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Julian & Raoul: Daily Briefing

Since launching Macro Insiders together in 2017, Julian Brigden and Real Vision CEO, Raoul Pal, have been sharing their respective frameworks, macro views and flash trades with thousands of retail investors around the world. 

Last week, Julian made his debut alongside Raoul on Real Vision’s Daily Briefing. 

For the first time, the pair teamed up to dive even deeper into macro shifts, supply chains, double dip recessions and bonds. 

Here, we’ve captured some of the key take aways from the 40-minute session.

Why did you join forces to create Macro Insiders? 

RAOUL: We’re basically two old curmudgeons who’ve been in the market for over 30 years. Between our two research services we probably reach every single major hedge fund and institutional asset allocator that really matters in this world. The whole idea behind Macro Insiders is we’re lifting the veil so everyone gets access. It gives people a contextualized understanding of how to think like a market professional.

JULIAN: We’ve always believed the stuff the brokers are pushing, the stuff that most of the pundits are pushing, is just bullshit. They’re peddling their own views because they’ve got skin in the game. Essentially, we’re trying to be the rational voice that explains to people how to preserve wealth, make money and spot trends, which they wouldn’t have otherwise had. 

So, the big question… is the macro shift underway? 

RAOUL: I actually think we’ve got a soft patch coming before we get more stimulus, and the economy takes more time to strengthen. I think there’s a number of variables; everything from the China slowdown to the Delta variant. I also think we’re going to see an issue coming out of Japan. When you look at the propensity for people to buy big ticket items, it’s absolutely collapsed. Higher prices have actually stopped consumption right now. That’s because we’re very early cycle and they’re just not comfortable. They don’t have the cash and haven’t got their jobs back fully. 

JULIAN: It’s been very interesting to watch this last couple of months. Since June, people have looked at this collapse in bond yields and gone, “oh my God, the sky is falling, the sky is falling”. But all the data is crap. I don’t see anything slowing in this economy. Yes, some of this stuff is going to peak. You can’t grow retail sales at 50% year-over-year – like we were a couple of months ago – or at 18%, which is where we are currently. Even if you grow it at 10%, that’s still probably the most rapid retail sales growth we’ve had in a decade.

Tell us about supply chains. What are you seeing there? 

JULIAN: I’m an avid follower of all of these PMI type metrics. There’s a ton of information here. If you look at the most recent market PMIs on face value, manufacturing was blisteringly strong. However, there are some issues that are starting to occur. We should have been short on homebuilders because stuff has gotten so expensive. People are actually pulling back and there are pockets of weakness there. I look at this and believe we’ve achieved peak acceleration. 

There is a chance, although it would be highly unusual, that we could jump again on the manufacturing side, and get PMIs above 60. However these things don’t just sit at these levels. They go up and down, they don’t keep going up and up and up. I would be amazed if it held. Maybe in August, it’s going to go again on the manufacturing side but then you should see a bit of a natural slowdown. I haven’t got a problem with the idea that ISM drops from the 60s to the mid-50s. My point is that it could create the impression that the sky is falling.

RAOUL: I have a feeling the ISM might get closer to 50. That’s happened after pretty much every recession, but it doesn’t mean anything yet because it’s really early cycle. Everyone says, “we’re going back into a double dip recession,” but I don’t think so. However, the Fed will go, “we need to stimulate” which is what happened twice last time.

You mention a “double dip recession”. What’s your experience of the way recoveries tend to happen? 

RAOUL: Generally speaking, when you start coming out of recession, ISM crosses 50 on the upside, it starts rocketing higher, bond yields rise almost immediately and everybody starts calling them “prices rises” because they’re recovering from lows. The year-on-year effect starts looking very positive for all the data. There tends to be a big inflation fear to start with. Then usually what happens – and this has happened almost every time since 1962 – is that bond yields fall again because people have overestimated growth at the early stage of the cycle. We get a growth scare. The ISM pulls off – not always – or stabilizes. Then the actual inflation comes later in the cycle. Then that’s when the Fed start raising rates again.

Could this time be different? It’s a very different setup because of the supply chains and other things, so I don’t know.

Final words?

JULIAN: I think we’re probably in a period of softening data because these accelerations just can’t keep going forever. I do think there’s more upside coming on the inflation print. I think we’re probably going to hit CPI at least seven, maybe even higher, but then naturally the speed falls off and people will get a little bit excited. I think the Fed is going to be challenged again, probably in the autumn, by some of these inflation metrics, and by some of these growth metrics. 

RAOUL: I think it slows down more than expected. If it does, the equity market sells off. The Fed comes back. The markets go up. I don’t think bond yields go lower. If bond yields go lower, then tech stocks go higher. I am more cautious on the economy. If that is the case, then you could see a selloff in stocks. Again, it won’t last. That’s it. That’s the entire game now. There is no other instrument because the Fed doesn’t want the bond markets to move either way really.

JULIAN: They can’t allow the equity market to go down.

RAOUL: No, and I personally don’t think the currency market is going to move either. I think the dollar gets a bit stronger for a while, but it’s within a broad range. It has to be proven. Julian’s more bearish on the dollar. I’m slightly more bullish. In the end, if it stays in that range, then we have no macro variables. No credit. No currency. No bond market. You’re left with one single instrument to pile all the money into and that’s the equity market.

For those of you wanting more, you can can catch the full 40-minute episode here.