Meeting Of Minds – April 2018

Published on: April 27th, 2018

In this month’s Meeting of Minds Julian dives deep into the housing market and highlights potential early signs of weakness. He also gives an update on his dollar view. Raoul focuses on the technology sector with an eviscerating critique of the eponymous Google and it’s privacy settings.


  • RM
    Robert M.
    27 April 2018 @ 20:12
    Julian, Quick question I would like you to clear up. In the US when the Fed was doing its QE1, QE2, & QE3 programs bond yields actually rose as people sold fixed income driving equities higher. How come when the ECB and BOJ are doing their QE programs yields are being held down by QE? Does it have to do with different rules and regulations in those countries/ different investor preferences? Or does QE have more of an impact on the bond market in a higher inflationary environment opposed to a deflationary environment? Your thoughts would be greatly appreciated. Thanks, Robbie
    • JB
      Julian B. | Contributor
      2 May 2018 @ 21:12
      Yes Robbie your observation re regulation is spot on! So in the US, QE = higher yields. As you sell bonds to buy risk assets. But in Europe they did QE but also nailed the curve down via Negative Interest Rate Policy. So you had loads of liquidity, negative rates and as a result super low long dated yields. That alone would have driven enough European money into the US Treasury market to suppress our yields. But the move was turbo charged by rules in Europe that force pension funds, life insurance co's etc. to match assets with liabilities. Here's a great BIS speech that explains it pretty well.
  • SD
    S D.
    28 April 2018 @ 02:32
    An "unreconstructed deflationist?" Crikey.
  • DS
    DAVID S.
    29 April 2018 @ 15:40
    Hey, Good piece. It feels that you guys are developing more the ideas you introduce. Good to see. Julian, can I suggest to look at 'authorised permits' rather than housing start.. ' housing starts' is obviously lagging 'authorised permits' as the time it takes to start a house once you have permits can be relatively big depending on the country regs. thks
  • BC
    Brent C.
    30 April 2018 @ 19:49
    Question for Julian, In your comparison with the 60's, do you consider the double digit personal savings rates, and federal debt to gdp levels between 30 & 40% as creating a backdrop able to facilitate the sustained increase in inflation without pulling the economy into recession until 12/69?
    • BC
      Brent C.
      3 May 2018 @ 16:34
      Just posted today on Russell Clark's market views page. He briefly explains the point I was attempting to make.
    • BC
      Brent C.
      3 May 2018 @ 14:54
      Thanks for the reply Julian. I understand your viewpoint. I just disagree on whether or not it matters if the rise in yields is nominal or real at this stage of the game. Appreciate you taking the time to expand.
    • JB
      Julian B. | Contributor
      2 May 2018 @ 20:56
      Brent. 2 things. First the process to higher rates will be gradual because it has an impact. For example, on housing. Hence we have said the process with be "two steps forward, one step back" i.e. rates increase, they hurt growth/the markets and they dip (but not back to prior lows). The second thing is that we can sustain the higher rates provided it is nominal and not real yields that rise, In the 60's nominal bond yields rose from 4 to 8% but real yields fell 1.5%. Hope that helps
  • JL
    J L.
    1 May 2018 @ 17:43
    what kind of targets do you have in mind for the dollar now it seems to have broken?
    • JB
      Julian B. | Contributor
      3 May 2018 @ 12:12
      Vs the Euro our initial target is 1.15 and then 1.05
  • WM
    Will M.
    6 May 2018 @ 14:27
    Great note and good read. Especially love the term "unreconstructed deflationist"!!! Just imagine saying, when asked at the next dinner party or cocktail discussion, ...... "Where do you stand on the current financial and economic outlook? " Your response being, "Well I come from the position of being an unreconstructed deflationist". Its a great phrase, did I miss where its explained?
  • NH
    Neil H.
    10 May 2018 @ 14:27
    Trying to comment on the May meeting of the minds, but the website is giving an error message, so I will comment here: Both Raoul and Julian make a number of valid points about why there could be a serious market correction. one thing you have not discussed is repatriation of capital from overseas. Wont all this capital coming back cause corporations to use this cash to buy back their stock like Apple has, causing stock prices to rise? Also history tells us that the equity market rallies after every mid-term election, so why would it be different this time? Lastly is it your contention that higher oil prices and yields over the short term combined with the Fed hiking will kill the market over the short term? Thank you.