Comments
Transcript
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DDI hate the direction you have taken Real Vision, I cannot say that all the content is garbage, but I can say that most of it is, unless you are promoting picking up nickels in front of a steam roller, especially in this market.....
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DDI subscribed to Macro Insider when it was first published and Raul was long bonds, long USD since then which is about 3 to 4 years now.... Even a broken clock is right twice a day...
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AHRESPECT.. big call - as u said, against consensus as u said - hope ur right! any thots on EM bonds?
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DWRaoul, much respect for your willingness to share your knowledge and contacts built over many years with the average Joe. I’ve been a longtime subscriber to RV and am definitely an average Joe, but wondering how you come down on the opinions of Dwight Anderson, interviewed on RV in 2016 (lack of investment leading to oil issues arising on 2018/19), Clark of Horsemen Capital (20017, 2018 RV interviews) who has been spot on with his analysis of US shale vulnerabilities, with Diego Padilla’s call for lower for much longer energy price. If I start with a chart, it appears that WTI poised to break out of cup and handle. However, I’ve also learned from RV and Mr. Brigden that USD a major factor. Can you please shed some light?
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VSTLT since Nov 18 is up 10% - it's good but not that good. Would that be considered an 'extraordinary rally'? What would the U10 3.25 to 2.25 yield have paid? Cheers
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CHI'm on the other side of AUDUSD. Oh well...
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SAI have to say that Raoul has been long bonds for a while and I think the FED hiking rates from 0% to 2.5% was something he didn't predict in 16, 17 and majority of 18. He has fought the FED rate hikes the whole way. The rally in bonds we just saw has happened every time the FED has pivoted from rate hikes to a pause in the past. The only question was when the FED pivot would come. At 3% or 2.5%. The sudden pivot at 2.5% was clearly politically motivated because there is no US economic data at present to support it. Not sure that pivot is something that could have been predicted with economic indicators. How do you predict President of the US publicly dictating FED monetary policy? That has never happened before in the history of this country. Finally, Raoul attributes the weakness in the world economy to the FED "over-tightening" which I find somewhat bizarre. Europe is at zero rates (negative in many countries), Japan is at zero. The dollar is strong. The Euro is weak. From a macro perspective, Europe can hardly get a better economic backdrop. Europe should not be going into a recession. Would Europe like the DXY to be a 85, US rates at zero and oil at $120 as a recipe to get out of recession? So the recession in Europe, Japan and China is not a function of financial conditions. It is a function of geopolitics - the US government/Pentagon trying to realign global supply chains to reduce the geopolitical adventurism of China (which came as a result of placing the global supply chains there). Again not something you can predict with economic indicators. I have been in the same trade with Raoul. I was in 1-3 year bonds in 2018 and I am still there. Raoul has been right on the long bond trade where I have been scared to go because of late cycle inflation concerns. Oil is up 30% this year. Energy is 30% of the CPI. If CL stays at 60, we will have 3% to 3.5% CPI by the winter (Core CPI will stay around 2% all year because of wage gains). If CL goes to 80 (conceivable if Saudi Arabia/Russia cut more production), we could have 4% CPI in the winter. I am not a bond trader but being long duration at 2.4% TNX with CPI at 3.5% seems risky to me.
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FOAny view on gold this year?
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RPI love to bond call. Love it. I have been massively long EDV , IEF, SHY since February. To your point , I don’t see it changing anytime soon if anything I would add to the long end on pullbacks. The $ call is tough because you have far more competing factors that come into play here. Oil , Rates and gold are just s few. Can you have oil and $ both rally ? Can you have gold rally as real yields fall globally in tandem with the $ ? Can rates falling so significantly clear the way for the $ to break out and hold? IDK. I buy your thesis I just don’t know if the market wants it to go there with things I’ve listed above. If I were to play the $ , UUP calls would most likely be my first look. That in a combo with FXE , FXY (yen?) puts to hedge or grab extra juice in case A) your thesis is right B) the dollar trades flat but relative to top weights in the DXY it outperforms. Not sure my structure is the best and given I don’t trade futures due to having to pay for a wedding ( can’t risk a margin call going into this thing my fiancé would kill me) I have to be creative to get leverage and manage risk. Would love someone that is going to put this trade on express their structure or disagreement with mine, to comment. Thanks
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DCGreat video and analysis Raoul and I like that you are sharing this information in line with your ethos for starting RealVision (given that you are probably telling your GMI customers this same info). I'm not sure there can be a USD shortage though because of the way money is issued. Demand is met with instant supply via the US Treasury. Are you talking about USD or the Eurodollar market? I agree (as an long time MMT advocate) that rates lowering will be bullish for the dollar. Rate hikes are price increases (inflationary) and rate cuts are price decreases(deflationary). Your analysis is in-line with that of Hedgeye (they see US in Quad 3 for all of 2019 - stagflation, so buy energy utilities and REITs in the equity space, and Long duration Trys, Munis and Tips in the fixed income space. Most of my portfolio has been in $TLT since Oct 18!
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SSThanks for sharing your thoughts in a concise & complete manner. Whether or not people choose to agree is up to them but this is a great piece for evaluation. These sort of pieces are the heartbeat of Real Vision, in my opinion.
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SNGreat concise expression of your thesis. I agree in part. Bonds should rally again, they will have to if the FED wants to continue to rescue the market and economy. A near term rapid dollar rally is something all central banks will work to avoid, so in my opinion is a low probability outlier event if things get out of control. Thanks for making your case!
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MCI like to think trade war plays a big role in your trade, but not in the conventional talk it's discussed everywhere so far. Chinese holdings of US treasury have decreased sharply, their return as a major buyer has to be surely a key element of this talk due to the infamous increase of deficits. I think US corporate are screaming they want their cash back for buybacks, mergers and all others sort of corporate business, they might feel very well in a trap, the more they sell the more suffer and they can't be a suitable replacements. But what could the Chinese ask in exchange? And by the way on that spectrum one could say they have in fact started this war as they reduces sharply in 2016. Chinese know very well what they are doing I presume. They are intelligent people. They might import more goods but this is going to do nothing to it. I don't see much other thing than requesting a weaker dollar that could be in play here. Please anybody share your thoughts; the hold back surely cannot just be IP. They already have all major technologies, they need semiconductors but it has been de facto excluded from the deal. In my opinion a weaker dollar might help their capital outflow, domestic confidence, their satellites economies and their broader long term goals. It can't be too hard for the US to give away on this with regards to the current inflation risks. I think that might also explain why Powell was so keen on to reducing his balance sheets in autopilot as quick as possible to reduce the inflation expectation coming from this unconventional policy and have more margin in case they would need to run a weak dollar policy. I mean surely Powell is someone intelligent too and knows what he's doing, he showed he was capable to drive markets just with talks which was not seen for a very long time. I think people all over looked what just happened and tag this into "they always make policy mistakes and run behind the curve". I think they are so much subtile details to it and in that sense a weaker dollar seems the consensus. If anybody can help me to understand something; How do they implement a weak dollar voluntary policy. In the textbook it says print money but I fail to understand exactly how this works. I would shortcut and think they will print money and buy gold with it.
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bnRaoul - may you expand a little on why buy some TLT vs say Jan 20 Eurodollar futures. What are the considerations for one vs another to express a bearish rates view.? Also any view on UK gilts vs US...UK at 1% seems crazy... walking in london you can see the amount of retail shops closing down its staggering have never seen this in 15 years,... you would think BoE is eventually going to get to neg rates...and you have a black swan catalyst on brexit which doesnt seem fully priced in at the moment?
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JRWell presented as always, though hard to feature how, given his recession forecast, Raoul isn't more bearish on US equities, especially given the recent rip off Dec lows.
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JHGreat stuff, Raoul! Clear, concise and well-researched as always. I think short term (next 6 months or so) you are right -- buy bonds and dollars. I would even add, buy US equities, depending on one's risk tolerance (though I don't personally want to assume the level of risk associated with the instability of this market). I think finding ways to buy Vol is a much wiser move frankly than getting into the US stock market - e.g. via Straddle options on the S&P.
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AAUSD/JPY usually does even better than USD in risk off... Japanese-repatriation trades are predictable. Long yen.
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cpNothing new as usual. Raoul is taking a massive lap dance on his call long treasuries. Many were also bull treasuries at 3.10+ and as for the US$ Raoul has been a bull for a long time and this is one of the most crowded places. Raoul like many others when they get a call right once in a while like to think that nobody saw it coming so that they look good. of course that’s being very dishonest but hey this is the life of money managers nowadays. Raoul was massively wrong in his short oil call btw and was also wrong when us$ went from +$100 to $88...
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MFbrilliant Raoul as always ! Thanks a lot
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HOContrary to the presentation, these are actually pretty consensus views. Less self promotion please.
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VDI see it differently. My concern is the steepening not the inversion. I’m definitely not long 10 year bonds anymore.
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SPThanks Raoul. After watching a lot of videos on RV saying that buying USD would be good, I started to do so last year as so many highly respected people on this channel seemed to have that view. Love RV for information that you simply don’t get on the MSM Fake News.
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KKWhat’s the best way to play this from a retail investor perspective? I bought various duration US treasury ETFs but the payoff has been minimal, few basis points.
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ODRaoul- I agree long bonds is great trade BUT I'm not sure who you follow on Twitter because my Twitter is swamped with people who have bearish charts on economy and thus bullish treasuries. Top down charts do a survey on Twitter of sentiment and people bullish bonds for fundamental reasons is high
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HSMaybe you have to be in europe or Japan to truly USD and usbonds are attractive. Are attractive
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tcReally cleared the air for me and reaffirmed my beliefs. Brilliant. Thank you again.
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lyRaoul you delivered such clear message with your own argument and charts! Thank you for speaking in layman terms to benefit every walk of life. What you and Real Vision are doing is levelling the playing field for the general public! You're a charmer...like your style too! LOL What will happen to oil with the rise of US$?
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JQThis is why I pay for Realvision. Facts with a great thesis!! Great Video!! Take a look at Gold daily looks like H&S. Gold might be a buy once fed ends tapering in sept. (Short term bearish long term bullish gold)
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AASo glad I found RV...between Raoul and Grant and all the amazing collaborators my financial acumen has increase dramatically. I'm a options seller and waiting for the moment to volatility to increase but in the meantime these trades on the side are full of value. Thanks!
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RSCurrently the U.S taxpayer has a debt of 180800$ on average just for being an American. That doesn’t include liabilities. Now as yourself, If you met a guy like this would you give him more money? The moment that interest rates reflect credit risk things could get a bit shaky.
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RDExcellent as ever.
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RMI know you are busy in Cayman and all, but sure wish you'd find a little more time to do some more interviews :) Really been hitting the nail on the head the last few months with your calls. Also, what do you think about all the wage growth we are seeing and the relative strength in services? Do you think that eventually manufacturing weakness spills into services? Or can services keep aggregate afloat while manufacturing troughs?
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CJIt would be really great to see a special or mini-series showing how macro guys execute some of their ideas. I.e. how you structure your work space, what kind of software you use, assets traded, timing, position management... maybe I'm asking for a bit too much here, but "pulling back the curtain" is sort of in the Real Vision manifesto ;)
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GGI am not sure how he saying that everyone is bearish USD. Speculators are net long DXY from cot report. Positioning is one sided and there is very nice stop run opportunity. Everyone is bearish euro and audusd but they have gone nowhere with dxy strength. Euro is in falling wedge and we know how those patterns resolve. To me, dxy is in topping formation and reversal to downside is in cards. Sentiment is negative on euro and audusd which will bring a nice rally from here. Even though i respect Raoul’s work and agreed with his bond position earlier, i totally disagree here on dxy. Dxy will rally but it’s early as of now. Need dovish dxy sentiment before next leg starts. Lets see how this plays out. Ecb should trigger it!!!
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AFWould love to see some chat about whether broker houses will survive in Europe or is it lights out no exceptions
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TJGood call last summer! Raoul--Do you have any way of quantifying/illustrating the prevailing sentiment towards bonds and the dollar? CFTC net futures positions, have, as we might expect, flipped radically since last year's bond and dollar lows. It's hard to believe that other investors have remained bearish on both.
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SSRaoul says where will the money go? I'll tell you. It will go into US Equities.
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SSS&P 500 will hit 3000, Nasdaq 8000 IMO before any major downside.
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VSRaoul straight forward comments so very good as it was clear and to the point. We agree on bonds and great trade. The dollar is where i have a huge problem. Where will money go ??to gold silver and platinum. A shortage of dollars? Not in this economy of grand US deficits, they will be printed for the masses. Trump will outlaw an appreciating dollar as he does with oil. If we keep getting weakness you will get a 50 bps cut in FF and the dollar is 92 . But your call over 98 is a very low risk way of doing what you wish. Stick with bonds is my 2 cents. Thank you .
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WGThat was just great Raoul, thank you.
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AAI find every conversation, in which Raoul is a party, very interesting and I agree with a lot of his views and analysis but I don't think he is right this time on his view on bonds, if their rally isn't already over, it soon will be. I agree however with his view on the USD and I also think the USD stock Indices are heading to new highs and the Dow will travel beyond 27000 before it crashes .
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usPlease share more information on cycles: commodities, credit, demographic cycles and that accumulates to make a bigger cycle.
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HSGreat analysis delivered in an easily digestible way. Glad I bought a subscription to RV. Keep up the solid work. It's appreciated.
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TEISM also rolled over
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JSGreat analysis. I‘m convinced it will play out as described.
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NIThanks Raoul. I made great money on the long bond & eurodollar futures trade. Fabulous call with everyone on the other side of the boat making the returns absolutely spectacular. Major kudos. What scares the crap out of me is the deteriorating US financial condition. The US Treasury finally got their annual report out today (here if anyone wants to read it: https://bit.ly/2THSWbl). Even Mnuchin states in the report executive summary that, "the projections in this Financial Report show that current policy is not sustainable". Couple that with Democrats and RINOs competing to outdo each other with the most outlandish proposal for more borrowing and spending. When, if ever, does this start to matter? Will investors continue to pile into US debt and dollars even when the money-balling commences in 2021 or 2022?
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EMI have a general question. Raul says he was bullish bonds and diamonds and that now he's bullish bonds and dollars. However, when you're bullish on bonds, aren't you by default bullish on dollars as well? Bonds are essentially just future payments of dollars.
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REIn fairness, TLT is up about 4% since last August. However, it went down over 6% from August through November. So would a money manager have been able to stay long?
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MFDumb question - what does Raoul mean by the Libor 2Yo2Y% change? Libor today versus 2 years ago or 2 year average today versus 2 year average from a year ago? Anyone?
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JSThanks for sharing your view. How do you follow the liquidity of USD abroad?
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PCLooking back at your Global Macro is Back video, you've been right about bonds and USD, but you also predicted a fall in oil price, which hasn't really happened. Are you still bearish on oil?
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SvOn the mark as usual. Clear, crisp, great charts, great story. Worth the price of admission.
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ggMacro is good, risks good. But what’s “value” in this context is missing. Not a trade, but value. Best value was in Chinese inets. Not a lot of ppl trade rates pa. And my view these macro indicators will turn positives in 2h if we get USA-China resolution. People are under appreciating what trump is doing for the country. And how different USA work culture and corporates are. Still good upside in stocks is my view
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WWWell thought out. Brilliant!
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MExcellent as ever, thx Raoul.
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MCIsn't simply a manufacturing world recession at the moment and services still holds well. Equities are being pushed by techno, if they holds services might be holding on to it too. This bearish view seems to be a strong call indeed ^^. If dollars and bonds rallies together that might be a weird one as it will accentuate the world into the recession. I'd have loved to hear opinions on gold. The vol is incredibly cheap at the moment. Long hedged calls is such a cheap trade at the moment, it looks bearish with loads of sellers but a short squeeze might be about to take place. That will contain the bullishness on the dollar perhaps.
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IOIs ED Dec19 98 call going to work out? Or it's a stretch?
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TT2nd order effects of fed tightening last year just now feeding through to real economy as seen in trade numbers cited. Makes sense EMs will immediately ease if fed eases, hurting EM currency v USD. I feel sorry for US endowment funds that piled into EMs last year because they were "cheap". Also nice to hear someone talking about LIBOR since US economy has shifted further away from public company commercial paper and prime rate+ based financing and more toward private equity deals built on insurance co/non-bank debt, which is generally LIBOR+, and less often hedged.
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DD@Raoul, at this juncture, it would be have been great to hear about the upside risks to your Macro outlook. FYI I have similar views.
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SHTimely, a very well laid out thesis and set of pragmatic inputs and observations to challenge the broader narrative. A real treat, food for thought and then implementation, in one form or another.
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SWFantastic Raoul. You and Lacy Hunt have opened my mind in the bond market. Please continue your great work and updates for us. Cheers!
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JMI always feel much smarter after hearing from Raoul. And yes, we all want more of him. What's important for me is sifting through (as best I can) all the content on RV to get to the real meaningful stuff. The tone on RV is, of course predominantly bearish and buying into too much of this can be injurious to your portfolio and/or career. Raoul has certainly nailed this bond call (and others) but he is no exception to this. One of the best examples of this is "the Trump family, Pence, etc. will be arrested, jailed, etc." I appreciate how Raoul shares with us notable Twitter folks that he follows but to be taken in by the likes of John Schindler - ugh! No need to traffic in the silly lies of The Left no matter what your politics are. Am will always be an enthusiastic supporter of RV - just trying to discern what's important and what's not around here.
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MSNo mention of oil?
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MMVery good, much appreciated. What trades similar to ADXY if you do not hve Bloomberg? Thank you.
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TBRaoul: The mind boggles at the net COT bond positions for leveraged funds across the entire curve, especially in the 2Y. Whats going on here? I thought risk parity were long for example! Otherwise a fantastic and very timely update, thank you!
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CM@ Raoul I have been riding the "boring bond" train since Nov '18 with both your and K Mccullogh call at Hedgeye. It has been really interesting that even Luke Gromen has gone short term bullish on the dollar. Do you have any thoughts on currency as part of US/China trade negotiation? Most people see it as a concession by Chinese not to devalue CNY. What if the deal is to devalue USD and for China not to follow. Same outcome but the other side of the coin. USD lower saves the world?
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TJFirst class analysis, concise and accompanied by persuasive charts as always. Thank you Raoul for sharing your views and I love the phrase, Buy Bonds, wear Diamonds! I have steadfastly believed you and Lacy Hunt when it came to Treasuries despite the consensus for years suggesting otherwise. Still digesting your dollar bullishness, but I can easily see how you may well be proved right with this too. Thanks again for this, and for RV's unique and unrivalled market opinions from so many world class investors and analysts!
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MPRaoul has the best interviews, super smart, has an opinion, game changer...MORE RAOUL!
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WMI hope you are right.
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RIEven a broken clock is right twice a day.
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SGIn full screen mode, using google chrome, the countdown timer remains visible on screen regardless of where I leave the mouse pointer. Not a problem when out of full screen mode.
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ZHLove the bond call and agree. But, differ on USD, with $22T in US debt and Trump as Dovish as you can get to keep stimulating to fund the deficits he will do everything in his power to push down the $USD. Isn’t the FED basically bankrupt as Jim Grant as opined on, and by 2022 as Luke Gorman has pointed out US tax receipts will be less than interest servicing on the debt plus military spending (this doesn’t include off balance sheet US obligations for entitlements etc.). How does the $USD rally above .98 under that scenario? I’m long GOLD and bonds.
RAOUL PAL: Everybody tells me the US economy is nothing to worry about. Everybody tells me the yield curve being as low as it is not a concern. It's different this time. The global economy is a big issue for the US. All the data is very clear. Europe is pretty much in a recession now. Germany is certainly in recession. All of the work that I do strongly suggests to me that this weakness has not finished.
Back in August 2018, I published an expert view on Real Vision called "Macro Is Back." And my thought process at the time was that the global economy was weakening and the Fed had over-tightened. That was not a very popular view at the time and still probably remains not a popular view. But for me, the signs were super clear.
What I could see is that the rate of change of LIBOR had gone up exponentially. And that rate of change actually drives the business cycle. So it's not about the actual level of rates, but the change in rates. And that was an important point that I think the market hadn't noticed.
From that, I was seeing that, particularly in the US economy, things were changing in the margin, particularly in big-ticket items, things that required financing, be it recreational vehicles, car sales, durable goods orders, and a number of other things. We could see that these big-ticket items were struggling as people were struggling with the increase in interest rates.
My view then was, OK, this could have some knock-on effects, and the global economy looks like it's weakening. We had trade wars that were starting to reverberate around the world. And I thought, OK, this is something that is incredibly macro, and opportunities should arise from it.
I distilled it all down to one bet. I said, if there's one bet that expresses my view that the global economy is slowing and that the US economy is slowing and the trade wars are going to be relatively disinflationary for the world and that inflation itself was slowing and that the Fed had gone too far and the participants were overly short the bond market, then buying calls or just buying bonds in the US was the best trade in the world.
A little bit later, I wrote a piece for Macro Insiders which became pretty well-known. And I coined the phrase "buy bonds, wear diamonds." Now what that means is if you buy bonds, you're going to be wearing diamonds, 'cause you're going to be making so much money. That's an old market expression from the '80s, in fact. And I thought it was particularly useful to explain the singularity of that opportunity.
The bond trade was one of the best trades I'd ever seen. I'd been pounding the table in Global Macro Investor, Macro Insiders, and on Real Vision to say, listen, this is the best trade in the world. What was interesting is so few people believed in my story that people fought me tooth and nail. And eventually, luckily, it worked out. The bond market rallied extraordinarily.
So eurodollar futures, which I had been a big part of, and the TLT and US 10-year bonds and US two-year bonds, the whole lot rallied. For Global Macro Investor, I was long, Australian bonds, I was long, UK interest rate futures, I was long, German bunds-- you know, that whole trade was a really big trade for me.
So now we come into the year, and that trade continued into February and into March. And now suddenly, in the last few days, we've seen a reversal. So where are we now? That's the key thing we need to look at and where the opportunities may lie for the future. Again, I do note that almost everybody has the opposing view to me.
I spend an enormous amount of time-- I've just written Global Macro Investor today over the weekend-- and I spent a lot of time going through all of the charts. And from what I can see is the trends that were there last year are still in place. So we're still seeing slowdowns in car sales, in housing, in recreational vehicles, in durable goods, in retail sales. In fact, it's everywhere across the US economy. We're seeing it in the ECRI, which is the business cycle index. That is still weakening. We're seeing incredible falls in exports and imports all across Asia as trade wars and a slowing China take hold.
So all the data is very clear. Europe is pretty much in a recession now. Germany is certainly in recession. The PMI has been in freefall. The bond market has been rallying like mad. But again, people don't really want to add two and two together. So most participants are now saying, yeah, but the US is going to be fine, because the last GDP print was about 3%. It looks like Q1 is actually going to come in somewhere closer to 0.
But again, much like many other Q1 prints driven by the oil inventory cycle and the shut down of the refineries, everybody is now looking through it and saying, well, Q2 and Q3, they're going to go back up to 2.5% or so, and everything is fine. That's the bet the market wants to take. That's why the bond market is selling off. We saw a little bit of positive news out of China. The PMI nudged higher, and everyone said, oh my god, this is amazing. But is that narrative correct, or am I correct?
Now I'm always terrified when I stick my neck out like this, because I can always be wrong. But all of the work that I do strongly suggests to me that this weakness has not finished, that the yield curve, as I talked about back in August, is essentially inverted. And it's inverted because of the ultra-low rates.
And I've just done some work again for GMI on this. And I think the curve inverted in the ultra-low rates environment at around 65 basis points. So it's been inverted for a while. It means a recession is coming sooner than people expect. All of the evidence I can see suggests that this correction in the bond market is just the narrative of those who are more economically positive than I am at this phase.
I'm kind of indifferent whether we go to recession or not. What I am really looking for is that the Fed are going to start being much more bullish for interest rates than they have been. So they've moved to neutral. And now we're starting to hear the noise about a cut. I think that is what I'm looking for next as the narrative shifts towards a cut. And then we'll start also removing QT.
So these things, I think, are coming. And I think this pullback in the bond market and the euro dollar market really is going to be an opportunity to add to that trade. This is really the first meaningful pullback we've had in quite some time. And the move we've had has been extraordinary. It's been incredibly profitable for those of us who've been long bonds.
So I think, in the bond trade, we should be looking to add. I think really, having traded these kind of bond moves for a very long time-- I mean, I traded this exact thing back in 2000, 2001, and also 2007, 2008-- for me, I know that these pullbacks don't last long. They last a matter of days. And before you know it, the bond market's rallying yet again.
You can see from the chart of two-year bonds, from this head and shoulders top, now, it wouldn't surprise me if