Hi Matthias first off I think we need to separate the next 6-9 months of inflation from the next 10 years. In the next 6-9 months, we see headline CPI moving towards 2.5-2.75% some of this is hurricane, oil related but predominantly its a function of firms finally buckling under the pressure of higher input costs that have been rising for two year and pushing through price increases. As the same time core CPI should move up above 2% and average hourly earnings to 3%. This is enough for the Fed to justify 3 hikes next year. Bigger picture, in the future you are correct robotics, AI etc are major headwinds. However, I think there is a danger of assuming that we are already living in that world. Yes in 5 years, driverless trucks could dominate but for the moment, I believe there is only one driverless truck in the whole country, which is being tested in CO. So right here right now, this technology is irrelevant. My immediate focus is what happens next year when we hit the economy with a fiscal stimulus? Do we get a break out in inflation that looks like the mid 60's when CPI went from 1.6% to 3.6% in 18 months? What happens if after the next big move up in the $, we enter another decade long decline, because that could be massively inflationary. Also what happens if I'm right and in the Europe, where we have the worlds biggest bond bubble inflation surges in the first half of next year? Bottom line, I would suggest keeping an open mind to the risks of inflation at least for the immediate future because it is the biggest risk to markets.

Hi Corey. We see the move lower in the EURUSD as in part a technical/ positioning play looking to exploit the ECBs current dovishness, which has widened the interest differential in favour of the USD. But it is just that a trade. At some point early next year we should start to see Bund yields rise as the ECB tapers and core inflation/growth materially accelerate (my world suggests 1.8% core CPI by next summer and 3.5% GDP growth). As soon as Bund yields start to move higher and break the range that would be a clear sign to cut.

For hard of hearing the same is true. I have to re-play a lot of parts. Any chance for an improvement in quality? The conversation is great. Thanks

Guys this is but one more reason a transcript is sorely needed...hope to that added feature soon.

I agree, it's sometimes hard to hear what it being said

Hi Coxey, You are right on regards to the short vol trade. But in Chris Cole's most recent article he notes the explicit short vol trade pales in comparison to the implicit short vol trade - of which volatility targeting and risk parity are two heavily used strategies. According to his number the explicit vol short is 60 billion vs the 1.4 trillion in implicit short vol. As a simple example, say you have a target vol on your equity sleeve of 10. As realized vol drifts lower and lower, you must increase your volatility sensitivity in the portfolio to reach your target. As this goes on and on, you continue to buy more and more. The flip side is that you will be a forced seller in a rising vol environment. This is way too oversimplified, but it's the general gist of how they work, and thus the reason for my question.

Here is a link to the paper. He references the amounts on page 3. https://static1.squarespace.com/static/5581f17ee4b01f59c2b1513a/t/59ea16dbbe42d6ff1cae589f/1508513505640/Artemis_Volatility+and+the+Alchemy+of+Risk_2017.pdf

Thank you

Any chance of a transcript ?

Glad you caught the Audio problem as I had a devil of a time hearing it and had my I pad up to my ear!

Agree on the free form conversation- just too bad it was only half an hour! Please get Julian a Rode mic like Raoul has!

Brent, I think they tried to get across a different message which basically is that it will NOT be a sell off in equities which causes higher volatility but rather it could be a blow off top with strongly rising equities which causes an increase in volatility.

Daniel, Thank you for the reply. I agree with your statement, I think that was the point they were trying to make. My question, however, focuses on the fact that regardless of the reason for the volatility spike, all of those program trades revolving around a vol targeting strategy in one way or another, will become net sellers. Adding in short rates will have the same affect on leveraged buyers in general. I'd assume that would cause them to lower notional exposure. And it will certainly make it more difficult for companies to justify share buybacks. Where is the marginal buyer coming from to create a blow off?

*Should say adding in "rising" short-term rates

I also agree with the comments regarding the direct conversation format. Both of you are able to freely express your thinking without interruption and redirection of the conversation by a moderator. This was the very best video to date, in my opinion, for that very reason. Also, I appreciate your interweaving into your discussion how macro investing works as this is new to me. Finally, this week seems to be bringing on upheavals in the middle east that may impact markets particularly oil. Will see how these external factors might become a component of macro moves. Good to have the two of you guiding us through this maze of Neil Howe's Fourth Turning rearrangement of societal institutions. Raoul it was good to hear you discuss the potential of governments purchasing the markets. I have been trying to think about how that would look.

Thank you Elizabeth, I knew nothing about Neil Howe's Fourth Turning rearrangement of societal institutions....

Agreed