Insider Talks – January 2019

Published on
January 7th, 2019
Duration
28 minutes

Insider Talks – January 2019

Featuring Raoul Pal, Julian Brigden

Published on: January 7th, 2019 • Duration: 28 minutes

2018 was the year Macro came back, and Raoul and Julian were all over it. 2019 looks to be even bigger, and the insiders give us the key markets such as short-term bonds and the Dollar to watch. Filmed on the 2nd of January.

Comments

  • SS
    Stephen S.
    14 January 2019 @ 18:51
    I would like to clarify Raoul's comment on corporate bond BBBs. He is absolutely correct that BBBs are half of the market if he means the investment grade market, which is $5 trillion. If you add in the $2.5 of junk, then BBB is one-third of the total $7.5 trillion. Do you agree, Raoul? Thanks.
  • JQ
    JACK Q.
    7 January 2019 @ 23:52
    Hey Julian - after tightening stops and taking some profit at bond longs, what are you looking for to step in and get long again?
    • JB
      Julian B. | Contributor
      8 January 2019 @ 17:42
      A failed bull trap rally in US stocks
    • DB
      Daniel B.
      9 January 2019 @ 21:02
      On this exact topic. Is there any sense to the possibility the bill trap rally was Dec 3rd (or whenever the G-20 Argentina meeting was) and 2,600 is the next best thing? (Seems to be a short squeeze in HYG right now, when that starts it down trend that’s maybe liquidity event Julian was referring to that’s sets the whole powder keg off) Second question, I’m showing my ignorance here, but is there any risk to being long treasuries if they get downgraded? Is there a chance of them being downgraded or is that political noise?
    • CS
      C S.
      11 January 2019 @ 04:17
      The US will have no problem paying off its USD debt with USD (print). The question is, what does the currency do in extremis (the end game, with USD devaluation). They will keep playing this game til the currency breaks. So, the ultimate risk in USD debt is currency risk, imo.
    • DB
      Daniel B.
      13 January 2019 @ 22:28
      Thanks C.S. - I agree, with your point after doing some reading myself. Currency risk will start to materialise when the debt level gets too big and the interest bill > tax revenues; which could be a few years away but potentially closer in a recessionary environment (feel free to correct me if I'm missing anything or my thinking is too simplistic)
  • SS
    Shanthi S.
    12 January 2019 @ 23:10
    Great discussion guys! Thank you! Would have liked to hear a little more on gold and what you see coming. I hear quite a few experts predicting another pullback before the bull run. Also, since recording the AUD is up well over 1%. Does this change your thesis at all, or is it just a little zig in the general upward zag of the USD as you see it?
  • mj
    mandeep j.
    7 January 2019 @ 21:08
    Thanks guys. More frequent flash updates would be nice. Some time ago the message was sell everything except the US and the thoughts were (if I remember correctly) the FED would probably not allow more than 20% to the downside before stepping in. Just before Christmas Raoul sent out "it is time". This was when the US markets were down the roughly 20% and the FED did indeed step in. This market moves quickly and I feel more frequent updates would be helpful. Cheers and Happy New Year
    • SS
      Shanthi S.
      12 January 2019 @ 23:02
      Very much agree.
  • JM
    Jason M.
    12 January 2019 @ 01:55
    Gents - the following was a quick exchange offline between Julian and myself today re: Netflix. He wanted it posted here on MI. Timely and topical. Julian: You have called Netflix really well. I read the recent piece u put out where u focused on Amazon….with Netflix actually the far more vertical of the two at the moment…do u have any short sale entry target from your charts? They report next week so might be worth a 7 day put play here I’m thinking. Your Q comes at an interesting time, because with Powell having appeared to blink, Netflix is rallying hard. Perhaps I was a little premature in calling the bull trap rally! Anyway, let's see how the market progresses between now and earnings. At that point, heading into the release if we've seen a decent enough bounce I'd be tempted to buy some puts. The higher we go the better! Running short into the numbers in cash is dangerous as the moves these days are insane! Julian
  • WM
    Will M.
    11 January 2019 @ 20:19
    Great conversational discussion, felt like they forgot the camera and audience was there and just talked about their thoughts..... loved the comment from Raul that ".....maybe the market doesn't behave like it used to behave....."
  • KJ
    Keith J.
    8 January 2019 @ 13:42
    I think at times in the discussion Raoul was a little too quick to shoot Julian down when it sounded as though he was about to make an interesting point. I get that Raoul is passionate and has made some great calls of late but I would like to hear Julian’s expanded thoughts as well. It felt as though any time Julian questioned the “market is going down in a straight line” mantra he was cut off. Overall a great discussion and I don’t want to come across as too critical but I wonder if going back to having a moderator like you did with Aaron in the early days would be useful. Or even if it was just some months to mix things up a bit. Grant moderating would be ideal but maybe that is too much to wish for!
    • CS
      C S.
      11 January 2019 @ 03:59
      I dont like the idea of a moderator. Bogs things down. Comes down a bit to personality. Perhaps we can trust that julian will persist in getting any salient point across; Raoul can bite his lip a little.
    • WM
      Will M.
      11 January 2019 @ 20:17
      This is a conversation and I love to hear those differences between Julian and Raoul.....feels real!!
  • NO
    Neil O.
    8 January 2019 @ 19:29
    Guys, I like this format a lot, but at the risk of sounding negative, Raoul looks at the camera the whole time and is clear in the points he makes. Julian spends a lot of time looking away from the camera, presumably at his Bloomberg screens, and often seems distracted in making his points. I think his arguments are not as clear as a result, and so the overall quality of debate with Raoul is weaker as a result. Simple to sort out, though.
    • WM
      Will M.
      11 January 2019 @ 20:16
      Neil sorry mate I just don't see a major difference and it does impact the conversation for me at all. You were right about "at the risk....."
  • WM
    Will M.
    11 January 2019 @ 20:10
    Julian says "...theres not a corporate CEO in the United States thats paid to actually produce a dammed thing out there, all their paid to do is goose the equity price..." Great stuff.
  • AM
    Aaron M.
    10 January 2019 @ 07:26
    Hi Raul, Julian, curious to know how you’re thinking about the yen in light of your macro framework...particularly as you both think there will be a strong bid for dollars in these turbulent markets.
  • TS
    Tyler S.
    9 January 2019 @ 14:07
    what do you mean flipped your view on the bond market?
    • JQ
      JACK Q.
      10 January 2019 @ 04:55
      he's now long
  • AD
    Anthony D.
    9 January 2019 @ 15:16
    Julian, In light of your view of the rally phase, I'm wondering when/if you'll re-enter the NFLX short. (great call by the way!) Do you have a chart based level in mind or would you time it with the tone of the market rally?
  • TS
    Tyler S.
    9 January 2019 @ 14:10
    these videos need charts and the data
  • JQ
    JACK Q.
    8 January 2019 @ 13:52
    Can someone shed the light into recent price action in bonds - why the sudden sell off in bonds after Powell's speech? It was clearly dovish, yet the front of curve sold off underperforming rest of the curve. If future expectation for a pause from FED, shouldn't 2s start rallying here?
    • JB
      Julian B. | Contributor
      8 January 2019 @ 17:07
      Jack I've had a number of chats with macro/bond boys since Friday and their take, as mine is simple. If Powell has blinked then the playbook looks similar to early 2016 i.e. when Yellen also turned dovish. That suggests a bounce in risk assets/stocks/commodities etc. The trouble is there is a lot of circularity at play i.e. if stocks rally = less tightening of financial conditions = less risk that weaker confidence drags on the real economy = greater the odds that far from cutting the Fed has to resume hikes. QED
    • MG
      Miguel G.
      9 January 2019 @ 10:40
      Julian, the bond guys you speak of sound a bit too optimistic dont you think. I find 2016 to be a tough comparison to today because in 2016 we had what is now known as the Shanghai Accord along with China launching biggest stimulus package ever. This time around sure Powell can turn dovish on the margin but I find it more probable that the market is misinterpreting his speech and could wake up to a surprise today. Even a dovish Powell should have limited upside.
  • DB
    Daniel B.
    8 January 2019 @ 21:35
    Gents - at risk of sounding like a broken record, I really look forward to my weekly macro fix. I HATED economics at uni and didn't understand the benefits of quantitative maths/econometrics until 10 years after the fact! I get as much out of reading your in-depth replies and explaining concepts as I do absorbing the weekly content. Such an educational and valuable service you two provide, keep it up!
  • JK
    James K.
    8 January 2019 @ 21:19
    Raoul & Julian... Thx for all you’re doing, addictive stuff ... Q - What is your current outlook on Gold/Silver & their associated mining ETFs...I.e. GDX, GDXJ, SIL, SILJ etc ? If this is a similar environment as late ‘15 & early ‘16...that lead to an explosive move in gold/silver, miners especially.
  • HO
    H2 O.
    8 January 2019 @ 02:00
    Appreciate the arguments in favor of a strong USD, but disagree, and not because of spreads, though on that basis it is way overpriced. Among other reasons, positioning is already very bullish and heavy in long USD/JPY. My target for the yen is 101 in the next 3-4 months, even absent a risk off event that will recall JPY back home. Net cumulative inflows to the US since the GCF are now 100% private (~6t), and much more fickle than official flows. There are a number of probable catalysts that could make the US unattractive.
    • HO
      H2 O.
      8 January 2019 @ 03:07
      Also and importantly, there is no way whatsoever that a trade deal with China doesn’t involve a weaker dollar. No way at all.
    • JB
      Julian B. | Contributor
      8 January 2019 @ 17:45
      H2O nice stats but I think it will be tough to see those levels without a major risk-off event, which triggers Japanese repatriation. PS. I'd also be careful being too bearish on USDJPY here because its just possible that the BOJ eases policy yet again at the end of the month.
    • HO
      H2 O.
      8 January 2019 @ 21:05
      Thanks Julian, appreciate the response and reminder about BOJ!
  • AS
    Armando S.
    7 January 2019 @ 18:23
    When was this recorded? The CAD & AUD lows comments seem to be from around beginning of month.
    • EF
      Eric F.
      7 January 2019 @ 21:25
      Says above, filmed 02 January.
    • AS
      Armando S.
      8 January 2019 @ 19:05
      Looks like the descriptions has the record date now. It did not when it was first posted. Thanks.
  • JH
    Jonathon H.
    8 January 2019 @ 06:02
    Hi Julian, I was wondering in particular whether you could look specifically at the effect of QT on the markets from your perspective. I think we all get the potential effects of changes in interest rates and there is lots of talk over backing off interest rate rises yet QT appears to be sailing on oblivious to all around it. Despite looking at this stuff more than is healthy for me I don't quite understand the potential impact of QT on the market, credit markets in particular. Does it impact Treasury rates, credit spreads, EM, USD; all of the above? Your thoughts would be most appreciated. Cheers
    • JB
      Julian B. | Contributor
      8 January 2019 @ 17:42
      Hi Jonathon, when I think of liquidity i.e. QE I view it from 3 angles: 1) it impacts the price of borrowing whereby more liquidity = lower rates 2) It impacts exchange rates i.e. more liquidity in $'s (all other things being equal) should lower the value of the dollar vs other currencies 3) It impacts the supply of cash in the system, which is available to support asset prices. This is the one the Fed at least publicly doesn't accept. But which years of watching events from the ERM crisis in the 90's, to the dot.com bubble in 2000, to GFC has convinced me is the most important. For example, just look at the experience in the 1930's during the Weimar Republic, where profligate printing of cash created hyperinflation but also created a massive bull run in stocks. More liquidity = higher asset prices and so QT = lower prices. Please follow up with additional questions if you have any.
  • DB
    Daniel B.
    8 January 2019 @ 06:44
    Hi Julian, can you clarify what you said at 5’07 to go (toner counts down on RV vids) as Raoul was taking about the junk bond market making way for the new issuance when one of the majors gets downgraded? It’s not clear to hear you underneath Raoul talking and I’m worried I’m missing an important action point. Cheers
    • JB
      Julian B. | Contributor
      8 January 2019 @ 17:29
      Daniel, what I was going to say is that up until now real money (pension, mutual funds etc) have hedged their credit holdings via things like HYG but have held onto the underlying investments. However, if we start to get a real wobble you could force real money to sell their holdings and per Raoul's point there literally is ZERO liquidity in the market, especially from market makers to absorb that selling. The upshot is that 1) You would see MASSIVE market moves 2) they'd be forced to sell other proxy trades where liquidity is better i.e. SPX futures 3) You should expect funds to be gated i.e. close to further withdrawals
  • IH
    Iain H.
    8 January 2019 @ 06:48
    I would like to know what Raoul, Julian and others think of the chances that future interventions of policy makers have a lessor and lessor positive impact on markets? My thinking is that after all the ZIRP, QE and stimulus economies either have not developed an ongoing impetus to stand on their own as per the policy makers forecast and or expectations. If you agree on that, at what point or ever would investors say this stuff can't or does not work?
    • JB
      Julian B. | Contributor
      8 January 2019 @ 17:19
      Hi Iian, I think that's a real risk especially in terms of monetary policy. Don't forget that in the case of the Fed they have a mandate for employment and inflation NOT the level of the stock market. Hence, at some point with wage pressures continuing to rise, they are doing to end up painting themselves into a corner. Given the excesses they've created in the econ/markets in pursuit of sustainable growth the day the system finally crashes is when we get inflation, both stocks and bonds fall and they aren't able to respond.
  • AG
    Adam G.
    8 January 2019 @ 06:52
    Does any know what date this was filmed ?
    • NO
      Neil O.
      8 January 2019 @ 09:05
      It says 2 Jan in the description.
    • AP
      Alfonso P.
      8 January 2019 @ 13:05
      january 2nd, Raoul even says that .. the day before he had a new years party
  • jm
    joeri m.
    7 January 2019 @ 16:31
    We saw a big reversal last week on the daily and weekly chart of the AUDUSD. The AUD broke down below the 2015/2016 low but reversed back above it. The CAD was also very strong at the end of last week.
    • CS
      C S.
      8 January 2019 @ 02:51
      And I believe that low lasted all of 10 minutes (in the tradition of a flash-crash).
  • RK
    Robert K.
    7 January 2019 @ 21:54
    Thanks, nice chat. There is a bit of a paradoxical setup here given we expect yields going higher and yet Raul is still strong on the bond rally wagon. So are we saying the play is widening spreads but we are long investment grade and govies?
  • MS
    Mark S.
    7 January 2019 @ 17:20
    Raoul, would you buy puts on HYG?
    • EF
      Eric F.
      7 January 2019 @ 21:42
      I’d love to hear more about how to play the BBB investment rated bonds / junk bonds touched on here. Is it buying puts / bearish spreads on HYG? How does the BBB rated bonds get effected by a large corp downgrade? Feels like a lotto-style punt but for those with the appetite a small bet could pay off big, and feels heavily asymmetric. Would love to hear more.
  • JQ
    JACK Q.
    7 January 2019 @ 16:04
    Raoul/Julian - do you think now is a good place to take some profits on bond longs given how far and fast we came off and wait for a slight selloff here and buy the dip?
    • JB
      Julian B. | Contributor
      7 January 2019 @ 20:25
      Yes to our institutional clients we have suggested taking profits in Eurodollars i.e. up to 4-5 year and tightening stops on the very long end. As you say its been a VERY rapid move so silly to give all the money back.
  • ph
    patrick h.
    7 January 2019 @ 16:30
    Hi Raoul,Hi Julian, Thanks a lot for your great inputs as always. While I do agree with a lot of your views in mid-term, I think that the recent intervention from J Powell on Friday is starting to re-introduce a Fed put far much quicker than previously anticipated. What s your view on this as the video was recorded before his recent intervention ? Is it a short term tactical game changer or another misinterpreation of his speech by the market...
    • JB
      Julian B. | Contributor
      7 January 2019 @ 20:23
      Patrick I agree 100%. In the interview, I cautioned that markets wouldn't just go straight down not least because policy makers would baulk and that's what I think we are seeing. I'm watching Amazon, because if you remember from prior reports we think this is a classic bubble and we are just waiting to see the bull trap rally.
  • MC
    Minum C.
    7 January 2019 @ 17:29
    Excellent discussion. I found it both funny and sad when Julian reminded everyone that money managers are paid to keep you in the market as opposed to make you money. Funny because it's mostly true. Sad because most people don't know it's mostly true. I had a question about being bullish on USD as a way to capture a risk-off move. I get that it makes sense to be bullish on USD against say CAD or AUD in a risk-off move. But when I look at the most recent risk off move in equities, I noticed the yen has outperformed USD as has gold. My questions: Would you expect the yen and gold to continue to outperform the USD during the next phase of an equity market downturn/risk off move? Why or why not? Many thanks in advance.
    • JB
      Julian B. | Contributor
      7 January 2019 @ 20:18
      The USDJPY typically moves in the opposite direction from other USD pairs because the Japanese are major exporters of capital. Hence, when we get risk off events the Japanese bring their money home (typically unhedged) and the Yen rises
  • RA
    Robert A.
    7 January 2019 @ 18:27
    Thanks again guys—good discussion. “Is there another currency?”, “Can you name another currency?”,.....hold on a sec, I thought many moons ago Gold was thought to be a “currency”—any chance Gold can hold it’s own in a big US $ move up?
    • JB
      Julian B. | Contributor
      7 January 2019 @ 20:15
      Hi Robert. The short answer is yes gold can hold its own even if the $'s move is driven by a risk-off event. It won't outperform bit should be ok.
  • RP
    Roberto P.
    7 January 2019 @ 19:48
    Hi Guys, Raoul, I agree with you about the USD is not that simple as interest rate differential, but what can be interesting is that in less than a month FED have change dramatically the speech about outlook. In addition we had a monster payrrol on Friday. Could this factor change your view in the short term, maybe close GT10 trade ?
  • AS
    Alan S.
    7 January 2019 @ 19:17
    Thanks for this; and really glad to hear flash updates are coming back.