Pro Macro – Deep Dive: The Truth and The Trap

Published on: February 28th, 2023

With a declining economically active population and a trend fall in productivity, what GDP growth we have had has been debt-fuelled: a recipe for de(dis)-inflation. Debasement is the only obvious way out and the dynamics of debasement are well rehearsed. We have, in effect, the roadmap for the next wave of the bull market and merely await the sound of the starting gun.


  • AS
    Andrew S.
    1 March 2023 @ 02:12
    Thank you for the wonderfully written and charted Pro Macro Deep Dive! The next time you and Julian have one of those awesome monthly talks would you please give us your set of what you don't want to see because that will invalidate this whole idea? As in if ABC and XYZ happened, then we better get out of this trade. A "stop-loss" for us, so to speak.
  • JP
    Jonathan P.
    1 March 2023 @ 04:45
    After strong jobs and inflation data are you adjusting your stance here ?
  • RB
    Robert B.
    1 March 2023 @ 18:35
    Raoul, thank you for this informative GMI Piece. Towards the end you mention "It is time to step up to the risk plate. For GMI clients we have added some new levels to get long. " I was wondering when you would be sharing that with Pro Macro members so we can monitor levels to increase our exposure. If I have missed this in a previous link could you please let me know. Thank you again
    • AH
      Anthony H.
      7 March 2023 @ 00:08
      NDX spot or calls?
    • RP
      Raoul P. | Founder
      1 March 2023 @ 19:58
      We added NDX recently.
  • MG
    Miguel G.
    1 March 2023 @ 19:14
    I thought this was a well written through provoking piece but Im worried your giving the fed to much confidence to respond as they should BEFORE they get a signal from employment, equities and/or inflation. If inflation settles at 3.5-4% yes real rates will be positive across the curve but assuming all else equal do you really think they can cut assuming everything stays in tact. What will their excuse be to cut rates and/or do QE??? Weve also seen many fed members say that their new terminal rate is 5.5% and they plan on holding it there for the remainder of 2023. If your scenario of rate cuts plays out in 2023 arent we missing a few dominoes that need to fall in order to get that reaction function. While your end result makes logical sense to me I just cant seem to understand how we get to your logical conclusion with out a material uptick in employment and or stress in credit/equities to some extent. When you weigh the evidence in my mind it just seems like buying something like short duration t-bills makes more sense for now. I would love for you and Julian to discuss the sequence of how/where the fed can actually come back in to the picture to support assets. Thank for the pdf I enjoyed reading it I just have a hard time understanding the timing of it. Seems premature in my humble opinion.
  • G
    Örjan G.
    1 March 2023 @ 20:20
    Thank you. Really enjoyed it as it put much better words on my muddled thoughts in the same direction. Ultimately I don't see the Fed being above just changing the CPI calculation in order to get through the refi cycle. However, one thing that is "different this time" is that skilled blue collar workers (nurses, plumbers, etc) are now in short supply. These are harder to replace with AI/robotics - and way more essential - than most white collar workers. Not sure what it means. It might confuse markets as it is not visible in the aggregate data. Perhaps it will favor consumption over investing inflows. Also, the only solution I see on the energy side, until we get those free energy pyramids in Egypt started up again, is nuclear - because EROI and thermodynamics are both real bitches to deal with!
  • AK
    Arman K.
    4 March 2023 @ 02:32
    Thanks Raoul- this summary tops of a really well laid out thesis over the past 18months and frames the whole situation we are in nicely. I finally had the aha moment after reading this latest report. One has to ponder what if the whole game the fed plays blows up a little (lets say they cant bring inflation down to 2% fast enough) before the structural changes that need to occur (you mention the baby boomers moving on and energy revolutions). I guess we wonder if the reset will be a slow graduated one or a sudden shock arising out of necessity. That is the bigger landing worth talking about (not the 2023 one IMO). Thanks for all you do!! AK
    • RP
      Raoul P. | Founder
      4 March 2023 @ 19:51
      The sudden shock simply cant occur as the money printer drives up the value of collateral and drives the default risk to neat zero.
  • EL
    Eric L.
    4 March 2023 @ 15:37
    Hi Raoul, what a great piece! I do have one lingering thought/question— is it possible for the Fed to conduct QE and keep the Fed funds rates higher at the same time?
    • RP
      Raoul P. | Founder
      4 March 2023 @ 19:50
      I imagine so, but means they need to do more QE to offset the higher interest payments
  • DN
    Daniel N.
    5 March 2023 @ 13:12
    Hi Raoul, thanks for this. I have a problem with a basic thesis in your article - comparing Debt growth with real GDP. Shouldn't it be compared to nominal GDP which is way higher (obviously, with positive inflation)? In December 2022. US Nominal GDP Growth was 7.32% and for the whole decade before that (excluding pandemic) it was closer to 5% than 2%. Doesn't the whole premise of "inflating the debt" rest on the strong nominal growth during the higher inflation regime?
    • AA
      Alo A.
      8 March 2023 @ 13:25
      Initially I had exactly the same reaction as Daniel but after reading Raoul's response I could agree that corporates might have slightly different situation (cost inputs go up and debt servicing ability does not change). But there are no input costs for governments - therefore nominal GDP growth is available to cover nominal interest rates.
    • JG
      Johan G.
      8 March 2023 @ 12:29
      I would agree with Daniel. It is either nominal interest and nominal growth, or real interest and real growth. Otherwise we do not compare apples to apples.
    • RP
      Raoul P. | Founder
      6 March 2023 @ 11:43
      I have thought a lot about this and I think its real GDP that matters and the inflation element in non-productive and is essentially a tax on activity in any event - i.e your cost inputs go up. So its the part that is left after inflation that actually drives activity and is available to pay debts.
  • AH
    Anthony H.
    7 March 2023 @ 00:05
    Great content thanks Raoul
  • PE
    Paul E.
    7 March 2023 @ 22:15
  • VM
    Veliko M.
    8 March 2023 @ 16:02
    Raoul, I have a nitpick with ProMacro. It's coming from a multi-year sub, so not meant to be toxic. I do enjoy the product, but have been finding it a bit hard to find the value prop lately. Consider: * We can get 95% or more of your thesis on RV base level and Twitter, with roughly the same timing. I get it, it's very useful for gathering new subs, hence it's so widely available. I don't have a big issue with that, but where's the PRO value add? Even timing is mostly similar. Maybe you could nitpick me here and say that I've not been paying attention, and we have delayed GMI excerpts, but this is perception formed on several years of observation. The delayed GMI items are mostly summarized in the base layer also 🤷‍♀️. * We don't get the precise GMI entry levels for Exponential Age stocks on time. The whole thesis relies on averaging down in cyclical bottoms, so timeliness is pretty nice to have. Now we're left guessing what the exact entry levels are. They aren't tracked with great precision and are mostly left to peeps like me to guess. Sure it's around here somewhere but ... * The monthly sparring sessions between you and Julian are nice, I ❤️ them. You guys disagree and try to be nice and find common ground. Only for me to have to seek out Julian on podcasts like MacroVoices to find out just how much you actually disagree. It almost feels like separate updates with the gloves off would be more useful. * Overall, the product messaging feels like "You're paying 25x the base sub. It is enough to give you a 5% edge over the base sub, but not enough to get the real goods and in-depth insights on time from GMI". I just feel like an adjustment to the value prop is necessary here to keep this a compelling offer. I write the above because I care. Not to be one of the "monkeys slinging poo at each other". I will keep reading and enjoying all the reports and listening to all the monthly updates. But I hope you would agree with me that the product can definitely use some TLC at this stage.
    • VM
      Veliko M.
      9 March 2023 @ 15:57
      Thank you for the response. I have full faith that in time this will get even better than it is already. Specifically on the Raoul / Julian portion of the feedback, some suggestions would be: * Separate monthly updates from each. The contrasts between the two are as useful as the frameworks themselves. Keeping them fresh is essential. Videos / reports, I don't really have a preference, whatever is easiest. * Maybe the syncs between the two of you could be quarterly. This should also help to balance the load with the new individual updates. They are still very interesting, but won't be as necessary with individual updates. I do agree that Bittel & Hirst appearances are much appreciated and a great addition overall. 🥂
    • RP
      Raoul P. | Founder
      9 March 2023 @ 15:27
      Very good feedback. Thanks. The Exponential Age was a full trade recommendation in Pro Macro with exact names and dates back in May 2022. GMI and Pro Macro differs somewhat in portfolio as there are different client bases with different levels of understanding. My deepest thinking is in GMI as it is the seed of everything. PM gets the next level of depth and then there is public stuff that is broad and much less deep and delayed. GMI/PM are not about exact trades, times and rates but framework, understanding, analysis and context. It is built on layer after layer of analysis from me and is not just about a quick idea. It is all part of a continuous narrative that derives from my work at GMI. Hopefully Julien Bittel showed you just some of the depth that we do in our analysis. On the different pieces from Julian and I, we are actively looking at this and making the AMA's better too to enhance everyone's contextual understanding and then bring J&I together but less frequently. So far these are just internal ideas to add more value and understanding for you all. We will also get Julien Bittel frequently to layer in more value and understanding too. Thanks for the feedback. Lots to come....
  • JH
    Joseph H.
    10 March 2023 @ 03:09
    Hi Raoul, great article, thank you. I have this thought. Do you think this is possible? • The Fed leaves interest rates higher for longer. • This causes a few businesses to go bankrupt after they refinance at higher interest rates. • This raises the unemployment rate. • Fed uses QE to fund gov’t debt. • Govt uses the funds to finance areas of the economy they want to grow like the Inflation Reduction Act does. Thus reshaping the future industrial base of USA in a direction the govt wants. • And the reason (yes a bit tinfoil hat-ish). We’re in a cold war with China. Why ban Tiktok, because it provides realtime on the ground updates from a country. Enough videos paired with AI gives a good spy on sentiment, infrastructure status, damage reports etc. When in a cold war some human resources need to be redirected into industries the govt sees as key for national security. • Therefore, it somewhat benefits the govt if some businesses go bust and they can redeploy the people into industries they choose to finance. So they are incentivized to keep interest rates high. • The key thing here is, if interest rates stay high, liquidity in the markets stays tight, so risk assets don’t rise even if the Fed does expand its balance sheet. No rally. Would high interest rates with QE cause a decoupling of the correlation between the Fed balance sheet and asset prices? Thanks