Comments
Transcript
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nrRaoul, I would love to learn from you as a mentor! I am saving up to get the pro subscription to get a more direct learning experience and so I can learn at a faster pace! You have been calling so many things right. Your knowledge is so valuable! Luck?? I don't think so. Luck = when preparation meets opportunity. Right now the world is still in the midst of the Corona Virus and demand is taking a huge hit. I know there was no way for you to predict a pandemic causing markets to crash, but damn everything you said was spot on and is happening right now! (dollar rising, gold rising, rates near 0 and maybe negative) This pandemic has accelerated the crash like no one has ever seen before. As of this moment, while typing this, markets (spx) have bounced ~30% and (nasdaq) ~50% from the lows (idk if they are temporary lows but we will find out). Thank you for everything you have taught me so far!
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JCCongratulations Raoul.
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MSLove it, except Julian’s vulgarity makes him seem less credible and have less authority.
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WWFirstly congrats Raoul, exciting news. Great interview guys, learned a lot. As for the future, I think the scenario in which Wall Street makes a bundle and Joe Blow takes a bath is probably most likely to happen. I’m with Julian .... tangible is best for my money.
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DHJulian placed the odds of a technical recession in the U.S. at 20%. This week's ISM was a reading of 49.1. According to Raoul's analysis of the ISM/business cycle in a video in 2016, the historic data places the odds of a U.S. recession at about 65% whenever the ISM falls below 50, and 80% if it drops below 47. So a reading of 49.1 probably implies something like a 70% chance at the moment. The Fed's own model places the probability at over 40% (but in the past when it reached this level a recession always followed). The ECRI leading indicator is still falling. So the odds of a recession have increased significantly since this excellent debate. That's why I think we're going to see some more rare cuts/stimulus announced in Europe this month and the U.S. soon thereafter, as the central banks try to get back in front of the curve (but they're already way too late). The declining ISM also implies negative YoY growth in equities. That's why I'm leaning bearish. I expect the cuts to once again underwhelm markets which are expecting some sort of QE bazooka announcement in September. The underwhelming cuts could also see further dollar strength and bring on a corrective phase in gold, which is currently well overextended.
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FDHow can he say FANGS work when there's no growth? Most of these haven't got through even one cycle.
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BSI’ve been a RV sub for years. This is my all time favorite piece of content.
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DDJulian is right re: growth stocks. I hate to help other RV subscribers get on the right side of this, but we've already been seeing this trade put on in massive size since January. This is Keith McCullough's "Quad 3" regime. Growth is slowing while inflation is accelerating. Energy and tech stocks (Nasdaq, QQQs, XLK) are buys in that regime. Now energy is getting killed as it's looking more like Quad 4. Tech has yet to play catchup, but notice it's been a little less eager to make new highs as frequently as of late. We'll see how it plays out from here. There's a real battle amongst all the FOMO chart chasing.
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RDReally helpful video, but did not like Julien here. Obviously subjective, but he comes across as extremely condescending and just waiting to here himself talk - Raoul is the one making this a discussion. Also he keeps dodging comebacks with pretty questionable oneliners or just jumping off entirely. (how do you go from "europe/japan have 0% and their growth stocks underperform" to "hey look at this SPgrowth/Plat chart that I am also going to use to benchmark the entire base metal market??).
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ABIm with Raoul on this trade and im not an economist.
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BHJulian is the Peter Schiff of this discussion.
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ABI think they are both right in certain respects, Raoul very much spot on with the shorter term, I think we're heading for quite a short but VERY sharp deflationary bust due to the corporate leverage out there. HOWEVER, I think Julian is correctly looking ahead at what's to come thereafter, perhaps just a little early.
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HKgood discussion. not conclusive yet, but good. p.s. it was kind of cute how raoul apologies preemptively for the video quality. it's all right mate, the content quality is v good
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CMSo this comes up in the comments below, the question about buying TLT. I have the same question. Believe in the Lacy Hunt thesis that rates are going to zero. Would seem TLT would be the place to be. But Raoul argues the curve will steepen. Assume this is due to either rising inflation as Fed cuts or lots of supply on the market by the deficit spending US govt, which forces rates higher to find buyers. The other side of this argument would be US treasuries being the safe haven in a downturn thus increasing demand for treasuries. Also, wouldn't QE by the Fed include driving down long rates as well so that other rates, i.e. mortage rates, don't rise? It would seem to be the Fed's goal to shift the whole curve downward (but not inverted) and to not allow long term rates to climb to offset their cut in ST rates. Curious on people's thoughts here as l am looking to increase my bond exposure.
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LTGreat discussion, demonstrate how complex markets are at the moment. Would prefer a more clear summary in the end of if x then y pending bla bla, And the format worked excellent
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SL"more fun sticking red hot needles up your .... under your fingernails" ha!
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FC« Debt jubilee in Japan, we don’t know how it ends »... that is the most vexing question to me, why don’t we know? Can’t we bring Woody Brock and Lacy Hunt in to debate this? According to MMT proponents, all those bonds are just a way to pay interest on cash (mostly to banks and institutions), they are not required for a sovereign nation to create and issue fiat money... Which brings me to the second question: how can fiat currencies (not tied to the dollar) die if sovereign governments require them for the payment of taxes?
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SPExcellent discussion. Raoul wins with a rather more coherent and consistent posture. Julian said growth stocks might be the clear place to be then immediately followed that with value could be better. Raoul thinks the Fed is behind the curve and that surely seems correct; Julian believes in soft landing. Julian should know that AOC cannot be the nominee in 2020 because not only is she not running but the Constitutional requirement is age 35 or greater.
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ASGreat conversation. Would love a summary video from RV on “Recession Week” and what various commentators are recommending. Seems you should own GDX outright, or long dated calls, or go bananas and buy calls on NUGT or some silver miners. Also, some short term UST, or leveraged ETFs, or calls there. BTC, or maybe Dogecoin baby. Curious, Rosenberg recommended long end of UST market, like TLT or EDV type stuff. Most this week are looking at the short end. I found his interview a few months back pretty damn convincing, especially w/r/t the possibility of corporate debt sinking into junk territory, thereby forcing corporations to curtail capex to forestall downgrades. In any event... buy gold?
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NRJulian is right, there is no growth names outside the U.S (except for a handful in china). This is particularly true in Europe where socialism and excessive regulation has killed innovation.
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RMRadical idea here, what if the equity market and the bond market are actually both right? What if the market is indicating very low inflation/growth, so pile into bonds AND pile into equities who can grow their earnings in this environment or more even attractive, their revenue. The reason the stock market is hanging in there is because there's more growth than value, which lifts the aggregate. It's similar to Julian's comment on DB. Equity tanks but CDS holds up. What does that tell you? Similar to HY spreads not widening, dollar not weakening dramatically, interest rate sensitive sectors (housing, transports, etc.) not tanking. Be interested to hear why people think that doesn't make sense or what I'm missing.
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GLSo we should buy TLT?
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DJThis is why I have an RV subscription!
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LJHow does Julian not agree with Raoul's demographic story?!?! Maybe he sees a plague wiping out the baby boomers?
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CLGreat week of content...more great value from RV. Question for Raul: part of your doom loop thesis is that there will be big pressure on equities as Boomers retire and need to sell. While the demographics of the humans is inarguable, I think I the demographics of their assets are worth a deeper dive. At least in the States most boomers have nothing or next to nothing in the market. There will be no selling pressure form them. Many are turning to reverse mortgages to fund their later years so maybe there will be a knock on effect from that, but I don’t see equity selling pressure happening the way you describe. Further, of those boomers that do own equities many have a significant surplus of funds versus their needs, so perhaps not as much selling pressure there either. Of course Social Security Medicare and other entitlements will come under back breaking pressure, but that’s a fiscal issue that really doesn’t directly impact equities. Plus, millennials, while delayed on the scene and a little equity averse, are an even bigger demographic that could pick up the bid. So I’m wondering if that view of the demographics might short circuit the doom loop scenario? I’d like to see RV bring on a demographics expert to break this down. It’s not as simplistic as it seems.
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RXLove the format and the content. Raoul has been on fire this year so updates are greatly appreciated.
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IPEveryone always says that when there is a contrast between the bond market and the equity market, the bond market is always right. Yes, of course, but since everyone takes this as a given, probably it will not be true this time and the equity market could be right and bond market wrong.
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CCIn a yield lowering environment why doesn’t $TLT work?
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RRLove this conversation better than the RV format. Just seems real and uncut.
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SBGreat content. I really appreciate macro conversations with old hands who are happy to disagree. Thank you.
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JFRead Macro Tourist's Jubilee MMT thoughts. If Japan owned all the govt debt and then wiped it out, would the currency actually really weaken?
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JK@Raoul, Please give us more of precisely this! Loved every minute of it.
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BGIn this current case I agree more with bond market and Raoul. I think we will have a head fake in dollar now Julian . Why ? because look at autos, tarrifs, student loans, oil , bond they all agree. Over the summer dollar goes lower and everyone gets complacent that reflation trade is working and the moronic equity vigilantes who have not seen real depression over last 40 years come out and force the fed to pause and hike again before going al the way down to 0 and the bottom really falls out. I am saying that because dollar goes down over next few months we cannot automatically infer that bonds are wrong and this is 2015. Could still be worse than 2008. I am with raoul over 12 month horizon and with Julian over 3 month horizon.
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PJGreat discussion, will need to watch again....and possibly again to take on board all of the various counter arguments. More please!!
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TRhaha, so true. German infrastructure IS shit. Ever took a train here? You'll be lucky if it's one time and not totally overbooked... and there's no wifi
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TMI'm splitting hairs here, but Woodford's demise is not only because he reached for yield further up the risk curve. He also tried running a VC strategy within an open ended fund structure. These guys have been all over Woodford since 2015: https://www.shareprophets.com/views/43722/free-podcast-shareprophets-radio-edition-1-with-tom-winnifrith Woodford segment starts 10 minutes in. Shareprophets have received woeful attribution and recommendation from the UK press WRT Woodford, but at least got an honourary shout out from Bloomberg.
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JHVery thought-provoking - thanks, guys. View on silver is clearly somewhat out of date - would be interested to get Julian's take on the recent strange break-out in silver.
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JRPower will swing from debtor to creditor. The largest debtor is the US government. They are incentivized purely to monetize and inflate away their debt. This is why the dollar can go down even vs similar scenarios in Europe and Japan. Maybe a short term deflationary bust first to really spur the Fed into action, but long term dollar down gold up, value over growth and nominal yields up.
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CHIs this the brother of General Mad Dog Mattis?
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RSJulian talks like a valley girl please kill the "like" other than that the discussion was very good
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JAI think you're both right: stagflation
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GBExtra props and respect to Julian for jumping into comments to answer questions on the nuances of the discussion
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BMVery delightful conversation. Oddly, I think you guys may both be right at different times so yeah, I agree that we could get a dose of deflation, with sub zero rates and all that goes with it but then, I can also see how that could lead to a gross increase in longer term bonds due to a) a hissy fit in the bond market and/or b) a loss of confidence in the reserve currency (the U.S. $) and/or c) a revolt by enough countries against the dollar hegemony due to the U.S. using the Swift system to coerce other countries and/or d) which is a strong dose of inflation...which is why I keep a chart of the D-Mark from 1913 - 1923 in my desk.
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DCExcellent discussion and very timely. Thanks to Julian for his participation in the comments section - particularly regarding Silver - maybe Silver is an very early signal of the direction?
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DHAbout that argument that the stock and bond markets are in different camps: there has been little absolute growth in earnings. The growth has been in earnings per share due to buybacks. Why we not just get more of the same? Fed lowers rates to make money cheaper, corporations continue to borrow cheap money to do buybacks. That is muddle through this slowdown. If we get a recession that turns a lot of BBB debt to junk, that does not generate growth and inflation. Deflation will be winning big. So rates go to zero. How do we get to 4% in T-bonds any time soon given that growth has been anemic at best, and is in danger of getting much worse?
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KD“not the visual quality that you used to have for Real Vision. It's more about the discussion” The discussion is just fine! Any day of the week. The educational quality of this is just ridiculous for me. Even Julian’s responses to comments here – I’m still taking notes! Thank you all at Real Vision
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WGTerrific debate and refreshing to hear an intelligent discussion of differing viewpoints without the interlocutors resorting to ad hominem attacks. Should be required viewing for politicians everywhere. Personally, I'm leaning towards Raoul's recession view although I don't think Trump will allow the dollar to strengthen appreciably ahead of the election. Might it be possible that the CB's will stage-manage rates lower globally so the currencies stay range bound? Thanks Gents!
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SBNice one. Usually the bond market is right.
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GSGreat conversation, but apart from trade war mentions, why not more about China? China consumes most of the worlds primary resources, so lower commodity prices could be more a result of China? That could also weight on deflation but it's not that easy to export it with tariffs now? Very interesting macro setup indeed. I like dollar long and dollar short, so I'll just buy vol as it is incredibly cheap.
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DBWith 29 minutes left, Julian says that the Chinese and U.S. are essentially on the path to exporting deflation. How does he reconcile that with bond yields going to 4%??? I love these guys and Julian is really really great, but I must be missing something.
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MV“If you never did. You should. These things are fun and fun is good” Couch Pillow
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FBExcellent discussion! I signed up for RealVision to listen to this! Raoul and Julian... Thank you
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LP"Everyone starts closing out longs and going into the Feds (short-term)" Yep, that's me. If we get to zero rates I should still be OK
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JVInteresting discussion. Thanks for sharing.
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MMGot to love Mackeral!
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AMthat was great, i loved how you guys disagreed on stuff, made the conversation seem very genuine, thanks for RV
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OCIt's essential to hear both sides of the argument, Thank you, great job!!!
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TJWow! Totally absorbing and captivating debate that I could not take my eyes off! I honestly did not think this recession series could get any better after Raoul’s background setting, followed by debates with Lakshman and Christophe. Fascinating polar views on Treasuries and the dollar from two top macro analysts, but with both bullish on gold! Wow! One of the very best videos ever for me and one I shall be watching again and again!
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KGJokes aside, what would be the growth stocks in Europe?
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JBVery insightful conversation....mates
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NvYou have to say though that the Dollar has been WEAK considering what it has had in its favor over the last 3 years. Equity and bond investors are long Dollars up the bazoo. 55% of MSCI All World = USD, and 40% of Global Bond Index. Below 96.50 DXY and the world changes I'm with Julian
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FAGreat work!!
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MTanother excellent conversation, but I would like to make one point. Whilst a debate of this quality is most welcome, and valuable I'm in the camp that firmly believes monitoring 'rate of change' in options market pricing is the best 'real time indicator' of where the most appropriate opportunities are to be found e.g. those assets classes that have seen the 'relatively' largest up move in 'volatility' in recent months (options becoming more expensive compared to historical past) also referred to as IV Rank = Bonds, Reits, Gold. At the risk of being accused of using the rear view mirror, I still think it's worth pointing out options prices 'rate of change' for Bonds, Reits and Gold started to accelerate approx 9 months ago.
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JBYeah that was good
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DSThanks for sharing the Macro Insiders Debate. Direction is difficult to determine at the inflection point – 50/50 split. Interest rates must stay low or negative just to allow governments and corporations to rollover bonds. Corporate buybacks may still take the market higher. Baby boomers are topping off retirement accounts at their own peril. I think we are in for slow to low profit growth for a long time. Employment may remain strong, but the old-time, middle-class auto jobs are gone - hello robots. This is just another opinion. No foreknowledge. DLS
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