RAOUL PAL: Some of you may know that I publish not only the Global Macro Investor, which is my very expensive institutional research service, but also Macro Insiders. Macro Insiders is my retail macro advisory business that I do with Julian Brigden. Now, what's interesting is it's broken up into a number of parts. But one of the parts we do every month is we have a video of Julian and I discussing how we see the macro landscape.

Now ordinarily, I don't put these on the platform, because they're not the visual quality that you used to have for Real Vision. It's more about the discussion. But Julian and I had such a great discussion a couple of weeks ago that I thought you had to see. Because there's a real debate. He doesn't really agree with me, we both understand each other's points of view, and we can both change our minds. But Julian has a different perspective so it's super important to bring you that debate so you can really get an idea of where the risks lights of my view, or where the risks lights of Julian's view.

So, how are you?

JULIAN BRIGDEN: I am okay, mate. Look, it's not an easy market, I just had a call with a big patron client. And we're looking at a lot of things, we haven't pulled the trigger on them at the moment, very few trades even for the whatever we call the pros. But I can taste it. I think I can taste it. I think things are lining up. We pulled a few positions, there are some things that are working, gold is working really, really nicely. The gold miners that we recommended as well is working nicely. We got stopped out of some stuff. Now the question is, is it stop and reverse?

So, the ADXY, the short dollar against the Asian currencies, obviously got blown out after the China thing. But it wasn't awful. We're stopped out of our long Treasury trade. We haven't reversed it yet. Really. But it's quite tough, because you've got these super conflicting signals. The biggest thing that I've been talking to the institutional clients about is when I look at this thing, and to use that Sesame Street expression, one of these things is not like the other one of these things just does not belong.

When you look at the relative price action of the bull market, and you look at the relative price action of the equity market, it's not right. It's not right. Now, that doesn't tell you anything about direction, it could tell you where the equity market could fall, or the bond market could start to sell off and yields could start to rise. But I think it's very interesting that both of the markets are essentially betting on the same thing, Raoul. They're both betting on rate cuts.

If you start to look at the equity markets, clear, though, that they're betting that those rate cuts are going to be reflationary, they're going to work. If you look at the bond market, whether you look at the shape of the curve, whether that 2s, 10s or 10s, 2s, 30s, or whatever the hell you want to choose, or whether you look further in the weeds at the front end of the euro/dollar strip, and you look at some euro/dollar spreads, they're all telling you, yeah, the Fed's going to cut. But it ain't going to work. We're going into a recession.

I was looking at the spread between Deck 19 and Deck 20 euro/dollars there. This is all a bit overly complex for a number of people, but it's extremes that we saw ahead of 2000 recession, and 2006-2007. Now, that means the bond market ain't just betting on a slowdown, it's betting on a bloody big recession. And that's potentially valid. We can see things in the real economy, which look bloody dire. But the equity market isn't there. And the Fed just told you, at the last FOMC, that their overriding priority was extending the cycle.

Now, they haven't delivered to extend the cycle. I don't know whether they know how much they need to extend the cycle. But if they extend the cycle, then the equity market is right. And ultimately, as we saw in 2016, the bond market is wrong. And it could be wrong in a major bloody way. We use that stupid little metric on moving averages in the S&P and they've worked, and it's held up. We got the buy signal. You was meant to be betting on a higher equity market. You can say that they're all smoking crack. But it could be the bond market that is utterly wrong.

And if the dollar starts- I don't know, what do you think here on this bond market?

RAOUL PAL: I think it is- It's gone quite a long way. So, I spent a lot of time bit- I was very active trading this both in 2000 and 2008. And I think it's almost a rerun of 2000. Even what the 2-Year bonds look like over the last two and a half years look identical to them. And my thought process is the Fed cut 50 and they have to cut 50. The economic data is falling apart globally. It's not enough, the bond market's, the bond market will steepen like crazy. And that is free money, the bond markets steepening, because if the summer normal fiscal stimulus or the stump sips stimulus that happens, the bond markets steepens. If the world falls apart, the bond market steepens. So, that's like the no brainer trade in the world.

JULIAN BRIGDEN: Which does mean that the risk reward is not to be long things like TLT, which is basically a Keynesian heritage.

RAOUL PAL: Yes, it's the short end. Now, is there a chance for backup? Yes, I've taken tons of profits all over the place on all this stuff, it had been- One of the better trades I've ever done was this whole fixed income trade over the last nine months. And I'm desperate to put it back on again. And I'm waiting, and my DeMark counts give me that it should stop bouncing this week to next week. Maybe everyone starts closing out of longs going into the Fed after that. So, I think I think rates go to zero.

I think we're in the full cycle. I think they go to zero and they go negative in the US. So, I think every single opportunity to buy a bond at whatever price is a great opportunity. I think, also, I'm now probably at- the first part of the trade, I was at a hundred percent conviction. The most conviction I've ever had, I'm now shifted to about 70% conviction. Because if the dollar goes up, which it won't go one way or the bloody other. But if it goes up, which I think it's likely to do once that the debt ceiling is raised, and I think and also the first cuts in 2000s, once they had the first cut, the dollar rocketed. If that's the case, then I'm going back to a hundred percent chance that we go to zero rates. But move there very quickly, I still think they'll cut 100 basis points this year.

So, I'm at the far end, and I've spoken at several big macro events. And there's a few people in my camp. And there's one or two big guys in London. There's a couple of guys in the West Coast, and there's maybe one in New York, almost everybody else has been one way or the other- everybody wants to fade bonds right now, I know you're itching too, as a trade that might will work. I've no idea. So, that's my view. And unless I see something different, any change, I'm with that view.

Now, I get that you're saying the equity market is not acknowledging. I think the equity market comes later. The credit market's equally as bizarre as the equity market. You can't have bonds where they are, well, the moment the yield curve steepens, everything will change. Once the yield curve steepens, the equity market falls. Once the yield curve steepens, credit starts changing, and then we start changing the picture. So, that's my thing. I haven't really changed my tune. I've just taken some profits because money in the bank's money in the bank.

JULIAN BRIGDEN: We're both in the same place. We're both taking profits, we were both long. Treasuries, we're betting on lower yields. And we were both right. It's one of those times I think great minds think alike. Call it what the hell you will, but it was certainly a high conviction trade for both of us. I think we're both out. We're both looking for a retracement in a high yields, lower bonds. Neither sure quite how far it goes. My bet is it's not part of the process going to zero. It's part of the process of going to full ultimately, over a number of years. But the fact is we're both looking for a backup.

So, at this point, neither of us would be long certainly TLT. There's no risk reward on that.

RAOUL PAL: No, I'm still long some euro/dollars.

JULIAN BRIGDEN: No, I was going to say I don't know whether we disagree necessarily on EDs, on the euro/dollars. So, the front end, that's fine. I think it's a great place to park some cash. I am a little concerned. I will be honest with you, Raoul, about the July FOMC meeting. Because what I am hearing from my policy contacts is that the base case isn't 50. Now, do the Fed end up cutting 100? Doesn't really matter. What matters is timing. And there's been times in the past where the Fed's cocked it up.

So, one of those, for example, was 2003. So, if you cast your mind back, I wonder actually, I think you were a client at GLG. So, late 2002, Greenspan came out and uttered a phrase, unconventional monetary policy. And no one had heard of what unconventional monetary policy was. And so, we got lots of calls that mainly from clients going, what is unconventional monetary policy, you're the policy boys, tell us. And we went off and spoke to some Fed contacts. And they said, well, it's this theory, it's this pipe dream in the moment, if we ever get to the point that we can't cut rates anymore, what other things could we do?

So, the feedback that we got was, look this is a pipe dream. It's what you do if you ever hit zero interest rates. You got no room to cut, you turn to these other unconventional monetary policies. So, we say to people, it's just a pipe dream. It's just fictitious at this point. It's not this cycle. Maybe it's next. But the point is, the bond market ran with it and it ran with it, as you remember, like crazy and the curve flattened, like enormously, massive run long end rally right into the March FOMC meeting. Now, the Fed cut 25 basis points at the March FOMC, but the trouble is the market was looking for more and 10-Year Yields spiked in two weeks 55 basis points.

So, I worry that there's a disconnect at the moment between markets and the Fed. I'm not sure that ultimately they're wrong.

RAOUL PAL: But the question is, Julian, is I remember that scenario. And I was long euro/dollar futures, expecting the cut. So, what happens is they don't cut, euro/dollars backed off for a few days. And then everyone looks at each other and went, well, they're going to have to cut next time. And everybody pulled back in again. So, the long end's yes, because things changed. But the short end, if they don't cut enough, then all hell is going to break loose.

JULIAN BRIGDEN: No, no, and I totally agree. I just think this is an interesting- as I said, I disagree. My big thing here is, how much do they need to cut to weaken the dollar? Because we've been sitting on the sidelines on the dollar a little bit, with the exception of that ADXY and the pseudo dollar short via gold, which has worked out very well. But we've been a little reticent to pull the trigger on a short dollar trade, if only as you well know, mate, for most of our listening public, for certainly, for macro insiders, trading anything that doesn't include a shitload of euros in it is bloody hard.

And I don't see that much of a pattern in the euro. I want to be short dollars, really want to be short dollars. I think if you look at a chart of Dollar [inaudible] today, it's really interesting. It's broken, a trendline that's held in for a while, it came back and it tested, it seems to be failing again. But you can't pull the trigger on that baby ahead of non- farm payroll on Friday. But the point is, is I really want to do it. But if that starts to roll, if the dollar starts to roll, and I think, mate, it changes your bond calculation quite a lot, because a weak dollar we got in 2016. And a weak dollar was instrumental at creating the true sustainable reflation trade.

RAOUL PAL: Yeah, I just don't see the probability of a weak dollar, I see the probability of a correction. I just don't see the probability in this scenario of a weak dollar. I just don't think that it's anything to do with rate differentials. I think that- and I went through this, and I've just written GMI. I've looked through it, and I couldn't find really the main correlation there. It just doesn't do it.

So, I don't see that- it's not growth differentials, it's not rate differentials. It's a number of factors all combined. So, I don't see- look, obviously, I can be dead wrong. And I just don't see a meaningful weaker dollar, everybody I speak to wants to sell the dollar on rate cuts. Well, everybody's had the chance. You've had rate cuts, you have tariff walking away, they've walked back from Mexico, they've done this, they've done that, and the dollar has not sold off. So, I don't know what you need for the dollar to sell off. But it's not what everybody's looking for.

JULIAN BRIGDEN: You have seen some weakness in some of these Asian currencies. You saw a little bit of sold dollar against the Asian currencies, which you would expect.

RAOUL PAL: Yeah, it is marginal in the overall scheme of things. It's a very marginal move.

JULIAN BRIGDEN: And it may be. Look, as I said, I haven't pulled the trigger. Let's be honest, it's entirely possible, Raoul. Now, I don't think the ECB in their wildest, bloody dreams can keep pace with the Fed if the Fed gets real about cutting. If the Fed gets real about cutting, they've got about 300 basis points on the ECB that they can cut.

RAOUL PAL: No. I think the big issue here is the closeness to extraordinary measures. That's what gold and Bitcoin are telling you. So, I think the Fed having 300 basis points of interest rates to cut is worth a lot less in currency weakness terms than the ECB having to do something else. And having Christine Lagarde now, Christine Lagarde running the ECB, I think it's going to become more political in its nature, which allows for more fiscal MMT-style workouts.

JULIAN BRIGDEN: Yeah, but look, you would hope and that she's bloody right. She's absolutely right to put on her pair of stiletto hijack boots and kick the Germans right in the balls and tell them to spend money. That's what she's just came out with. She said those countries that got room to spend money should be spending money. And the Germans need to spend it. Look at their infrastructure. It's for shit now.

But I'm not sure the Germans are going to do it. And I'm not sure that the ECB couldn't stray so far away from where they are, what are they going to buy? They can buy more corporate bonds, they can buy more corporate bonds, they could go further negative-

RAOUL PAL: There is nothing like Deutsche Bank and Commerzbank going bust to focus the attention on what you have to do for Europe.

JULIAN BRIGDEN: All right. But so far, they haven't done that, mate. If you look at the- look, stock price is for shit, but the CDS hasn't moved, because those people I think logically assume that the Germans have got, ultimately, when push comes to shove, they will have to back up Deutsche Bank. Otherwise, you'll make Lehman look like a walk in the park. So, I'm not sure that that's the trigger. The growth stuff could be the trigger, Trump getting truly having a go at the Europeans could be the trigger, I think really, he probably wants to wait 'til the UK leaves, then I think he's going to turn around and like the gun barrels on the Arizona aiming at the beaches in Utah. The Utah beaches in D-day, I think he's going to give them a full side blast.

They're right to ask the Germans to ease. I'm just not sure the Germans are ready to do it. Could you get the Germans to the point that they start fiscally easing? You could. And I think a bit euro strength may help them along. They've got some inordinate problems over that, Raoul. I was looking at inventory levels in the German car industry, outside the global financial crisis, you've got to go back to 2001 to get anywhere close. Those guys have got overhangs, which means they're going to have to slam production, which are horrible.

RAOUL PAL: I totally agree. So, my view is that Europe is getting backed into a further corner. What's interesting is we haven't yet heard much from the BOJ, but their economy's starting to weaken. And they have literally nothing left to do without going towards I think- I don't know, where you stand on this- I think at the end of this is the debt jubilee, they're going to own every single bond that the government creates. And that is the end game. I think gold and Bitcoin have to price in. What does that mean? We don't really know. I think it's probably very positive for Japan if their currency can hold up, but their currency could trade 250.

JULIAN BRIGDEN: Yeah, mate, let's see. The big advances Japanese, how it's less than it used to be is they own quite a lot of their own debt. And then the BOJ could own it all. Look, let's just play this out. So, if this is, let's just say that the Europeans, whether you're right, because some of my colleagues believe that you're right, I'm not so certain at least straight off that the Europeans try and match, whether they do it by extraordinary other policies, they try and match the Fed's easings. So, it's a race to the bottom.

In that scenario, certainly gold and Bitcoin, like I have a big ultimate problem with Bitcoin. But it could be a bloody amazing trade, both of them could be amazing trades, because you're talking about undermining, removing any obstacle for you owning those, because they're not interest rate bearing. And as rates get cut, they do tremendously well. But it could be just the beginning of the death of the fiat currency.

Now, I'm not sure that that's necessarily the case, my base case is the dollar starts to weaken, and in which case, those currencies, those should still do very well. But I actually think it weakens against the Europeans and to some extent, the Japanese to begin with. And that forces come next year, a major theory thing by the Europeans, because I think that both the Chinese and the US are essentially on the cusp of exporting deflation to these guys. And they're going to get fucked. And they're going to have to stand up and do something dramatic to your point next year,