a lot of nervousness in

1:03:41

the market and volatility premiums staying

1:03:43

high for a reason and that

1:03:45

would be a bit of a

1:03:47

warning for me. Nonetheless, thanks for

1:03:50

the plug on the YouTube. People

1:03:52

that want to watch my Monday

1:03:54

macro outlooks where we called all

1:03:56

of the stuff just go to

1:03:58

my... channel Patrick underscores Sorezna on

1:04:01

YouTube. All right, Eric, let's move

1:04:03

on to the dollar. What do

1:04:05

you see here? Well, we've established

1:04:07

a clear down trend and I

1:04:09

expect it to continue. Obviously, Upside

1:04:12

Vol is possible in this crazy

1:04:14

market environment, but over time I

1:04:16

expect that if the president wants

1:04:18

to devalue the US dollar relative

1:04:21

to other currencies he will succeed

1:04:23

at doing so. And he's in

1:04:25

good company with Scott peasant showing

1:04:27

him how to do it. So

1:04:29

Eric on page four I have

1:04:32

that chart of the dollar index

1:04:34

and one thing that is very

1:04:36

evident technically is the distribution continuing

1:04:38

all rallies are failing and the

1:04:41

path of least resistance remains to

1:04:43

the downside number of these different

1:04:45

measured moves line up perfectly with

1:04:47

all the previous lows so at

1:04:49

this stage a dollar index going

1:04:52

back down to the hundred handle

1:04:54

would be very natural and that

1:04:56

would be a euro testing the

1:04:58

112 113 areas up above and

1:05:00

at this stage when we get

1:05:03

there it'll all be about how

1:05:05

the dollar settles in that will

1:05:07

in my mind set up for

1:05:09

whether or not the dollars starting

1:05:12

some really big bear market or

1:05:14

whether this was just a big

1:05:16

trade range and we just went

1:05:18

to the bottom of the trade

1:05:20

range and then settling back into

1:05:23

the middle. All right Eric on

1:05:25

page five out of the crude

1:05:27

oil chart and well what a

1:05:29

move. We got all the way

1:05:31

down to a $55 handle on

1:05:34

WTAI before Wednesday's ceasefire news obviously

1:05:36

turned everything around. I was looking

1:05:38

at that, telling myself, wow, 55,

1:05:40

that's too cheap to resist. I

1:05:43

ought to buy this and almost

1:05:45

did and turned around a few

1:05:47

minutes later and it was already

1:05:49

60. So I missed it by

1:05:51

that much. Congratulations to anybody who

1:05:54

caught the bottom there. What I

1:05:56

think is really profound though is

1:05:58

not how low it got, but

1:06:00

even at $55 WNI we still

1:06:02

had modest backwardation across the first

1:06:05

year of the forward curve. really

1:06:07

saying something after a flat price

1:06:09

sell off this pronounced. The term

1:06:11

structure usually collapses into Contango. So

1:06:14

what this says to me is

1:06:16

that we still have reasonably tight

1:06:18

supply despite the fact that we're

1:06:20

being pushed into these really low

1:06:22

numbers. So the fact that it

1:06:25

was still in backwardation at 55

1:06:27

made 55 all the more attractive.

1:06:29

Wish I bought it, missed it.

1:06:31

Congratulations to anybody who caught the

1:06:33

bottom while it lasted. Yeah, extraordinary

1:06:36

breakdown of close to $17 from

1:06:38

peak to trough before we got

1:06:40

ourselves a bounce. Now, we are

1:06:42

overdue for a bounce and I

1:06:45

would not shock me here, Eric,

1:06:47

if we got back to $63

1:06:49

to $65 on crude oil. But

1:06:51

there's a rule in technical analysis

1:06:53

where what were all the previous

1:06:56

lows when broken act as overhead

1:06:58

resistance. And it is very likely

1:07:00

that when oil approaches that $66

1:07:02

area where the... over the last

1:07:05

six months were being established that

1:07:07

will now act as an overhead

1:07:09

resistance and oil will likely be

1:07:11

at this new lower level for

1:07:13

at least a few months into

1:07:16

the summer until we see the

1:07:18

dust clear in terms of the

1:07:20

prevailing trends and then see whether

1:07:22

oil actually puts in a low

1:07:24

here or whether there's going to

1:07:27

be more selling in a recessionary

1:07:29

environment. All right Eric, let's touch

1:07:31

on gold. Well, this correction appears

1:07:33

to be over, to say the

1:07:36

very least, with gold now up

1:07:38

more than $150 off its lows

1:07:40

in just two days. But let's

1:07:42

not forget Rick Rule's famous words

1:07:44

on gold. When gold is doing

1:07:47

this well, it's nothing to celebrate,

1:07:49

even for those of us who

1:07:51

are fortunate enough to be profiting

1:07:53

from being long on the trade.

1:07:55

What it means when gold does

1:07:58

what it's doing right now is

1:08:00

that the financial system is falling

1:08:02

apart at the seams and the

1:08:04

dollars reserve currency status is at

1:08:07

risk. I'm still glad to be

1:08:09

long rather than short in this

1:08:11

gold market. Wish I hadn't taken

1:08:13

off some of my size a

1:08:15

few weeks ago. but the reason

1:08:18

that this is happening is because

1:08:20

everyone is starting to question the

1:08:22

long-term stability of the entire global

1:08:24

monetary system. Yes, it's great to

1:08:26

be on the long side of

1:08:29

gold, but it could also be

1:08:31

the harbinger of worse things to

1:08:33

come. Well Eric what was interesting

1:08:35

to me about gold was that

1:08:38

the liquid, it was only when

1:08:40

the stock market had started suffering

1:08:42

from a liquidity drain that gold

1:08:44

finally started to sell and the

1:08:46

pullback basically came straight to the

1:08:49

50 day moving average right to

1:08:51

the fibretracement zones and as soon

1:08:53

as everything stalled gold ripped right

1:08:55

back towards his highs. So far

1:08:58

gold remains in a very clear

1:09:00

bull market a pattern of higher

1:09:02

highs higher lows continues old dips

1:09:04

are being bought. and it actually

1:09:06

is doing incredibly well at this

1:09:09

moment I don't know whether I

1:09:11

want to say some sort of

1:09:13

bold upside that target maybe retesting

1:09:15

of 3200 or 3300 target maybe

1:09:17

on the upside but it is

1:09:20

certainly behaving as a safe haven

1:09:22

it is holding a primary trend

1:09:24

and it continues to be one

1:09:26

of the few things that are

1:09:29

working so what's interesting though is

1:09:31

the big sell-off in silver got

1:09:33

hit by I guess far too

1:09:35

many investors being leveraged in the

1:09:37

play and there was just one

1:09:40

big squeeze in that silver market.

1:09:42

What's interesting about that is that

1:09:44

gold seems to almost be marching

1:09:46

to the beat of its own

1:09:48

drum now as a lot of

1:09:51

the other precious metals got hit

1:09:53

with the liquidity and never recovered

1:09:55

the same way. So to me

1:09:57

that implies that gold may hold

1:10:00

up here well, but it may

1:10:02

not have an extraordinary upside. All

1:10:04

right, Eric, let's touch on uranium.

1:10:06

Well I tried to promise myself

1:10:08

not to buy any more uranium

1:10:11

because I'm already ridiculously overweight and

1:10:13

the trend was obviously already down.

1:10:15

But I just couldn't resist another

1:10:17

million shares of Lotus Resources at

1:10:19

13 cents. That's only $78,000 U.S.

1:10:22

equivalent for a million shares and

1:10:24

all it has to do is

1:10:26

go back to its previous cycle

1:10:28

high in order to be a

1:10:31

quadruple from here. It's already up

1:10:33

20% since I bought it on

1:10:35

Monday. I also couldn't resist buying

1:10:37

more Sylex at 280 Sylex is

1:10:39

the laser enrichment company based in

1:10:42

Australia that's building the... the big

1:10:44

laser enrichment facility in Kentucky in

1:10:46

the united states laser enrichment is

1:10:48

the new replacement for centrifuges experimental

1:10:50

stuff but super exciting anyway as

1:10:53

much as i i shouldn't be

1:10:55

buying more uranium because i already

1:10:57

have too much i couldn't resist

1:10:59

another round of trump tariff mayhem

1:11:02

could easily easily take us to

1:11:04

lower lows the trend is definitely

1:11:06

still down we have not yet

1:11:08

seen any uh... any technical signs

1:11:10

of a reversal yet. So I'm

1:11:13

probably early to be buying here.

1:11:15

I've been guilty several times on

1:11:17

the way down of doing that.

1:11:19

I can't help myself because the

1:11:22

longer term fundamentals just couldn't be

1:11:24

better. But the technical trend is

1:11:26

still down. So probably the smart

1:11:28

thing to do here is wait

1:11:30

for clear signs of a new

1:11:33

uptrend. But boy, when this thing

1:11:35

starts to go, there's going to

1:11:37

be tremendous upside. Interestingly, Eric, the

1:11:39

sprot physical did sell, but that

1:11:41

was largely probably due to people

1:11:44

raising cash, but it really was

1:11:46

simply increasing the discount it's trading

1:11:48

to its net asset value. Uranium

1:11:50

itself didn't seem to move that

1:11:53

much during this whole period, and

1:11:55

overall, uranium has actually been relatively

1:11:57

quiet compared to some of the

1:11:59

other commodities out there. So let's

1:12:01

move on to copper. Patrick, I

1:12:04

see kind of a conundrum here.

1:12:06

On one hand, Dr. Copper is

1:12:08

one of the most reliable recession

1:12:10

signals that there is. And after

1:12:12

25% down in two weeks, that's

1:12:15

a screaming loud recession is imminent

1:12:17

signal if ever I saw one.

1:12:19

But wait a minute. There can

1:12:21

be no question that what got

1:12:24

us all the way up to

1:12:26

550 on copper in the first

1:12:28

place. was traders front-running Trump tariffs.

1:12:30

And what got us all the

1:12:32

way down to 420 was traders

1:12:35

reacting to Trump's tariff tsunami. So

1:12:37

was that a real recession signal

1:12:39

that we should take seriously and

1:12:41

that we can't afford to ignore?

1:12:43

Or was this so distorted by

1:12:46

traders gaming the tariff announcements that

1:12:48

it doesn't really count as a

1:12:50

fundamental recession signal? I could argue

1:12:52

either side of that and frankly

1:12:55

the truth is I'm not sure.

1:12:57

But what I am going to

1:12:59

do is to keep watch... this

1:13:01

carefully because look if copper retraces

1:13:03

rebounds and with the same exuberance

1:13:06

that we're seeing in equities now

1:13:08

and retraces to the upside proportionate

1:13:10

to the equity market retracement okay

1:13:12

that's one thing that says to

1:13:15

me maybe this was just a

1:13:17

lot of traders gaming tariffs and

1:13:19

it didn't really mean anything but

1:13:21

if copper lags behind here as

1:13:23

appears to be the case so

1:13:26

far it really strengthens the argument

1:13:28

that this is a very important

1:13:30

imminent recession recession that we should

1:13:32

not ignore. And if that's the

1:13:34

case, it could very well mean

1:13:37

that the final low is not

1:13:39

in yet for the stock market.

1:13:41

So I'm definitely going to be

1:13:43

taking your earlier hedging advice to

1:13:46

heart Patrick and thinking about how

1:13:48

to hedge my equity market risk

1:13:50

going forward. Copper to me seems

1:13:52

like it's kind of a canary

1:13:54

and a coal mine here. Well

1:13:57

Eric we just basically saw an

1:13:59

Eiffel Tower formation develop on copper

1:14:01

as it literally gave back the

1:14:03

entire year's gains in one fluid

1:14:05

motion a 20 plus percent drop

1:14:08

but we are now back to

1:14:10

the low where we were trading

1:14:12

for over six months throughout the

1:14:14

summer of last year all the

1:14:17

way to the start of the

1:14:19

year and this area certainly can

1:14:21

offer technical support for the short

1:14:23

term but whether copper has another

1:14:25

leg down I think will be

1:14:28

obviously about this whether we have

1:14:30

this negative feedback loop in the

1:14:32

markets that spurs another wave of

1:14:34

selling in the months to come

1:14:36

and right now it's at a

1:14:39

support line expecting a bounce we

1:14:41

could likely see 450 to 475

1:14:43

on a reaction to the upside

1:14:45

but I'm not eager to be

1:14:48

rushing in to buy the upside

1:14:50

of copper at least until the

1:14:52

dust settles and we see some

1:14:54

new bottoming formations develop over the

1:14:56

next couple months. Finally, I just

1:14:59

wanted to touch on the sofa

1:15:01

and treasury charts, and the sober

1:15:03

future chart that I have up

1:15:05

here, which is the December 2026,

1:15:07

we saw interest rates approaching 3%

1:15:10

basically anticipating some further Fed cuts

1:15:12

coming. But after the FOMC meeting

1:15:14

minutes, this quickly receded back down.

1:15:16

We're at a stage where clearly

1:15:19

their that the Fed will have

1:15:21

to be more davish in the

1:15:23

quarters to come, but at least

1:15:25

at this moment, it's a struggle

1:15:27

in this market to determine how

1:15:30

davish the Fed will end up

1:15:32

being or having to be if

1:15:34

the situation continues to deteriorate. On

1:15:36

page 10, I just have that

1:15:39

long bond, the T-bon futures, and

1:15:41

what we can observe is extraordinary

1:15:43

volatility for one day, but what

1:15:45

was... particularly interesting about it was

1:15:47

we saw once again a scenario

1:15:50

where bonds were selling at the

1:15:52

same time as stocks and that

1:15:54

is not something we commonly would

1:15:56

have seen in decades past and

1:15:58

it was something we did see

1:16:01

a lot of in 2022 when

1:16:03

inflation and other bond bear market

1:16:05

scenarios were developing. Now with a

1:16:07

breakdown like this one of the

1:16:10

big things for me will we

1:16:12

see this quickly recover. or maybe

1:16:14

it was a bit of stress

1:16:16

from the basis trade unwinding. and

1:16:18

then when settled down, will we

1:16:21

see these bonds recover? Or is

1:16:23

this the start of some new

1:16:25

round of selling? A little premature

1:16:27

to jump to a conclusion, but

1:16:29

this is a very interesting moment

1:16:32

that we have to watch carefully

1:16:34

to see how bonds react in

1:16:36

the next one week. Folks, if

1:16:38

you enjoy Patrick's chart decks, you

1:16:41

can get them every single day

1:16:43

of the week with a free

1:16:45

trial of Big Picture Trading. The

1:16:47

details are on the last pages

1:16:49

of the slide deck, or just

1:16:52

go to Big Picture trading.com. Patrick,

1:16:54

tell them what they can expect

1:16:56

to find in this week's research

1:16:58

roundup. Well in this week's research

1:17:00

roundup you're going to find the

1:17:03

transcript for today's interview and the

1:17:05

chart book which is discussed here

1:17:07

in the post game including a

1:17:09

number of links to articles that

1:17:12

we found interesting. You're going to

1:17:14

find this link and so much

1:17:16

more in this week's research roundup.

1:17:18

That does it for this week's

1:17:20

episode. We appreciate all the feedback

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