The Indicators Worth Watching

Published on
July 17th, 2019
36 minutes

The Indicators Worth Watching

The Interview ·
Featuring Teddy Vallee

Published on: July 17th, 2019 • Duration: 36 minutes

Teddy Vallee, CIO of Pervalle Global, concentrates on isolating the specific leading indicators that portend market trends over the next six to 18 months. In this conversation with Raoul Pal, he explains that he is now picking up a notable divergence between what bonds and economic indicators are foretelling, and what equities are actually pricing in. Filmed on July 9, 2019 in New York.



  • CH
    Christopher H.
    22 September 2019 @ 23:26
    Any suggestions on learning more about Global PMI Cycles?
  • TS
    Tyler S.
    28 August 2019 @ 13:24
    you say retail sales looks bad, every chart I'm looking at looks pretty good and nothing far out of spec.
  • IS
    Imran S.
    3 August 2019 @ 23:41
    Could anyone please tell me what indicator Teddy mentioned was the one he'd have top of the list right at the end of the interview? Something to do with China? Thanks
    • AN
      Anh N.
      4 August 2019 @ 01:22
      China money supply
    • JL
      Julian L.
      4 August 2019 @ 23:48
      China M1, to be precise
  • TM
    Todd M.
    29 July 2019 @ 03:21
    good chat. market idk, but socks have to be at an all time low - I'm going max long mens socks
  • MS
    Matt S.
    28 July 2019 @ 18:28
    23> 15 - great view of the Platinum Daytona... ;)
  • RE
    Richard E. | Contributor
    22 July 2019 @ 19:14
    SPX is up yoy agreed. However, if you look at the last 12 months, the SPX is up 6.5% and this is led my utilities up 15.5%, reit's up 13.75% and consumer staples up 13.3% The cyclical parts of the equity market like energy (negative 16% the last 12 months), materials (flat) and financials (up 1.6%) are agreeing with the PMI and the bond market. So it is the bond proxies in the stock market taking the SPX higher. There doesn't seem to be a disconnect to me.
    • RM
      Robert M.
      28 July 2019 @ 17:09
      Not just bond proxies taking SPX higher. Also tech - software, cloud, IT - and other services. And some non tech/services like the rails. Cylical weakness noted but leadership is a bit more broad than you give it credit for.
  • Sv
    Sid v.
    23 July 2019 @ 19:29
    Raul is always the clearest speaker and best at the interview, thank you
    • SB
      Stephen B.
      27 July 2019 @ 15:15
      Raoul gets the very best out of his guests. The Larry King of finance!
  • JS
    Jason S.
    22 July 2019 @ 17:32
    Question: Why do banks need higher rates to breathe? I would have thought with low rates, banks are borrowing at all-time record lows and lending them out (i.e. credit cards) at all time record highs; hence the spread is significant and favours the banks? Where am I going wrong?
    • JG
      Jason G.
      24 July 2019 @ 22:32
      Banks Net Interest Income (NII)
  • RM
    Ryan M.
    17 July 2019 @ 10:03
    Ridiculous to interpolate PMI from equity prices. Bond yields have come down due to slower growth and slower inflation expectations. It makes equities more attractive, hence pay a higher multiple. Totally agree with Chinese local government credit growth theory though. Only problem is that this is a different sort of stimulus than getting SMID enterprises to borrow, which they've had a tough time doing. Continual diminishing returns after having exhausted in '15-'16.
    • RM
      Ryan M.
      17 July 2019 @ 10:12
      Granted multiple expansion needs to be more than earnings contraction for market to go up. Better to be pragmatic and interpret what the market is saying rather than dogmatic and tell the market what it should think. Interpreting the economic data is not interpreting the market.
    • RV
      Rodolphe V. | Contributor
      17 July 2019 @ 10:42
      If lower rates make equities more attractive why do Europe and Japan trade at such discounts? Have to throw away your textbook mate.
    • RM
      Ryan M.
      17 July 2019 @ 11:34
      That's a fair point. Probably doesn't hold if central bank owns half the debt or if debt is negative. Might not hold at all. In my opinion, I still don't think that it makes sense to interpolate PMIs from equity prices. While I agree that yellow flags are popping up for global economic data, I still think that until the dollar starts to move higher, HY spreads start to significantly widen or any of the economic sensitive sector stocks (DHI, PHM, etc.) start tanking, it's not signaling recession. Should be fun to see how transport stocks do. Rails have been hanging in, JBHT down after their print, but up after their call. Will be fun to watch earnings come out and see how companies signal for the 2H recovery they predicted in Q1. Won't be a recession until pain inflected from industrial slowdown leads to layoffs which affects consumer. That's why 2015-16 didn't turn into recession. Until then, I think it pays to be pragmatic. Which means different things to different people. Thanks for engaging, it's good to have disagreements!
    • JC
      John C.
      17 July 2019 @ 11:37
      Equity markets pricing in phantom 2nd half 'recover' and overvaluing the "Powell Put'.. And it's not just "Stocks' but which also clearly shows how defensive sectors like REITS and Utilities have led this equity boom while other sectors like midcaps and banks have lagged far behind. Would not be on the latter recovering.
    • RM
      Ryan M.
      17 July 2019 @ 11:57
      REITs and Utes have led because rates have come down, John. Same with banks. Lower rates are good for the former, bad for the latter. That's it. In regards to banks, they will outperform because rates either go up, or go down less than expected. Interesting factoid about banks, often as NIM comes down, banks need to make numbers for the Q with the smaller NIM, so they make up for it in loan growth. Watch for this happening and to happen in H8 data and bank earnings this week.
    • RM
      Ryan M.
      17 July 2019 @ 12:04
      Also small caps, has a much larger portion of financials which have tanked because of rates, which makes the divergence make more sense.
    • RV
      Rodolphe V. | Contributor
      17 July 2019 @ 12:14
      of course Ryan - appreciate the commentary and feedback. The end of the day, the PMI overlay is one way to look at it, but by no means the only way. Given the historical correlation I thought that the relationship was interesting. You can get to similar conclusions through earnings growth and multiples work, which we have also done. Like i said in the interview and to your point, no recession yet and by the time that it does show up, it will likely be a buying opportunity.
    • RM
      Ryan M.
      17 July 2019 @ 16:24
      That's true. I appreciate the novelty of the idea! Hope you come back for more videos, top notch guest!
    • RS
      Ruben S.
      22 July 2019 @ 08:41
      just to reply to Teddy's argument re Europe, stocks did go up ytd as yields collapsed there as well... what looks important is the move in rates not the absolute level. Rayan dont throw the textbook yet! i pretty much agree to the rest of your analysis, just miss the liquidity component i think which is becoming more and more important in recent history.
  • KA
    Kevin A.
    22 July 2019 @ 01:57
    Teddy graduated from college in 2013. Clearly some one to watch. I see a great future ahead for him. I feel old.
  • WC
    William C.
    21 July 2019 @ 22:27
    I watched each interview this week and came back to watch this a second time. This was the best.
  • BM
    Bryan M.
    17 July 2019 @ 16:11
    Raoul has no socks but hey - he's wearing jeans and an old T-Shirt...probably borrowed the jacket. But Teddy has a nice suit on + a tie so what's the deal with no socks? Maybe he just forgot to do the laundry? But what the hell - still a great interview...
    • RK
      Ryan K.
      21 July 2019 @ 00:36
      Hipster finance
  • JF
    John F.
    17 July 2019 @ 23:19
    Not sure if he would be up for it or not but would like to see John Hussman on RV for an interview. Hussman Funds is definitely on recession watch these days as well.
    • SB
      Salvatore B.
      19 July 2019 @ 02:32
      he and Grant Williams have discussed getting together recently on Twitter. sounds like something is in the works
    • MN
      MIMI N.
      19 July 2019 @ 04:24
    • AS
      Alex S.
      21 July 2019 @ 00:04
      Love Hussman’s commentaries but let’s be honest. He’s been on recession watch since 2011. Obviously he’s right... but some old saw about markets can stay irrational longer than you can stay solvent come to mind.
  • FK
    Firoze K.
    19 July 2019 @ 08:48
    First time I've seen Teddy. Obviously a very smart guy. Enjoyed this very much, thank you.
  • RL
    Robert L.
    18 July 2019 @ 19:18
    Very unclear presentation. Dude needs to take public speaking class. Swallowed his words. Didn't finish his thoughts.
    • AN
      Anh N.
      18 July 2019 @ 19:48
      Complete sentences please .
  • RI
    R I.
    18 July 2019 @ 18:48
    The last question--trade recommendations--should be required of every video.
  • YA
    Yuuji A.
    18 July 2019 @ 14:28
    So far you have spoken to people who mostly agree with you. Would be interested to see you spar with someone taking the other side of the trade.
  • VS
    Victor S. | Contributor
    18 July 2019 @ 13:59
    Raul on liquidity -US debt is financed buy the banks. They arb every purchase-(see the news rules) they can do an unlimited amount . In terms of raising money govt debt is unlimited .
  • CH
    Colin H.
    18 July 2019 @ 13:59
    That's a damn fine jacket Raoul has on
  • LP
    Lynn P.
    17 July 2019 @ 20:02
    "Itching to get back in the 2s . . . at about 2.10" Assume he means that when the yields on 2-Year Treasuries reach 2.10% that is his buy price? Can anyone confirm, please?
    • JH
      Jonathon H.
      18 July 2019 @ 11:47
      I would think so
  • JV
    Jens V.
    18 July 2019 @ 06:37
    Brilliant. I would throw silver miners into the mix due to the low silver price relative to gold. Vix is low again so I’m looking at equity puts, one year duration, maybe less. Financials in US will get killed if rates go to zero again, good point. If credit market slows/freezes then it exacerbates the fall.
  • BM
    Beth M.
    18 July 2019 @ 03:20
    Really enjoyed this as they test the strength of each others theories. This young man (Teddy) seems to really know his stuff. And I appreciate you (Raoul) doing the interviewing here because it really helps frame the subject matter and puts things in clear terms. Very well done. P.S. Thanks for the gold miners commentary...I am staying long!
  • AJ
    Angus J.
    18 July 2019 @ 00:35
    I have listened to three commentators echo Raul's end-of-the world thesis and despite the neat logic of the ideas I feel there is a common assumption. All assume a one way directional relationship between economic indicators(PMI/LEI) and the market (Stocks/Bonds). The logic is that the us/world economy is slowing therefore it is bullish for bonds and gold and bearish for equity markets. Their indicators and markets differ but the conclusion is the same. What if the relationship goes in the opposite direction? Our research implies that the LEI / PMIs may be a lagged reflection of risk assets. Perhaps the purchasing managers are watching CNBC. It would look exactly the same on the charts but the macro implications would be radically different. Long bonds into a consensus bull market with the largest speculative long position in years may not be the no-brainer it is reported to be.
  • JH
    Jesse H.
    17 July 2019 @ 14:29
    I had a hard time getting through this...because like Ryan (below), it seems entirely inaccurate to me to even attempt to correlate PMI and equity prices. Perhaps I am missing something here from what Teddy said. The whole point of the last 10 years of free-money policy to me is that we have essentially divorced markets from the real (non-financial) economy, anyway; so these trends won't line up at all, necessarily, and you can likely not infer much about equities from looking at PMI, or vice versa. Again, in all humility, maybe I should have continued, but this analysis just struck me as too basic and not accounting for the fact that markets (and the economy more generally) are complex systems. Cheers guys.
    • RM
      Ryan M.
      17 July 2019 @ 23:32
      I encourage you to watch on. Teddy is a smart dude. We might not agree with PMI approach, but his insights are worth listening to. Plus, it beats watching Squawk Box in the morning lol.
  • SG
    Sven G.
    17 July 2019 @ 17:36
    i liked the no socks thing.... maybe its one of the things that gets you into the macro inner circle. :D
    • GR
      George R.
      17 July 2019 @ 23:00
      Preparing for the recession by the looks of it. Maybe the recession will go as far as stopping grannies, mums and aunts from giving socks as gifts this Christmas.
  • DH
    Daniel H.
    17 July 2019 @ 09:03
    Great interview. Recession watch has already turned out better than I had hoped for. Teddy is a great follow on twitter too.
    • tr
      tom r.
      17 July 2019 @ 20:37
      Another great interview. Obviously socks are in a downtrend though. Better to buy precious metals.
  • TR
    Thomas R.
    17 July 2019 @ 19:32
    Dunno if it's the right place, but can anybody explain the drop in volume here?
  • RH
    Robert H.
    17 July 2019 @ 18:52
    I now see that the main purpose of CryptoFortnight was to set-up the main event of RecessionWeek. RecessionWeek content has been excellent.
  • MZ
    Matthew Z.
    17 July 2019 @ 13:24
    I just wanted to say I love both of your footwear.
    • RV
      Rodolphe V. | Contributor
      17 July 2019 @ 13:51
    • RP
      Raoul P. | Founder
      17 July 2019 @ 18:46
      haha.. we try to please..
  • SS
    Sam S.
    17 July 2019 @ 16:43
    Can you point us in the right "bond" direction to weather the recession storm? Not investment advice, just suggestions to look at. Mr. Vallee's look into the same setup's as Mr. Pal, gave me an additional way to think about these important indicators. My concern is that historical setups have been thrown out years ago and we're in a whole new world and time never seen before. But, I'll stick with Raoul Pal and the gang. Thx guys.
  • RA
    Robert A.
    17 July 2019 @ 16:38
    The nuance and contrast between the Raoul, ECRI and Teddee segments has been noteworthy and very informative.. So far these are accomplishing what Raoul set out to do. This series and it’s timing represents RV in all it’s glory. Maybe shoot a note over to the Fed to take a look at this series?
  • AM
    Alonso M.
    17 July 2019 @ 16:31
    Terrific content. Nice delivery.
  • SV
    Steven V.
    17 July 2019 @ 16:29
    I agree the 18-month lag is correct, but the pain should extend much longer than most expect when the lags are applied to QT.
  • NH
    Neil H.
    17 July 2019 @ 16:25
    excellent interview. there is no one better to ask the questions of the day than Raoul. Looking forward to the rest of recession watch.
  • GF
    George F.
    17 July 2019 @ 15:44
    I think July 9 was no socks day at RealVision.
  • AP
    A P.
    17 July 2019 @ 15:06
    RV is moving markets, look at what you did to GDX Teddy ;)
  • MZ
    Matthew Z.
    17 July 2019 @ 13:36
    Also - when the fed says the consumer is fine, they mean the consumer is fine as long as the stock market is up.
  • RB
    Richard B.
    17 July 2019 @ 12:53
    Nice to see that EVERY interview so far this week has presented a well balance argument for a continued expansion vs a looming recession. #NoBiasRV
  • JC
    John C.
    17 July 2019 @ 11:33
    Awesome. I am astounded that I've been an RV subscriber for 4+ years now and yet Raoul & Co still deliver the goods. I think I could listen to these sorts of back and forth conversations 24-7. Teddy is really great and a good Twitter follow as well. So much stuff here to digest.. Really feels like the 2-year is setting up very nicely + gold miners + shorting financials and semis as discussed in the video. I guess the big question is timing but 2Q and 3Q earnings have got to disappoint...