Are We Headed into a Macro Storm?

Published on
August 9th, 2018
26 minutes

Are We Headed into a Macro Storm?

Presentations ·
Featuring Julian Brigden

Published on: August 9th, 2018 • Duration: 26 minutes

In this special presentation, Julian zooms out to reevaluate where we are in the larger cycle, update his investment recommendations, and pinpoint which stocks and sectors may be in dangerous bubble territory.


  • SS
    Stephen S.
    27 August 2018 @ 17:23
    Hi Julian, Thank you for a first-rate presentation, one of the best MIs ever. The graphs are very helpful, and I intend to study them carefully. I may have some questions for you, but will read your earlier responses to other folks first, so I don't waste your time.
  • DY
    Dmytro Y.
    18 August 2018 @ 14:10
    Hi Julian, thanks a lot indeed. Perhaps this is best video on MI in last 13 months. Probably it is best if you and Raoul do NOT mix up every single time. The debate videos often end up with unclear 'mess'. :) often none of you can express ideas as clearly as in this video. This format looks Waaaay better. Maybe many would prefer this type of video of clear view expression, roadmap. Couple of questions: 1) do you see Gold going much lower given your expectation of leg higher in US Dollar? and 2) how do you explain it possible for Fed to raise rates much higher or to combat inflation given the huge budget deficit and huge interest cost ? What i mean by that is it seems prohibitive to raise Fed rates much higher as interest costs will eat into the budget deficit.
    • SS
      Stephen S.
      27 August 2018 @ 17:19
      You make excellent points, especially the one about separate presentations.
  • NI
    Nate I.
    10 August 2018 @ 21:34
    A few things I would like to hear more of your thoughts about. o With labor participation at 62.9 (at or near a 40 year low), how can anyone claim a tight labor market? Yes, I know U3 is low, but isn't it more along the lines of any more layoffs and companies would literally have to shutter operations? Even the U3-U6 spread is historically high suggesting something is seriously amiss. What I anecdotally observe are very unrealistic job postings seeking Einstein level talent at dismal wages. It seems to me there is a standing army somewhere in that 37% ready and willing to work, provided employers would stop bellyaching and get realistic. Heaven forbid, maybe even invest in staff development instead of borrowing more money to fund buybacks? Are we short of workers or are we maybe short of leaders? o As Simon Mikhailovich likes to remind everyone, debt is never the problem. Debt service is the problem. In that regard, won't CBs be forced to continue rate suppression indefinitely? (i.e. corporate, sovereign, investing/margin, and personal debt at all time highs) until some of that debt is paid down - even if it takes draconian legislation to force that. o If rates indeed continue to be suppressed, might we be on the wrong side of the short EEM trade? Similarly, maybe the S&P 500 remains overvalued for some time to come? o It seems like de-dollarization is desperately trying to emerge. How long do you think it will take for a legitimate dollar replacement to come about (or will it?) and what might it be? Thanks mate. Great presentation and I always enjoy hearing your thoughts. This is by far the most difficult environment in my lifetime and I'm glad to have you and Raoul to help.
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:23
      Hi there's a lot here but let me give it a stab None of these stats are perfect. Hence, we tend to use multiple metrics from JOLTS data, NFIB Surveys etc to gauge the labour market and our conclusion is that things are tight. That said have we got room tighten further ...probably. Although there are obstacles. Geographical mobility is appalling at or close to post war lows. Much of this is to do with divergent property prices. So someone unemployed in Detroit just can't afford to move to SF. Secondly, as you point out there's massive skill gaps. Thirdly, there the opioid crisis keeping people out of the labour force Let alone the issue with felons essentially being unemployable. All of this explains why NAIRU (non-inflationary rate of unemployment) has languished in the last few years as its fallen in Germany, UK, Japan and even France! As for the necessity to suppress rates indefinitely to prevent a debt crisis ...Yes and No. If CB's in the developed world are successful at creating inflation, running it hot, nominal GDP targeting call it what you will then nominal rates can rise as real or inflation adjusted rates fall. This was the model of 1965-1969. 10yr yields rose from 4-8% and real yields dropped 150bps as inflation jumped from 1.5% to 6%. That's real financial replacement. In some countries especially EM that have borrowed in $s, Euros or CNY ...default is the only option. PS. In a run it hot environment stocks do better than bonds and even EM once the $ peaks. But not from here and at current prices. They need to adjust first. As for a $ replacement its inevitable and the more the Trump admin uses the dollar as a weapon the faster the global backlash. That said until China and or the EZ run a current account deficit they can't truly supplant the $. My guess that initially we will have multiple reserve currencies for a while as they jockey for control.
    • SD
      S D.
      17 August 2018 @ 02:16
  • JH
    Jonathon H.
    12 August 2018 @ 05:37
    Hi Julian, thanks for your lovely, coherent analysis. Given the Turkish excitement and EM selloff (as you called), with a surge in the dollar (again as you called) which has Raoul v excited my only query is the bond hypothesis. US long bonds are surging and I have also taken a long Bund position. I suspect your belief is that this will be a short term drop in 10yr yields with inflation to rise later. Is it not reasonable to suppose that the rise in $US that looks pretty solid going forward for the next few months will bottle inflation for now. The only issue remaining will everything roll over and lead to Raoul's deflation or your view deferred inflation. I have previously been able to reconcile these views but it looks as though ECB/BOJ tightening is like the pot of gold at the end of the rainbow, now matter how far we run it just moves further away..... Thanks for your thoughts, this service is really great! Cheers Jonathon
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:44
      Hi Jonathon yes maybe we have seen the highs in yields. But given the inflation backdrop that my models still show (remember everything acts with a lag and we take oil into account) I don't want to be long fixed yet. What you are talking about is a risk-off event dragging down bond yields and while that is very possible and the better trade is to sell some stocks.
  • NN
    Nico N.
    12 August 2018 @ 04:34
    I am new here. Thank you for a wonderful presentation of the long-term view. I have been watching your past present and one main trade idea is to sell the Netflix and TSLA. My question is is there any other market to watch in order to time the short of these two companies? When is the time to short? As a retail investor, what is the better way to short these companies, with Option or CFD?
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:40
      Hi Nico. So I'd avoid Tesla ...too much noise. As for Netflix, if its a classic bubble then we are in the down leg of the "bull trap" this could see another 20% ish drop (my guess is we fill the gap at $228). Then you'd expect a massive bounce as the bulls rush in (with a play) but it won't last as we should fade prior to the previous high (maybe around $340 or $380). That's when you really set long term shorts.
  • NO
    Neil O.
    11 August 2018 @ 18:43
    Julian, thank you for doing this helpful summary of your views. I would appreciate your thoughts on something David Rosenberg has written about recently. In a higher US rate environment the costs to companies of rolling over their massive debts (in many cases taken on to fund buy-backs) become much greater. If this becomes difficult to do, or leads to reduced profitability as debt servicing costs increase, then a market crash greater than your 20% or so pullback seems probable to me, and this could possibly trigger the next recession. I would welcome your thoughts.
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:36
      Hi Neil as I wrote to Nate below the trick is getting nominal GDP (real + inflation) to outstrip the rise in debt servicing. That will be great for companies with pricing power as it will erode the value of their debt. Conversely anyone without pricing power will fail!
  • KB
    Krystof B.
    11 August 2018 @ 09:18
    Sorry, but 60s was so different. You have had a massive workforce growth from baby boomers from all new spending from baby boomers entering the workforce and companies spending to meet the demand and train all new workers. We are now in a different cycle when everything is vice versa. That´s why today tax cuts are more manipulative to produce some inflation and growth when real economy is slowing down. I would like to hear your arguments. But I really not see any reason to compare today problems with 60-70 crises. Yeah charts meybe look similar but the fundamentals (demographics) are so different. Yes this inflation/hyperinflation thesis is more mainstream so people agree a lot - but I think it’s not going to happen. Yea we may have some last inflation or bond yield spike but now it seems more likely that this spike is over.
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:34
      Krystoff, yes there are massive difference. But I'm just using the late 60's and in fact only late 1965-66 as an example of what could happen in an economy close to full employment if you over stimulate it with a bloody great fiscal expansion. Any further extrapolation to the 70's certainly wasn't my intention although I can construct that scenario. $ tops and starts rapid decade long decline as it loses its reserve status and deficit blows out. US inflation will explode....
  • MB
    Max B.
    11 August 2018 @ 08:34
    Because I am not actually in the Financial Industry (only retail that is), I love these types of informative videos from great minds. I do have one question that has been bugging me for a while and can't seem to shift. I fully understand that the markets are not a simple world and this question comes across as if I think that may be the case but here goes.... Given the nature of ETF's and the rising popularity (I myself have seen my own portfolio weighting increase to around 20%) is their business model not on the basis that in order for them to "remain in business" they need to keep buying, creating a massive feedback loop pushing everything higher.... Apologies if this is a stupid question!
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:28
      Max that's the business model of virtually EVERY financial firm from Vanguard, to your broker to CNBC. They make money when the market goes up and not when it dips. Every financial advisor tells you can't make money market timing. But that's BS because that's what every hedge fund manager does day to day. What they mean is they can't make money by market timing because they get paid on AUM not performance so never want you to take your money out of the market.
  • SD
    S D.
    10 August 2018 @ 15:19
    Two words: Russell. Napier.
    • JB
      Julian B. | Contributor
      16 August 2018 @ 22:24
      I used to work with Russell he's brilliant but his timing is horrible.
  • JM
    Justin M.
    16 August 2018 @ 19:07
    Excellent presentation, thank you. Quick Question: Credit risk differences aside, do you see any other attractive ways to possition for higher treasury yields? I am looking at junk bonds specifically; would it be fair to say that HYG, JNK should drop along with T-notes/bonds as yields rise? Does the shorter duration in high yield/junk (JNK ~5 years I believe) create an issue in your opinion? In other words, is the junk duration too low to create a sympathy drop in prices as tresury yields rise? Sorry for the poorly worded question; I'm hoping you can see what im getting at through the messy composition. Thanks again for the briliant presentation. Very insightful.
  • SR
    Steve R.
    12 August 2018 @ 20:55
    The one problem I have with the rising prices (rising inflation) narrative is that it's usually accompanied by a fall in demand does it not? I'm not convinced consumers will accept rising prices and companies need to remain competitive, especially this late in the cycle with rising interest rates, and tightening consumer credit, hence I'm not convinced CPI inflation will rise as much as expected. When Jamie Dimon tweets like crazy that inflation is going to rise and bond yields are going up, it's more likely he's just talking his own book - which, if this does not happen (yields rise), you probably want to short JPM! :-)
  • DC
    Daniel C.
    12 August 2018 @ 13:06
    Hi, any thoughts on implications of hos this plays out for credit, looking at period such as Q1 2016, or late 1990s provide some guide for how it performs during a strong US$ pahse, but we dont have experience of how credit performed in the 1960s because it wasnt a developed asset class. Specifically, im thinking about i) Investment grade bonds - such as LQD ETF where many large investment grade corporates have leveraged up to point of having very stratched credit metrics and risk of downgrade, and ii) high yield bonds - such as HYG ETF - which have generally had positive correlation with equities. Would you consider, shorting LQD vs HYG given LQD more exposed to international revenues hence hurt more by stronger dollar?
  • SD
    S D.
    10 August 2018 @ 04:15
    I want to clarify something. I know you said it doesn't matter how financial conditions tighten, but if the EU accounts for 50 percent of UST purchases, presumably any type of shock in the EU could trigger the scenario you've laid out. Because it's a bit vague saying that US data will be the trigger, especially given the scepticism out there about inflationary pressure. What sort of data would be the shock, esp if you say corporate pricing power is already above 3pct? Surely the real risk is Italy? Surely there's some real issues here with political risk in EU that could really cause some problems in the US? And at some point it'd be interesting to know what your outlook really is for inflation next year given that unemployment is so low and the US economy is so juiced up and now you say watch out for a posssible infrastructure plan from Trump. If the EU gets into trouble, which seems inevitable, who's going to be buying all those US bonds given the deficit outlook and a possible infrastructure plan? I mean, that sounds pretty apocalyptic really. What is your outlook for the 10 year yield end-2019?
    • SD
      S D.
      10 August 2018 @ 04:20
      You're saying stagflation for 10 years. That's an immensely important forecast.
    • JB
      Julian B. | Contributor
      10 August 2018 @ 19:36
      SD Yes lots of moving parts and Italy is CLEARLY a significant risk, because if it goes the odds are that it will trigger a massive fall in EURUSD and a correction in global stocks, which all other things being equal = tightening of financial conditions both in the EU and the US via the dollar. But the same outcome is also conceivable from a real breakdown in trade talks with China or even possibly Hard Brexit. However, I think those are issues for late October/November and in the interim I continue to see strong growth and inflation in the US and to a lesser extent in Europe. Hence, CBs and especially the Fed will have to continue to slowly tighten policy. This is fundamentally dangerous for risk assets especially EM but because of the inflation isn't necessarily bullish for bonds ie we may not see lower bond yields even as risks assets weaken. Bigger picture, I believe we need a mix of stronger inflation and growth ie nominal GDP in order to reduce the debt burden in developed economies. Clearly, policy makers would lideally like real growth to be the driver but my bet is that inflation will take more of the strain than they plan.
    • SD
      S D.
      11 August 2018 @ 22:21
      That is great, thank you so much for your response.
  • mb
    michael b.
    11 August 2018 @ 19:14
    Great video! Many opportunities mentioned in RV involve shorting. For those of us who do not short but use options an alternative would be appreciated. For example shorting thr EEM
  • hb
    hilde b.
    9 August 2018 @ 07:32
    Very interesting perspectives. I would like to know in what instruments you place the us$ outside treasuries than, where it is safe. I mean besides a bankaccount that you never know can go, maybe the risk is less now than 2008 but never inexistant. anywhere . Thanks for your valuable answer.
    • JB
      Julian B. | Contributor
      10 August 2018 @ 19:45
      Hi Hilde. Personally, I like both Treasury bills and cash in a good US bank. Alternatively you might want to put a little into GLDX ie gold with the $ risk hedged out.
  • MB
    Matthias B.
    9 August 2018 @ 12:34
    that was very good. coherent thinking and outlining of the arguments. observing on the 100d vs 250d MA, given the current gap between the two, that may take quite a while to materialize.
    • JB
      Julian B. | Contributor
      10 August 2018 @ 19:42
      Hi MB as I said in the video, to model the S&P I like the 5, 20 and 50 week MA but its pretty close to 100 and 250da. Anyway, given the current rise in the 50, my guess is that the window of danger, when the MAs get close is mid-sept/October.
  • MH
    Marc H.
    9 August 2018 @ 13:54
    What if Trump directs Treasury to start selling dollars tomorrow?
    • JB
      Julian B. | Contributor
      10 August 2018 @ 19:39
      If Trump comes out and tries to halt a $ rise then to use the Whack a Mole analogy, something else will have to take the stain of tightening Financial Conditions. My guess is that as we saw in late July it will be the bond market via higher yields.
  • TB
    Tim B.
    10 August 2018 @ 13:54
    Hi Julian, New subscriber here. Thanks for that fantastic overview. In the short term, say next several months, how do you see precious metals miners performing? I know you've mentioned silver and GLDW as potentially interesting. But you've got the strengthening dollar etc. on the one hand, and inflation and seasonality on the other. Thanks!
    • JB
      Julian B. | Contributor
      10 August 2018 @ 19:18
      Hi Tim, welcome on board. I'm not an expert of the miners. But in general, I think the time is fast approaching when precious metals should start to act as a relative hedge i.e. they outperform in a risk-off market, which is what they did in 2008 vs the S&P. However, from an outright basis I remain very cautionary because of the risks I see of a major $ spike. Hence, the idea of buying GLDW.
  • RM
    R M.
    10 August 2018 @ 14:34
    This is an excellent, logical roadmap. Julian, if we are expecting a 20% correction, we all need a faster trigger to short than waiting for the 5/20/50 week cross. Shorts would miss the bulk of the decline, just like the last time this happened. We may be experiencng a double top right now. Please flash update a trigger!! Well done, thanks.
    • JB
      Julian B. | Contributor
      10 August 2018 @ 18:31
      RM you can use the 5 vs 20 week moving average. When they cross they typically deliver a 10% ish type correction in the S&P. However, I would also suggest that you look outside the US. So far US Financial Conditions remain extremely easy i.e. not conducive to a major equity fall. However, courtesy of the $ that's not the case in EM or by association Europe.
  • DO
    Daryl O.
    10 August 2018 @ 09:58
    Julian, many thanks. I thought this was a really, really, useful presentation.
  • DL
    David L.
    10 August 2018 @ 05:52
    Fantastic talk to get updated on where we are now!!!
  • SD
    S D.
    10 August 2018 @ 04:17
    Really helpful by the way. Big picture answered a lot of questions I had about the outlooks you've provided over the past few months.
    • SD
      S D.
      10 August 2018 @ 04:22
      Should we all be moving to Brazil? Or India? Somewhere it's warm and cheap and we won't notice how little our greenbacks purchase?
  • SB
    Stephen B.
    10 August 2018 @ 01:18
  • MD
    Michael D.
    9 August 2018 @ 18:58
    Are you going to post a transcript? I’d appreciate that. Thanks for the analysis.
  • LD
    Lance D.
    9 August 2018 @ 13:34
    great stuff
  • CS
    Claudio S.
    9 August 2018 @ 11:05
    Muy buen análisis!!
  • SC
    Sam C.
    9 August 2018 @ 09:13
    Nice work Julien, well thought out as usual. It’s nice to have you guys on separately, it’s a clearer message