Tiger, Tiger

Published on: November 27th, 2020

As the electoral fog clears and promising developments on the CV19 vaccine front have materialized, what is to stop us
jumping straight into a reflation portfolio, fully geared? Should we be concerned about the gap between a still gloomy present and the blue sky of the post-Covid uplands? Can all the imbalances just be magicked away by policy levers or does something nastier have to happen in the meantime? Julian’s presentation here and the feedback of institutional clients battle this one out. The Asian Tiger, however, may be getting ready to party through the decade.

Comments

  • AW
    Agus W.
    30 November 2020 @ 08:21
    Given JB view that precious metals need dollar to fall and inflation fears to rise together with YCC, and that the current rate of change of YoY growth has turned positive in US, does that bode badly for PMs until the above multiple conditions are met? (ie bad for PMs these few months unless the lockdowns accelerate to knock down growth next 3-6 months?) Thank you for the deep dive notes.
    • HM
      Harry M. | Real Vision
      2 December 2020 @ 14:45
      I think the last few days have shown us that PMs just needed to know that the fiscal and monetary authorities have not fallen asleep on the job. There are enormous deflationary pressures in the economy (see RP's very well fleshed out arguments). The only disagreement between RP and JB is on the extent and efficacy of the authorities response. Well, Trump lost, but the Republican Senate is still going to do a deal. Turns out that no one wants to home school their kids for too long!
    • AW
      Agus W.
      4 December 2020 @ 14:55
      Thank you for the reply Harry. Further question if you would: I understand your point about the extent and efficacy of the authorities response being the disagreement between RP and JB. However, given that Q2 2021 will almost be a monster positive YoY GDP growth, would that not almost guarantee PM underperformance then or is RP point about growth being so bad by Q2 2021 that YoY growth will be negative or similar level? Of course, it can also be a combination of YCC and positive YoY growth and CPI that will result in a positive for PMs.
    • HM
      Harry M. | Real Vision
      9 December 2020 @ 15:11
      Forgive my late reply Agus. It depends on how the authorities choose to stimulate. If they stimulate with fiscal then PMs may be outperformed by other assets, but they will probably go up. The essential thing is that there is sufficient monetary accommodation. The Fed has to accommodate sufficiently to prevent real yields rising. They probably will. If they fail to accomodate stimulus, then actually gold could suffer.
    • AW
      Agus W.
      10 December 2020 @ 09:29
      Thank you for the reply Harry appreciate it and happy holidays!
  • GN
    George N.
    29 November 2020 @ 17:24
    I see that there are a lot of positive comments, but I feel that constructive criticism would be more useful to convey as it would help make the RV service more competitive. On this note, if I were to compare the reports I typically get to read at RV to other services (I subscribe to three other services, each a fraction of what RV charges), I would say that investment ideas in their reports tend to be significantly better fleshed out. In fact, the (relative) lack of depth in RV reports has prevented me from taking any positions recommended by JB, except for the ones that coincided with recommendations from other services. I realize that JB is quite busy- perhaps a more junior member of the RV team could help prepare these reports?
    • HM
      Harry M. | Real Vision
      30 November 2020 @ 12:48
      Thanks for the feedback George and believe me we really do appreciate the engagement. I think some of it may be that the reports build on previous reports, so for example the investment case for Gold (or silver) was first outlined quite some time ago, and it can be difficult to justify going back and restating it every time we reiterate. But perhaps I am off base. Can you give an example of a recommendation you felt could have been better fleshed out? What was missing from the idea? If you don't want to communicate via comments, perhaps you could email me your thoughts. harry@mi2partners.com
    • JH
      Jonathon H.
      2 December 2020 @ 11:19
      I think George's point is well made. The ideas Julian presents are consistently good, but finding one that I can readily adopt could be easier with more colour. This month for example Harry would be the EM play which I am looking at closely. It is an interesting theme, but why does JB recommend Sth Africa over Taiwan or Sth Korea? What basis should we allocate to Brazil over Mexico? I think this would certainly add value for me, cheers
    • SG
      Soros G.
      2 December 2020 @ 22:33
      The basic stance of Julian (which is fair, if that's the mandate) that he brought up when someone suggested an alternative to DBA: he's providing macro analysis and thematic investment ideas, not necessarily portfolio construction or security analysis, which anyway would be hard given his research originates in institutional environment then here we have a huge range of investors. Of course, I'm not saying this is how ultimately RVpro should function, just an explanation.
    • HM
      Harry M. | Real Vision
      9 December 2020 @ 15:05
      All good points and Andras is pretty accurately stated JBs thoughts on this. Its tricky to get too micro on things, and quite often we are just doing a macro analysis combined with something which looks good technically. Its not meant to be a micro analysis which might include a lot of additional background. Sometimes we can give you a lot of background but it would make reports even longer. A great example is Copper. There are excellent reasons for why copper is both a commodity play and a really strong micro story about electrification. But we dont have an edge in that story, and you might be better off looking at some other analysis to assess. The complete investment universe is just too big for us to cover everything.
  • RE
    Richard E.
    3 December 2020 @ 02:44
    In the report, Julian mentions that trading long breakeven inflation rates isn't as easy to express for private investors as it requires " the investor to buy TIPs and sell normal conventional Treasuries simultaneously" . My question is could this desired trade be accurately expressed in an ETF form by pairing short IEF and long TIP because the effective duration for each ETF is essentially the same ? Thank you
    • HM
      Harry M. | Real Vision
      7 December 2020 @ 13:06
      if "essentially" was "exactly" then yes. But cos it isnt, there is scope for losing money (or making more than you expect) because of the mismatch. Fixed income guys are generally very precise cos they are throwing around big numbers, and small errors become big errors when you are using large nominal sizes. But yes, you could use a short in a nominal bond fund versus a long in a TIP fund and get what should be a long breakeven exposure.
  • OT
    Omar T.
    28 November 2020 @ 05:18
    Fantastic. Needs a little more than one line about btc confiscation :) but how does this view change if Republicans control the senate and go all austerity on Biden like was done to Obama
    • HM
      Harry M. | Real Vision
      29 November 2020 @ 13:59
      It would change the view tactically but not strategically. Its true, that we could get a nasty risk correction if we starve the economy of stimulus at the wrong time. But the end of covid is in sight. My guess is there will be a skinny package (which may be just enough), and then we will have the end of Covid inventory building cycle. Remember, the Republicans also run states which are running out of money for schools. Both sides have an incentive to do a deal, its just a question of how the benefits are shared.
    • B
      Benjamin .
      30 November 2020 @ 09:11
      +1 on btc confiscation - how exactly would that work?
  • MA
    Muhammad A.
    30 November 2020 @ 04:28
    As always, exceptional JB. Thanks for this!!
  • RM
    Richard M.
    29 November 2020 @ 15:59
    Wow, now that was a real tour de force!!! Fantastic write-up and analysis, lots and lots to think about and ponder. Really looking forward to future editions as Julian updates and builds these various theses out.
  • BM
    BENJAMIN M.
    28 November 2020 @ 04:46
    A terrific analysis I thoroughly enjoyed reading. Julian has the concern about Brexit negotiations going into year-end now entirely evaporated, or do you see that as a potential catalyst for the “one more nasty surprise” before your main narrative dominates?
    • HM
      Harry M. | Real Vision
      29 November 2020 @ 14:01
      No, concerns have not completely evaporated. I will check with JB, but I think the odds of a "deal" are high. However that deal might be much worse than is commonly understood and might cause a lot of disruption. That said, markets (which have excellent sources) seem to be quite sanguine on some kind of solution being found. What we do know, is that no one has sterling or sterling assets. Massively under invested.
  • SD
    Sudipta D.
    28 November 2020 @ 05:06
    One of the best piece of research I have ever seen. A fantastic way to build up the narrative. This is something really valuable and worth the membership. Thanks Julien. What is your view on ESG segment? That also seems to be a great opportunity but for retail investors hardly any good options to choose from other than copper and silver. Will be good if you cover that sometimes later.
    • HM
      Harry M. | Real Vision
      29 November 2020 @ 13:55
      Dont fight ESG. Julian had me do some basic research into it for him and he wrote a report on it. Bottom line, ESG is capitalism response to the unique challenges that Climate Change poses. Increasing amounts of money will be funneled into ESG. Unambiguously ESG compliant plays will attract increasing amounts of cash and be increasingly highly-rated. He doubted that the ESG solution would be unambiguously good, as it would create new corporate governance issues and new capital market distortions. But it was (and is) a fact on the ground. Dont fight it.
  • AP
    Alistair P.
    29 November 2020 @ 04:55
    Excellent in all aspects. This is the content that I am here for! Any comment as to the potential significance of the still relatively large speculative short positioning across notes and bonds...
  • JG
    Johan G.
    28 November 2020 @ 22:40
    Thanks Julian, I can confirm that we see consolidation and increasing pricing power in our business.(Cyclical) The 1000 dollar question is if we get a deflationary shock in asset prices before reflation/inflation gets started, or if stimulus is enough to bridge the gap. I am still very uncertain......
  • AD
    Andy D.
    28 November 2020 @ 20:11
    ‘Bubblicious’ Julian!
  • AS
    Alexander S.
    28 November 2020 @ 15:08
    Outstanding Julian. Thank you. PS; Pls check out IMF’s Covid response page for data on G20 fiscal stimulus. Mind boggling!
  • SG
    Soros G.
    28 November 2020 @ 08:15
    Seems like someone pulled the Tiger's tail last time and he came back roaring :) Masterclass of a report, thank you Julian!
  • JM
    John M.
    28 November 2020 @ 06:13
    Nicely played
  • WJ
    Willie J.
    28 November 2020 @ 02:15
    Divergence of views strengthening between RP and JB... i would like them unpack their UST thesis in a bit more depth than what we get to see in the normal monthly check-in... deflation shock vs. Full on reflation, YCC, inflation vs. Deflation for 2021 / 2022. USD weakness in this period... milkshake theory vs. Expected devaluation.