Pro Macro: In Focus – Harbingers of Change

Published on: July 11th, 2023

The wall-of-worry trades have turned out to be the stealth winners this year (excluding the FANG-driven NDX). Tentative signs of a turn are emerging while the macro backdrop remains frustratingly on a knife edge. Patience may still be a virtue but move a little closer to the edge of your seat.


  • TD
    Troy D.
    12 July 2023 @ 05:42
    Hi Julian, I've always had a lot of respect for you, and don't want these thoughts of mine to sound negative, but I felt compelled to comment. I find that your writings (and perhaps thoughts) of late to be overly complex, technical and lacking clarity and simplicity. (Your reports seem to attract half the likes of Raoul's, so I'm wondering if I'm not alone) Admittedly I am much further down the IQ scale than yourself, though I've always believed that if you can explain your understanding of a topic in simple terms then you know you have a good grasp. I almost feel that you may have become defiant towards the markets and to use one of Raoul's sayings, that you are fighting everything in the middle of the bell curve, or perhaps you may also be hating the market rally. In the upcoming insider talks, I would ask again that you perhaps try to have an 'unemotional' and calm debate with Raoul on his thesis, as I (and many others I believe) would really appreciate where you agree with his thesis and why, and where you don't agree and why. I find that once you both start to verbally disagree, that Raoul takes a back seat and stops speaking as you sometimes become the louder of you both, and it seems to be there, that the discussion always ends. I would truly love to hear your thoughts, and debate in a simple manner during the next 'Insider talks'
    • TD
      Troy D.
      16 July 2023 @ 00:11
      Thank you for the reply harry. I must say that the last 'Insider Talks' was fantastic. There was a much better debate which gave me more clarity, and I found that Julians explanations were more informative, and that he allowed for more back and forth discussion which was really beneficial. I'd also say Harry, that your calming and patient moderating style has always been appreciated. Keep up the great work Harry
    • JM
      John M.
      15 July 2023 @ 20:32
      Frankly I take the opposite view here - pretty clear to me where the agreement is, but I struggle because Raoul doesn't seem to respond to the arguments JB is bringing up and end up 'taking the back seat". I would like Raoul to more directly or address the argument JB is making i.e. if stocks are going to melt up because nominal GDP is ~7%, how would long bonds work? I,e, can he give a more nuanced argument as to how that does not increase inflation pressures?
    • HM
      Harry M. | Real Vision
      15 July 2023 @ 15:58
      Very sorry to hear that its been too complicated Troy. Some part of it is that the situation is complicated. But I suspect writing clearly is an art which is not as simple as it appears to be. I will pass on this criticism cos it is well made. One thing I can suggest is that you should feel free to drop us a line and we are happy to chat to clear anything up. You can certainly always contact me for a chat. Always happy to discuss what MI2 are thinking.
  • SR
    Steve R.
    12 July 2023 @ 10:37
    "discombobulated" - hold my beer I need to Google that. Oh, my contrafibularities on your vocabulary :-)
  • MG
    Miguel G.
    12 July 2023 @ 15:14
    Excellent write up Julian. Im left with two nagging questions: 1. If 500 bp of hiking has not been enough to tighten financial conditions, what else do you think is needed to crack equities in order for the fed to eventually break inflation? A much higher terminal rate, increase in QT? 2. Help me understand why your dollar bear case wont keep important components of inflation like oil bid. If the fed has to stay even higher for even longer doesn't that mean downside risk for the $ has to stay limited vs the world (down $ usually bids commodities). In other words wouldn't their inflation fight be won by getting the dollar to move higher and import deflation in the US and once inflation is at acceptable levels the down dollar secular call can take hold? This dollar secular call is an important concept because it sets up so many other excellent trades, but I find the down dollar concept hard to understand before the fed either gives up on their inflation fight or gets to their 2% mandate.
  • JS
    J S.
    12 July 2023 @ 15:53
    Thank you Julian. Why would the Fed not be content with high asset prices and low inflation, while rates are higher? Given wealth disparity not many people (+90%?) have savings and or participate in the stock market (hence not much of a wealth effect for them). But at least 80% of people need lower rates to consume. So a scenario where the Fed keeps the rates where they are (controlling the average consumer) and inflation trends below 3%, look like a goldilocks scenario for the Fed and the markets? thank you,
    • HM
      Harry M. | Real Vision
      15 July 2023 @ 15:55
      Depends on whether the low inflation persists or is transitory. With very high levels of employment, they suspect you will see an resurgence of inflation pressures when the base effects of lower energy prices drop out. Live by the base effect, die by the base effect. Also, fiscal policy is still getting more accommodative. The deficit is now 8.5% of GDP, up from 8%. The Fed's attempts to push to brake are being at least partially offset by the Federal spending.
  • PC
    Peter C.
    12 July 2023 @ 17:34
    I usually find Julian's comments helpful. His explanations of his trades however is not thorough for example only now we are getting an explanation that I can understand about the SFRZ3Z4 trade, which I know he tried to explain before but was overly jargonny, but now saying clearly that he expects one to drop faster than the other and here's why. I got very little if anything from this report except that he thinks the yen may strengthen against the USD for technical reasons unexplained. I am assuming that the Yen/USD trade is on Forex, there seems like there is an equivalent on the CME which can be accessed through Interactive Brokers, but the decimal places and prices seem totally different. In any case would have been helpful if the investment advice contained enough information to actually follow it, and make it accessible for a maximum number of subscribers rather than making assumptions that we can decode everything. I am in agreement with a couple of other commenters here that not enough is done to get rid of jargon, and using words that show off vocabulary rather than explaining difficult concepts so that one can learn something from it. I do not think it is a matter of IQ but rather getting the appropriate value for the subscription so that after reading through a report a few times, and looking up unfamiliar terms one can feel that they have learned something valuable for the time and money invested. I think most of us are looking for insight into the macro picture and investment ideas more than pithy text, and as much as Julian seems to enjoy writing he needs to spell things out more. Thanks for trying to do this in the future!
    • HM
      Harry M. | Real Vision
      15 July 2023 @ 15:52
      Maybe I can help (maybe not)? So the Z3Z4 is about the relative pricing of rates, so to some degree its a trade that is based on "higher for longer". But it can come right in another way. What if the Fed suddenly realizes its policy is very wrong, and the Z3 collapses? So thats why z3z4 is a bit complicated. Also you can quote it two ways round. Z3 over Z4 or Z4 over Z3. I note that IB does this. But if you this, give me a shout and I will try and go into more detail.
  • JM
    Jake M.
    12 July 2023 @ 21:14
    Hi Julian, based on your view point of hyper-financialization, if stock market indeed leads the economy, does that mean all other economy leading indicators we talk about simply don't make any more sense? therefore, macro based investing (in stock index) is futile?
    • HM
      Harry M. | Real Vision
      15 July 2023 @ 15:49
      Hi Jake. So it complicates macro but it doesn't invalidate it. The problem we have is cycles can be extended well past where you would think they should go. And often way past where policymakers would prefer them to go. We have that kind of arm-wrestling going on in this cycle. Perhaps the Fed is wrong to think of inflation getting embedded into the US economy but it was certainly how they screwed up in the 70s and there are some superficial similarities. Cos of hyper-financialization, the economy can enter even bigger reflexive feedback loops. Makes the eventual collapse that much bigger!
  • JM
    Jake M.
    12 July 2023 @ 21:17
    what's the formula to calculate net liquidity?
    • HM
      Harry M. | Real Vision
      15 July 2023 @ 15:46
      So the liquidity index we are using is specifically the Fed, and one of the inputs is bank reserves. I need to ask for permission to give away more modelling "secrets", so let me come back to you.
    • AW
      Agus W.
      13 July 2023 @ 03:26
      hi JB or Harry, specifically how is the components different from the net liquidity that Raoul is using?( I believe RP's is the aggregate of G5 central bank balance sheet, not just the FED)
  • SB
    Sean B.
    13 July 2023 @ 02:17
    Great call on the JPY options. Is there a better way to disseminate these trade ideas? The report came out after the close and before I got my order I’m the option ripped and order could not get filled. Is there a way to give better lead time? Thank you