Insider Talks – July 2019

Published on
July 5th, 2019
Duration
50 minutes

Insider Talks – July 2019

Featuring Raoul Pal, Julian Brigden

Published on: July 5th, 2019 • Duration: 50 minutes

Should the Fed cut 25 or 50 basis points in July? Raoul and Julian debate the likelihood of a recession versus a recovery from the current slowdown and the ability of central banks to stave off further weakness. The Fed has the upper hand in that battle. Filmed on July 02, 2019.

Comments

  • DY
    Dmytro Y.
    23 July 2019 @ 02:31
    hi Julian and Raoul, if you want to be long 'real assets' like gold, any reason for you to not be long properties (real estate) and not say it? with interest rates going down it only looks that real estate may be a good place to invest (though yes prices are over stretched in most places globally). still falling rates means there is no catalyst to push real estate down, and people with cash will probably want to invest in real estate? i am based in Hong Kong. Thanks
    • SB
      Stephen B.
      24 July 2019 @ 19:05
      I have started to look in London, for some of the reasons you suggest.
  • MB
    Michael B.
    7 July 2019 @ 16:19
    Please forgive this ignorant question particularly in this crowd but why do rates go to zero if the dollar breaks 98 or shows strength. I have listened to this several times and cant make that final connection.
    • MB
      Mark B.
      7 July 2019 @ 22:48
      As I understand it, as the dollar strengthens US exports decline because product prices become more uncompetitive. Lowering rates leads to investors selling the dollar and so lowering it. A strong dollar also cause emerging market economies to falter as they have typically have large debt in US dollars. Broken emerging market economies can have a domino effect on the global economy and at a minimum mean they buy less US products.
    • PN
      Paul N.
      8 July 2019 @ 00:15
      Because the fed will be forced to cut to try and stop the dollar rally as it would be catastrophic for the global economy
    • JB
      Julian B. | Contributor
      18 July 2019 @ 21:37
      Paul N is correct. $ strength especially a rapid appreciation is toxic and deflationary. Therefore, the Fed will have to move rapidly to cut to truncate the move
  • ag
    anthony g.
    10 July 2019 @ 10:24
    so no one knows ... yet ... what is going to happen ..... does that sound about right ?
    • JB
      Julian B. | Contributor
      18 July 2019 @ 21:34
      Hi Anthony What's tough here is that while both Raoul and I believe we are at an inflection point, exactly how that breaks over the next couple of months is very tactical i.e. as per Matthew summarised above, does the Fed first disappoint before they cut more aggressively or do they deliver in July and again in September? That said big picture my personal view is that ultimately the Fed can and will punt the cycle at least into 2021, which is positive for stocks (especially growth outside the banks), bearish bonds (at the long end) bearish dollar and bullish precious metals/commodities
  • MZ
    Matthew Z.
    11 July 2019 @ 00:02
    I think when this is all said and done, all of Raoul, Julian, Luke Gromen, and Brent Johnson are right, maybe all within 6 months. Start by remembering the US is a ponzi scheme that requires asset prices to constantly go up (Julian w/o the obvious ponzi scheme part). The fed will cut in July because it has to (Gromen), but they won't cut enough and it's already too late (Raoul). The dollar rips upwards (Brent and Raoul), earnings are terrible for Q2 and Q3, risk assets get hammered (Raoul). At some point this year, the fed brings out a bazooka (QE4 / NIRP / something we don't even know about) - kills the dollar, reflates this thing for another couple of years (Julian / Gromen). Gold / Bitcoin rip (Everyone). Only thing that gets in the way of the reflation trade is some of these BBB's getting downgraded and initiating the doom loop (Raoul).
    • lD
      lance D.
      11 July 2019 @ 13:11
      'Just like that' (tommy cooper) Thanks for getting me back on track - wish it was always made this clear .
    • JW
      Joel W.
      11 July 2019 @ 18:32
      Bravo, Matthew Z!
    • JB
      Julian B. | Contributor
      18 July 2019 @ 20:52
      Nice summary Matthew!
  • MG
    Miguel G.
    9 July 2019 @ 14:58
    Julian if you look at eurodollar positioning or gold positioning alone they are extremely long becoming a dangerous consensus bet. With a contrarian mind set and with last week's nfp report wouldn't it be a smart risk/reward to fade what everyone is betting on right here right now and thats an uber dovish fed? If im reading this correctly it seems like everyone is so sure the fed is going to cut rates and eventually launch QE but I see alpha lurking in taking the opposite side that bet, which would be a more hawkish fed on the margin = lower gold= higher dollar and eventually lower equities. Under this scenario if it plays out could I then agree the fed will be more inclined to act, but given where markets are today its a huge leap to think they will cut 100bp without "something happening" Thoughts?
    • MG
      Miguel G.
      9 July 2019 @ 15:01
      Just my personal opinion but Im kind of siding with Raoul here and I think the bond market has it right while the equity market is way offsides. Even if you look at US 10 year positioning there is still a net short position in that trade which means no one believes the bond market move here so it could still run especially if the fed doesnt catch this cycle, which I personally think they wont. Very tough environment
    • MB
      Matthias B.
      11 July 2019 @ 09:07
      fair point but the overall positioning in Gold is not bullish. Yes, speculators have upped their longs/reduced the shorts but overall money is still strongly underweight in a portfolio allocation context. from that point of view, gold has much more room to go. I was wishing that the FED would be hawkish on the margin - actually all CBs - but their u-turns this year alone tell me that they simply don't have the courage to inflict pain on the markets thus prefer to kick the can down the road. Ms Lagarde and Mr Carney being promoted to head ECB and IMF would confirm this that monetary institutions are very reluctant the change to monetary support course.
  • rm
    robert m.
    10 July 2019 @ 05:33
    Guys where do you think the aud / usd goes from here?
    • MB
      Matthias B.
      11 July 2019 @ 09:03
      Raoul is rather on the cautious side on the Chinese economy and Australian housing if I recall correctly. Given Australia's correlation to chinese money flows and economics one would think that the AUD should weaken (I think that Julian actually preferred the AUD/JPY trade
  • RM
    R M.
    5 July 2019 @ 17:29
    Would you gents endorse the view from a recent RV talk that NLY is a good trade on the curve steepening you both expect? If not, can you offer better? Buying SHY without leverage does not offer retail investors much juice.
    • RP
      Raoul P. | Founder
      5 July 2019 @ 19:28
      Im afraid I don't know what NLY is...
    • RA
      Robert A.
      5 July 2019 @ 19:48
      Or, AGNC per that RV piece. Good suggestion RM. MY takeaway on the NLY and AGNC play is that the timing of when to put the positions on will be tricky—that’s where MI could prove super helpful.
    • PN
      Paul N.
      5 July 2019 @ 21:21
      NLY/AGNC are american reits that michael lebowitz likes because they should benefit from the curve steepening
    • RM
      R M.
      7 July 2019 @ 18:16
      Roaul and Julian: We need a good trade besides SHY for short rates dropping. As noted by Paul below, Lebowitz on RV recently recommended NLY and AGNC since they benefit from short rates dropping more than long rates. Seems reasonable. I would think there are some Closed end funds that use leverage that would also benefit, and I am searching for them. IF any body has some ideas please post them in the comments! Thanks all!
    • SM
      Sean M.
      11 July 2019 @ 01:27
      STPP ETF is supposed to do well when curve steepens seems like 2yr vs 10yr although I just glanced at it. Does not seem very liquid though.
  • CP
    CRAIG P.
    10 July 2019 @ 20:54
    Julian and Raul, While everyone, all things being equal, likes it when you are on the same page; hearing your different perspectives argued in a friendly manner is extremely helpful for me to see signals going forward and put them in perspective of your contrasting views.
  • TM
    Todd M.
    9 July 2019 @ 19:41
    Bravo. day one subscriber here and A+ discussions. Carry on Gents!
  • HO
    H2 O.
    9 July 2019 @ 03:09
    Powell is going to have to channel Yellen ‘16 and include global macro malaise into his policy statements and cut accordingly. Everyone in central bank land (well almost everyone) wants a weaker dollar. This is out of step with recent US data and will be hard to explain, but I expect him to do it. Bigger picture, rate cuts without a weaker dollar will fail. Rate cuts AND a weaker will allow them to fail better. The dollar has been uncharacteristically strong during recent US economic outperformance, and this precludes another breakout rally IMO. Rates are only part of the equation. Deficits and debt ceiling dynamics are dollar negative given the assumption that the rate cutting cycle will fall short of current market expectations.
  • DB
    Doug B.
    6 July 2019 @ 00:17
    Personally I find it annoying when Raoul and Julian disagree. They're both way smarter than me, so if they can't decide who is right, how am I supposed to? I missed Raoul's early bond call because Julian was really not so sure - I actually made a comment here to that effect. If I had taken all of Raoul's trades, I would have paid my MI subscription for about 100 years by now.
    • SS
      Shanthi S.
      6 July 2019 @ 04:33
      But that’s what makes a market, no? I absolutely love the differing view points. Food for the soul. Better to hear both sides of an argument and act accordingly than walk off cliffs with unquestioned confidence.
    • SB
      Stephen B.
      8 July 2019 @ 14:04
      Yes, i also find it hard to make a personal call, when these two intellects cannot agree but we are where we are - the markets are simply in unchartered territory. In the absence of a high conviction trade, I am viewing gold as the lowest risk option (now up to 35% gold in my portfolio) and while this uncertainty continues i will continue to add to that position.
    • EF
      Eric F.
      9 July 2019 @ 02:08
      Fair comments Doug and I agree. If the experts can’t agree what hope do we have? To be fair though I think it’s such a schizophrenic environment out there that you can justify their disagreements. My call is that bond market historically has seldom if never been wrong. The stock market rally has not been based on fundamentals, but just jawboning by the Fed etc. I’m placing my bets more behind Raoul.
  • GH
    Gary H.
    8 July 2019 @ 19:23
    Stocks are going to absolutely bloody shank lol...Enjoyed the debate
  • SH
    Sean H.
    8 July 2019 @ 15:21
    I think some people miss the point of these little discussions. My take is that this is an informal look at a conversation between Raoul and Julian. Kind of like we are a fly on the wall. I have no objections to how this is presented and consider myself fortunate to be able to view it in all of its' rawness. Keep cursing and keep interrupting each other. Carry on Gents, I love it.
  • hb
    hilde b.
    6 July 2019 @ 03:14
    Any more view on silver ? Do you think it will go up like gold, or is the price action more disconnected and catches up later. Do you think it could go to 50$ silver at 1900/2000$ gold Thanks for any guidance.
    • RP
      Raoul P. | Founder
      6 July 2019 @ 11:02
      I dont have a view on silver because it is too much driven by industrial use to be as valuable at thsi part of the cycle. Later, when the dollar is engineered weaker and we are at the bottom of the business cycle, then Silver does really well. Silver ready hit its pace in 2003 onwards, for example.
    • SB
      Stephen B.
      8 July 2019 @ 13:15
      I may be wrong but i recently traded all my silver for gold. Three reasons: (i) We now have Bitcoin as a safe haven trade, to sit alongside gold; (ii) silver is bulky/expensive to store in physical form; (iii) gold is a tier one asset and we now have multiple Asian CB's actively buying gold, all of whom have a long term interest in price appreciation. Put in other words, i fear silver is going the way of copper as a monetary metal whereas gold will play a vital role in any monetary reset.
  • WM
    Will M.
    7 July 2019 @ 19:19
    Good discussion. I have no problem with Raoul and Julian disagreeing as I think it just shows the polarization that currently exists on where markets, the dollar, bonds are heading. However at some point I am hoping they will be aligned on clear profit making opportunities. Like the new positions tracking!
    • FK
      Firoze K.
      8 July 2019 @ 07:46
      Totally agree with you
  • LM
    Lawrence M.
    6 July 2019 @ 01:54
    Glad to see/hear the format updates regarding trades/positions. Very helpful. Thanks!
    • LM
      Lawrence M.
      6 July 2019 @ 01:57
      loved the longer video length as well
    • RP
      Raoul P. | Founder
      6 July 2019 @ 11:02
      There was a lot to talk about!
    • JC
      Justin C.
      8 July 2019 @ 04:41
      Would also love to occasionally have a third voice on to hear a different perspective. Maybe Kyle Bass, Keith McCullough, etc. That said, great discussion this month - loved the argument re: growth as a defensive strategy. Thought Raoul nailed that one, but I’m a biased bear.
  • AB
    Avik B.
    8 July 2019 @ 04:34
    Awesome talk guys. While I see Raoul's thinking laid out in his note a week back, would love to hear/read more about Julian's base case of long end treasuries eventually getting to 4%.
  • RH
    Rob H.
    6 July 2019 @ 16:14
    Julian - You expressed concern on the rates cuts in July on the amount of the cuts. How did the July 5 Jobs report affect your view on the Fed Cuts in July?
    • JB
      Julian B. | Contributor
      7 July 2019 @ 15:48
      Hi Rob, base case is that we get 25bps and that is now priced. However, I'm still a little nervous about the markets assumption as to the overall cutting cycle. There are still bets in the Eurodollar curve that we will see 100bps and at this stage the Fed just aren't there.
    • DB
      Daniel B.
      8 July 2019 @ 03:26
      My $0.02 (which certainly is over-valued with respect to existing company here) is the Fed don't cut in July - with only 250bp to cut with, it's not enough to drip feed in 25bp lots (akin to a garden hose on a house fire), it'll get absorbed by the market and economic deterioration continues. If they want to reflate and smack the dollar down, it's 100bp at a time; and the data just doesn't justify it right now. Watch the market throw the biggest tantrum after July's meeting, that'll force a lot of dovey-talk at Jackson Hole, Powell comes back in September and goes a full 100bp when S&P is down 15% after Q2 reporting season and credit spreads blow out >500bps. By this time, we're probably > 97-98 on the DXY with much more momentum into USD that nothing stops it, especially with ECB cutting rates to help EUR reflate European economy. It appears like central bank v central bank right now.... and it's a race to the lowest interest rates and the cheapest currency - except the Fed has lost control of the USD...
  • RW
    Richard W.
    7 July 2019 @ 16:53
    I think the content is interesting but could be significantly improved by: a) No swearing during these presentations - it's just unprofessional. Tell us what you think using more than 4 letter words b) Julian mustn't keep interrupting Raoul, and possibly needs to think more deeply about what he is going to say prior to the start of filming, and to state his views more clearly and succinctly, with a clear end point, to avoid meandering too much.
    • lD
      lance D.
      7 July 2019 @ 17:19
      FUCK THAT , swearing done correctly... is ARTISTIC . some cool shit in this months talk.
    • lD
      lance D.
      7 July 2019 @ 17:21
      never swear in the presence of a lady i would 100% agree with that
  • SS
    Stephen S.
    7 July 2019 @ 13:06
    Great job, gents! This was one of your best talks. The comparison of your positions will be very helpful. A summary of what you both agree on in macro themes would be useful. Thank you both.
  • RL
    Randy L.
    6 July 2019 @ 14:42
    Maybe I am stupid compared to most of your followers, but if rates are going to zero, why are you out of TLT? Is that a short term call to take profits and look for better entry point or am I just totally confused? Love your work. Also, love the updated procedure to let us know what the recommendations are for buy/sell in much closer to real time.
    • NI
      Noah I.
      6 July 2019 @ 18:27
      Front end is a higher conviction trade here given his view of leading indicators suggesting an upcoming slowdown. Front end is more sensitive to monetary policy than the back end, which is still somewhat beholden to long-run inflation expectations. He explicitly stated that the curve will steepen, implying that yields on short-term treasuries will fall faster than longer dated issues.
    • RL
      Randy L.
      6 July 2019 @ 21:22
      Thank you. I understand. Simple but helpful to me.
    • MB
      Michael B.
      7 July 2019 @ 00:52
      Can any money be made on the front end without resorting to options or leverage? SHY is up like 1% YTD and less since April.
    • MB
      Mark B.
      7 July 2019 @ 11:22
      I am still confused and would like to understand more… Is the recommendation for a short-term trader to sell the TLT? Is it better for a long-term investor to stay long the TLT? Many sources are saying the long-term US treasuries are headed in the direction of Germany and Switzerland where rates have gone negative. Given this, why sell TLT? The long-term expectation, I also understood to be deflationary i.e. baby boomers will be eating at McDonalds, wearing old clothes, driving old cars ;) ; AI will be taking more jobs; the Uber/Airbnb gig economy will grow, etc. Is the recommendation different for someone that owns a boring Vanguard long-term treasury fund?
  • RH
    Rob H.
    6 July 2019 @ 15:03
    Raoul, your theme that every baby boomer here in the US will not own growth stocks seems logical, but with no yields in the bond markets, and many don't have enough to retire on, wouldn't you think it's plausible that they allocate some to growth stocks? I through this out there, every baby boomer I know my 2 sisters included and my 3 70 to 80-year-old golf partners love the QQQ, in fact, I would say they are downright addicted to it. The crazy thing is when I talk about bonds they just roll their eyes at me and laugh. In fact one of my golf partners owns the TQQQ, he said it's 10% of his portfolio. I know this is a small sample size but people tend to do what has worked in the recent past and the last ten years this has worked, so I suspect it won't die very easy.
    • JL
      J L.
      6 July 2019 @ 15:20
      it will die even faster once it starts to go down
  • LJ
    Lucille J.
    6 July 2019 @ 15:06
    4 percent interest on 23 trillion =920b dollar of interest expense the but you are still going to grow GDP-Really
  • NI
    Noah I.
    6 July 2019 @ 14:57
    I think what a lot of this comes down to is a world awash in debt. There are two ways to deal with this; something akin to fiscal dominance à la Japan, or somehow inflation returns or is engineered and nominal rates can come up as real rates stay depressed. In either scenario savers eat shit, so I’m very uncomfortable owning longer dated issues and have almost entirely removed bonds in favor of gold and miners. Gold to me seems to be the best trade in the world going forward as it benefits in nearly all foreseeable situations barring the fed being able to normalize real rates and roll off the balance sheet, which I fundamentally believe they can’t. No one has the stomach for economic pain at preset and policymakers are hyper aware of the rise of populism since 2009, meaning another global economic crisis that leads to high unemployment will not be allowed. It isn’t some conspiracy theory, central banks globally have shown they will work in concert to maintain financial asset price stability. Unconventional monetary policy changed everything and if one controls the money supply and can buy up assets on the open market it seems quite obvious that one can control the price of assets in nominal terms. Please don’t misconstrue that to be me agreeing with the policies, it’s more of an observation about the reality we live in. Silver prices are also depressed, as Julian said, but it’s a much more high risk high reward trade. Gold will benefit whether the economy tanks and the last bastion of risk-free yield goes negative, or if inflation rears its head and the Fed’s hand is forced. Silver only outperforms in the latter case (I’m still heavily long PAAS). Either way you won’t see 2018 style hikes until the Fed sees persistent inflation above the 2% target, and even then I think you’ll see policy switch to symmetric targeting before rates head higher. On another note I’m on the fence about growth going forward given current valuations yet what Julian says fundamentally makes sense. If there’s little aggregate economic growth and a company can essentially borrow cheaply at the expense of savers to fund secular growth, they’ll likely outperform the broad market. The problem is, and I hate to use this phrase, a lot of the growth (in the US) seems to be priced in, and ALL of the money has appears to have fled value for growth and momentum. Take a look at Japan to see how painful these low rates have been for value. Some of these deep value funds like IVAL have more than 50% of their assets in Japan because these companies appear to be so cheap, and they very well may be. In the US value has underperformed growth by a staggering amount, and last the P/E differential between them was approaching 8 on a ttm basis. At the same time they appear fully valued on an absolute basis relative to historical standards. I’d argue a good trade going forward may be going long value companies (especially international) that carry significant debt on the balance sheet and are trading at low EV/EBIT multiples with strong cash flow. If inflation rears its head and the fed raises rates, value will almost assuredly outperform growth, and the companies with significant debt will benefit from inflation. If economic data remains weak or there is the hint of a crisis, central banks will pull out all the stops. Rates will plummet, balance sheet expansion will resume, and borrowers will be subsidizing the leverage used to throw off this immense cash flow to the equity portion of the capital structure. Unlike indebted growth equities, indebted value equities can manage the debt service and quickly reduce debt using the strong cash flow if needed. As a retail investor I’d much rather own the 4.5x EV/EBIT Japanese small cap value stock with high debt and low liquidity than the large cap growth stocks in the US that every institution on earth is piling into. Value has been run into the ground, how much more money is still left to flow into growth? Just my 2c
    • NI
      Noah I.
      6 July 2019 @ 15:01
      On mobile this post shows up as having line breaks whereas on desktop it shows up as a wall of text, so apologies if it's almost unreadable.
  • JM
    Jason M.
    5 July 2019 @ 20:26
    You guys did great job on the Fed dynamic....beyond the Fed....key question I know a lot of us would like answered. Do you two think that the US and China are still cooperating to keep the cycle alive or has this become something of a stand-off between the US and China to see who is more afraid of a real recession? The answer to that seems to be important and I'm not hearing it discussed many places. I mean, if the US has a lot of ammo to fight a cyle in the US (debatable but seems to be consensus) and China has a lot of ammo IF the US eases to cover it on capital flight pressure...then there is little chance we are getting a global meltdown...and so we will get a recovery whenever the trade war truce happens or when either side simply blinks and makes concessions independent of a comprehensive deal? how does that logic sound?
    • RP
      Raoul P. | Founder
      6 July 2019 @ 11:11
      Ive never a fan of trying to second and third guess international relationships and "secret" deals etc. I find that you can find any answer you want as definitionally it is all conjecture. I try to use the data first as the truth and then hypothesis as to its probabilistic outcomes based on actual outcomes, if that makes any sense. So, right now, US and at China are in the largest trade dispute in my lifetime. There is also a tech issues (which is more military based and security based) too. This is not easy to resolve due the the duality (trade plus tech) and evidence so far shows that global trade is falling fast as this si not getting resolved as it is not in either sides interest to compromise. Only an external event could change that, and that is most likely a bad recession or economic event that forces a change of strategy in China or the US.
  • IS
    Imran S.
    5 July 2019 @ 23:42
    Would it be fair to say that SHy is probably the best bet right now given everything else is up in the air right now? Everything except short rates coming down aggressively in the next 12 months or so? Scenario (a) even if the Fed cuts by 25bps there's likely to be a major tantrum in the equity market which will force the Fed's hand to cut more aggressively thereafter? Scenario (b) the economic data is weak enough for the Fed to cut more aggressively starting later this month - notwithstanding the strong Jobs number out today? So either way the Fed cuts on the short side whether the curve steepens (or not) or whether the DXY breaks through 98 or weakens from here? Would love to hear your thoughts - Raoul and Julian? Thank you
    • RP
      Raoul P. | Founder
      6 July 2019 @ 11:04
      100% agree and if the DXY goes up, rates go to zero too..
  • JA
    J A.
    6 July 2019 @ 08:19
    I think you two are beggining to confuse yourselves!
  • SS
    Shanthi S.
    6 July 2019 @ 00:01
    This was so so good!!! Thank you both very much for the in depth tug-of-war. So much to chew on and mull over. Love the idea of the trades being clearly laid out in In Focus too! Awesome! Thank you.
  • SV
    Steven V.
    5 July 2019 @ 22:16
    Based on the Money Multiplier, the Fed does have some ammunition, but they will blow through it quickly. Long-term Treasury yields are headed to zero. C&I lending is about to contract on a 3-month basis, so demand is falling. Deficits are increasing, leading to more government borrowing, and lower yields. Demographically demand is falling, along with yields. Commercial banks are buying billions of government bonds. The only reason people think yields are headed higher is the monetary lags haven't kicked in to fully reflect the Fed's tightening cycle. It's more obvious overseas, but American investors are going to be shocked. Treasuries are going to new all-time highs first.
  • NH
    Neil H.
    5 July 2019 @ 20:46
    this video reminded me of the thriller in Manila. Two guys battling it out going toe to toe with each other. Although I came away with no idea as to who was correct it was great to hear the banter back and forth. I am hopeful by the end of the summer some conclusions will surface.
  • RA
    Robert A.
    5 July 2019 @ 19:58
    This was a REALLY good one as we got to hear both of your expanded longer term views and probabilities! From the git go we have been prepped as to Julian’s more tactical moves as compared to Raoul’s longer term ones. IMO, what makes MI so very useful is the interplay between two positions (which may overlap or may diverge) in real time from two well credentialed sources. For me, if I were only to listen to either of you I would come away with THAT viewpoint (and that person’s probabilities). It is so much more valuable for me to hear the debate in real time so that I can form my own opinion with regard to the nuances that appear in your discussions.
  • KB
    Keith B.
    5 July 2019 @ 19:38
    Great conversation, so much value in the discussion. Am now going to watch it again so I make sure I take it all in
  • JM
    Jason M.
    5 July 2019 @ 18:59
    This is the best Insider Talks since inception of the service