Macro Week with Craig Shapiro

[00:00:00.26] - Speaker 1
It.

[00:00:38.17] - Speaker 1
Right. Welcome everyone. Happy Monday. Hope you guys had a nice weekend and a good start of the week. This week is going to be very interesting and we're going to start the week together with Tim, our macro analyst and together with Craig, Craig Shapiro. Really nice to see you here and just to give a very small background and I'll let you introduce yourself. You have 20 plus years experience and of course you run microstrategy and portfolio management. And obviously today we're going to go over macro and what's to be expected for this week. But I'll let you introduce yourself and I have your X page. So for anyone who likes the session, please follow Craig here and I'll post the link as well.

[00:01:23.29] - Speaker 2
No, thanks. Thanks guys for having me. I'm the, the strategist, one of strategists at a firm called the Bear Traps Report. And we, you know, myself, my partner Larry McDonald have been around the street for 25 plus years, have tons and tons of relationships around the street. We host an institutional chat on Bloomberg with hundreds of clients around the world. And so what we're trying to do is ascertain what market professionals are thinking about the macro, about micro. We host that in an anonymous Bloomberg chat and then we also have some products for the retail community where we disseminate that information more broadly. Kind of gives you a, a lens of what, what professionals are thinking and feeling about the markets and what the narratives are and, and you know, try to ascertain really what's going on. And I provide my own trade alerts and ideas in that, in that forum. We also have a discord channel for retail. So thanks for having me, really appreciate it.

[00:02:15.05] - Speaker 1
Yep, very exciting. So I'll pass it on to you, Tim. We have a lot of things to discuss today.

[00:02:21.07] - Speaker 3
Great. Yeah, let's start. Ladies and gentlemen, warm and nice welcome from me as well. And yeah, today I just prepared a few questions for Craig so we can go over it a little bit. Usually we also have some slides that I prepared. I didn't made it in time this day, so yeah, sorry for that. But as usual when you talk with someone who has big experience like Craig, other questions are emerging as well. So yeah, I think we have a nice chat today. And yeah, Craig, the first thing is because your ex is present here on the screen, 20 years of experience. If you have to name one or two things that have material changed since like say 10 years, what would it be in markets?

[00:03:13.26] - Speaker 2
Well, look, I mean this isn't just to, to plug you guys, but really the you know, the introduction of zero data expiry options and very, very short term trading, I, I feel like, has allowed investors to, you know, more actively and proactively hedge against various idiosyncratic macro risk events on a, on a daily, on a daily basis. It used to be the case that you'd have to use kind of, you know, one month out or three month out volatility products around Fed meetings or around unemployment reports or CPI prints and that would lead to, you know, various types of trading and hedging activity. But now with zero data expiry, it feels like folks can, you know, can hedge portfolios on a daily basis if they want. And so, so, you know, almost in some ways forces you to be thinking shorter term or understanding that some of the market movements on a day to day basis really have to do much more with daily expiry and that volume than anything else. And I think today was a good example of that. I mean, you had what was fairly sizable news on Friday afternoon regarding a debt downgrade.

[00:04:24.14] - Speaker 2
Not too surprising for the U.S. given the fiscal situation. But you know, it wasn't a catastrophic downgrade. It didn't really force, you know, much in the way of market activity or people who have to do anything with respect to bond holdings. But you know, you would have thought, you know, we were weak Friday very late and we were weak overnight. And then what happens is the market kind of finishes flat on the day.

[00:04:48.06] - Speaker 1
Yes.

[00:04:48.22] - Speaker 2
You know, I think it's just, you know, no incremental news coming out, you know, no additional Trump tweets. So, you know, neither here nor there. And we have a, you know, we had expiry on Friday, a monthly expiry Friday. We have VIX expiry Wednesday. So, you know, maybe just some, some systematic flows that are keeping the markets elevated. But you know, as we transition through, I think there will be more macro variables that folks have to focus on and some geopolitical and political variables that will matter. Whether it's the trade deals and negotiation, the process on those deals or the budget process is top of mind right now. You may get a vote from the House as early as Wednesday. So there, there's plenty going on. And if the, you know, as we push through that month, may monthly fundamental narratives and flows, I think will, will certainly matter the next couple weeks here more so than that that daily expiry or that those buyback flows that happen into the end of the quarter and end of the month. So I think macro top of mind here for the next couple of weeks. It Will be important.

[00:05:51.19] - Speaker 3
Yeah, I mean macro topics and macro ids, they have always a time spent like let's say at minimum several weeks. Right. It does not play out in a week or like two days, something like that. But from my perspective, if we are looking into the market, let's say, yeah, after the tariff announcement beginning of April. Right. It seems to me people are actually surprised that stock markets can go down. Right. That they actually can go down beyond one day standard deviations and you have, yeah, volatility expanding that high. But in the end, would you agree that big money has missed this. Yeah, let's call it dip to buy. And that maybe retail brought us up to new highs again? I mean there's stuff out there on media telling us that basically.

[00:06:49.24] - Speaker 2
Yeah, look, I mean I think that quote unquote smart money or, or folks in our institutional chat were, I, I'd say they were well positioned into the selloff. You know, many folks were positioned either, you know, with, with hedges on or with protection on, with shorts on. And then were, you know, I'm not going to say pleasantly surprised. But when Trump came out with the, with Liberation day tariff amounts, you know, folks were like, okay, we can get paid on these hedges, we can get paid on this short view. And then I think people didn't really believe that, that he was going to flinch so easily and so aggressively. I think, you know, the, the talk from, from Trump on trade so far to start the year, you know, let's say prior to August 9th, 10th when the first cave happened was we're looking to reset the global trading system. We're looking for tariff revenues to help fund government deficits. This is a multi quarter, multi year need to bring back manufacturing to America to, to restore supply chains. And so, you know, and Trump was going to be really serious about this and it was going to take some time for that.

[00:08:04.20] - Speaker 2
That tariff regime was going to be out there at large levels. And what we found is that by doing the escalation on China and then China retaliating and then back and forth and really leading to that supply chain shutdown and trade embargo, markets were not happy. Right. Both the bond market and the stock market selling off as aggressively as it did really forced the administration to cave on those views first on the 90 day delay for everybody except for China. And then more recently as of last Sunday, really what, what turned out to be a cave to our towards China and kind of removing that trade embargo that had been in place. And so, yeah, I don't think I Don't think clients were necessarily positioned as well for that counter trend move. Retail, the other hand has been used to just buying the dip and buying every dip that we've seen for for quite some time and paid off again.

[00:09:00.29] - Speaker 3
Right.

[00:09:01.08] - Speaker 2
And you get those VIX moves to you know, very aggressive levels and then the alleviation of that, the sell down of all people see it time and time again, relive our re lever portfolios and retail caught it well and I'd say hedge funds, you know, and professional money managers not as well. But I think we're at an interesting juncture here again. I mean the. We're really not pricing in any slowdown in the economy that was in place kind of leading into Liberation Day kind of got worse. Certainly got worse because of Liberation Day and now as the sentiment has bounced back. So we're really not pricing in much in the way of a slowdown. We're certainly also pricing in pretty aggressive budget deficit expansion right by the Republican and Trump budget that looks like it's coming through. So markets are more excited about potential for, for a growth re acceleration in the back half of this year. Deregulation may help as well. So if we get any hiccups along the way on trade negotiations on whatever these deals are going to be or any, any slowdown in that development on the, on the budget front, we've come a long way pretty fast.

[00:10:07.09] - Speaker 2
Volatility has gotten annihilated and so you know, I think we could be moving back in the other direction, you know, the next couple weeks.

[00:10:16.23] - Speaker 3
Yeah, yeah, it's, it's like a playbook that has worked out several times I guess. I think you mentioned it worked out pretty good for the retail trader this time as well. And it's always after a buyable dip go long risk assets, the more riskier they are, the better it is like ETFs like Ark. They have like insane performance from the April lows. Like 30, 35% something like that. And yeah, volatility is selling always in place as usual. What was a little bit surprising to me, I don't know if you guys are trading rate futures like Sophos, like short term interest futures. But we have seen some quite decent bullish moves with the announcement of the tariffs. But then we stalled out and then yeah, like today we are, yeah, let's say kind of basically flat if we compare this to the beginning of April. So it's fair to say for like the end of this year 25 the corridor for rate hikes, for rate cuts. Sorry is pretty narrow, right?

[00:11:32.22] - Speaker 2
Yeah, yeah, look, I think what the Liberation Day and then I think more importantly the escalation of tariffs on China really started to spook people about what a slowdown in the economy was going to look like. I mean, we really started to get concerned about very left tail outcomes here, about a recession or worse and employment loss and what's going to happen to the supply chain and empty shelves as early as today running through the end of June and the like. And what was that going to mean and how is the Fed going to be forced into responding to that? Right. I mean, just look at like Z5. So for Z5, I mean, was pricing in, you know, four or five, you know, plus cuts for this year? Right, exactly. So as we've removed that left tail, we've seen rate cuts be removed back, you know, from, from the narrative again. And the Fed has done, you know, its job in kind of instructing the market that it is going to remain incredibly patient here looking for more information before it's ready to, to move. I mean, you had even today Bostic and Williams both spoke and really both talked about, you know, needing to see a lot more information.

[00:12:53.06] - Speaker 2
June clearly off the table for rate cuts and really now July being off the table as well, which I thought was surprising for Williams to say that he's normally seen as, you know, fairly dovish and even today he was thinking, you know, July's off the table too as far as the, the earliest the next rate cut can come because uncertainty is still out there and there is a bias for higher prices in light of a tariff regime that is higher today even with the pause than what people were thinking back in, let's say January, February or for the March Fed dot plot. So we'll get another dot plot in at the June meeting in three weeks. But my sense is we're going to be somewhere between, you know, we maybe, you know, we were, we were last time we were between one and two cuts for this year. I think we're going to be right there again. We may even see, you know, a shift towards just one cut from the median dot from the median member this year. As I think the Fed really wants to be on the sidelines here waiting to see what happens, waiting to see how certainty comes back and then also waiting to see how these negotiations go and what ultimately happens with the budget process.

[00:13:55.28] - Speaker 2
Because I think the worst thing for the Fed would be acting too soon. And then we get a deficit busting budget that gets approved, you know, in July, August and all of A sudden, you know, inflation is coming back pretty aggressively into the fourth quarter and into next year. I don't think Powell wants that to be his, his swan song as he looks to exit stage left in May of 2026. So I, I think we're on pause for, for quite some period of time. Wouldn't surprise me, you know, not to see a rate cut until December. Now look, if, if the economy does in fact really start to slow, if the tariff negotiations flo fall apart, particularly with China, and we get a much more protracted growth slowdown in the third quarter, then I think we're looking at, you know, a Fed rate cut in September and it's probably going to be a 50 basis point rate cut. Right. So we're, you know, we're, we're kind of dialing in between, you know, maybe no one to no cuts this year if things kind of go smoothly, but then maybe a more accelerated rate cut journey in September if all the trade stuff falls apart part.

[00:15:00.18] - Speaker 3
Yeah, yeah, I would agree. If you listen to the 10 out that Jerome Powell always gives out on the press conferences during fomc, he basically never in the last like two or three meetings said something new. Right. So it's always the same stuff because I think it's fair to say like you mentioned already, they just wait and see. So and his job is basically. And that's, yeah, the analogy I always use to explain this to people. They driving a big, big ship by looking into rear mirror. Right. Because the data they use is always lagging at least one month or three months old and it's very hard to say, okay, let's deliver some cuts in the summer. And as I stated already, it could ignite maybe inflation in 4Q25. And when does Jerome Powell leave support next year? May, right? I guess.

[00:16:05.24] - Speaker 2
Yeah, yeah, yeah.

[00:16:07.24] - Speaker 3
And I think the worst thing that can happen that he lost the battle over inflation and he has to leave the fomc. Right. I think that's a job he was wants to finish in the end. So this year from my side, two rate cuts. The first in September and then in December. Let's see, last year I was wrong as well. We had this gigantic rally in Soos during the summertime which topped out with the 50 basis point cut. And yeah, really, really exciting. But from my side fomc, Jerome Powell, wait and see what happens. You mentioned that stuff already. And if we talk about rates, rate cuts and the fmc, I think it's also important to talk about the dollar. So last last month the dollar was from the number world, number one world currency reserve as it to it's over and devaluation is knocking on the front door. From my side, that's obviously a very bad take and not true, at least for the next 50 to 100 years. But. Yeah, what's your take?

[00:17:19.20] - Speaker 2
Yeah, look, I mean, I think that the, the U.S. has done a variety of things to frustrate, annoy its allies and its enemies over the course of the last, you know, several years. You know, let's even starting back in, in March of 22, by sanctioning Russian reserves and kind of giving a, a sign out to the rest of the world that, you know, if you fall into enemy territory with the US we may, we may expropriate your reserves. And so I think we, we started down the path of telling foreigners, foreign central banks to, you know, begin to shift assets and reserve assets away from Treasuries and into gold. And so we've seen that, that dichotomy, that divergence develop where gold is, you know, is, is just, you know, massively outperformed treasury since first quarter of 2022. And I think Trump is really accelerated that dynamic the way that he is discussing treating various allies and enemies alike. And then there's obviously been just the outward rhetoric, but also some of the proposals from Steve Moran as far as possibly taxing foreign reserves or a variety of things that make foreigners feel like their capital in US Asset markets is less appreciated.

[00:18:36.06] - Speaker 2
Right. Trump is obviously looking for that capital to be invested in United States capacity, in plants in Capex and equipment and putting that on the ground. And many companies, whether it's Hyundai or TSM or Honda, a variety of other companies are doing that and are investing in America, which I think is great. And I think the numbers are already above $10 trillion. Both domestic and foreign companies that are investing in new capacity here, if you believe the numbers, but that's okay. But keeping your money, those excess trade reserves in Treasuries and in US equities is keeping the dollar stronger than it otherwise should be, which is negatively impacting terms of trade. And so the administration is actively, I think, trying to prevent that and discourage the savings of excess trade balances in dollar assets. And so I think with now you have domestic narratives developing in Europe around defense and infrastructure spending. Similarly in Japan on defense and then in China on consumption spending, I think global investors are finding more reasons to bring capital back home and take the capital out of the United States. This idea of US Exceptionalism, which has been around for decades, but accelerated because of the AI boom.

[00:19:55.15] - Speaker 2
I think now is starting to unwind slowly but surely.

[00:19:59.11] - Speaker 3
Right.

[00:19:59.16] - Speaker 2
It's not going to unwind as rapidly as everybody was talking about in February, March and April of this year with when the deep SEQ news came out. But I think we are only in the first inning of the flows out of dollar assets. And so I would expect to see kind of continued slow bleed of the dollar over time. And I think that's something that the administration will tolerate. It's just the rate of change is something that I think is going to, to be concerning for them. And so if it gets too fast, too quickly, you know, you'll, you, you'll, you'll hear or see some things that, you know, slow that down. But I, I think that you know, a generic grind down lower in the dollar and higher gold prices. I think that's a trend that's gonna, that's gonna remain with us.

[00:20:42.23] - Speaker 3
Yeah, gold buying was tremendous the last month. Central banks from all over the world, real demand keeping up, can't catch up with the supply. Crazy move in gold. Let's keep it like that. Yeah. Do you think the whole tariff poker in the end may plays out for the US? I think you mentioned a little bit earlier the manufacturing sector in the us I have some relatives over there and they also work in manufacturing and most of them are automotive from the automotive sector. And they think it yeah. Will not happen. And in the end it's just a big bluff to be honest. I mean for software like yeah, Microsoft, Apple and all this stuff, it may be a little bit easier because the US is always yeah. Like the powerhouse in this sectors worldwide and manufacturing, not that much. So do you think manufacturing sector in the US will be like benefiting from the whole tariff poker or not?

[00:21:47.11] - Speaker 2
I mean, look, I think this is a stated goal the administration. It's just not something that's going to happen overnight. Right. I mean we're not going to reassure manufacturing capacity in America in a month or in a quarter or a year or maybe even in a term. Right. But I think what we do know is that the hollowing out of the middle class in America has led to, people know, hundreds of thousands of, you know, fentanyl death relate. And the administration sees the, you know, the fentanyl crisis as a direct result of jobs being displaced and manufacturing and trade going abroad. And then secondly, I, I think Trump and the administration saw the, how exposed we were during COVID and how the supply chains weren't ready for, you know, what, what came and sees those deficiencies in pharmaceutical manufacturing, in steel and aluminum and some semiconductors and is saying we, we can never go through another situation where we aren't making these critical goods at home. And so I think for certain segments of the, of manufacturing it's coming back, it's going to be, it's going to happen, it's going to be state directed. But you know, we need the jobs, we need the training and we need some time.

[00:22:59.18] - Speaker 2
But I think that is going to come. But it's going to be highly automated, right? I mean it's not, we're not just going to hire, you know, millions of folks back on the, on the assembly lines and putting together, you know, you know, these goods. But I think we do need that expertise and the build out of these plants and to build out of this capacity is going to take people. And so I think the administration is viewing that as a scorecard, you know, for them. But like to your point, I don't think we're going to be, you know, going from wherever now, low double digit percentage of GDP in manufacturing. I don't think we're going to double that, you know, in the course of the next four years. But I think you generally moving in the direction of bringing back mission critical manufacturing to America is of paramount importance. And so I expect that to, you know, to happen. And as far as the tariff policy is concerned, I, I think we're, we're still up in the air. I think ultimately we're going to end up in a place where tariff rates are going to wind up being higher than people thought they could be in January, but they'll be better or lower than worst feared.

[00:24:00.29] - Speaker 2
That came out on, on April 2nd. Is this the art of the deal? I don't really, I don't really know. But the truth of the matter is the government does need those export tariff revenues to help the budget process. It's looking to generate, you know, fairly sizable tax cuts for low and middle income workers. No tax on tips, no tax on Social Security, you know, tax incentives on buying domestic made cars and a variety of other schemes are going to be deficit enhancing. And so one way to reduce that is to have these consumption related taxes that come from tariffs. And I think the administration is, is kind of fine doing that. So I, my sense is these, all these deals that are being hoped for are going to wind up underwhelming and we're going to wind up being in a more elevated tariff regime than not for the second, let's say for the second half of this year and into, into 2026 now.

[00:24:54.20] - Speaker 3
Yeah. Great. So we spent the first 25 minutes about the big picture, I would say. Right. And I think we can agree that, yeah, we have a little bit of risk on the market, but we are still a little bit in a vacuum in terms of macro news, what might happen next, Tariff this, tariff that and so on. Have you been surprised from the Friday news, the depth, sorry, the downgrade for the credit rating from Moody's, yes or no?

[00:25:27.21] - Speaker 2
I, I think the timing was a surprise, but the action is not surprising at all. I mean, this Moody is the third, you know, is the third agency to, to drop the rating. Look, I mean, we're in the teeth of a negotia, a budget negotiation process right now. So it, I guess it forces the rating agencies to actually actively consider what is on the table here. And I think from what Trump was campaigning on and the rhetoric around deficit reduction and the Doge savings and, you know, spending cuts to what we've ultimately ended up at, which looks to be a very sizable deficit increase and a big jump in the debt ceiling that's likely to come. I think Moody's is right to think, well, you know, we need to, we, we need to adjust what, what we're doing here. It's because the United States government is not really showing any progress with respect to bringing down debt to GDP ratios or an ability to lower inflation that could lower interest rates. And so I'm really not a, you know, not a tremendous surprise. It obviously, you know, didn't really, didn't really change much today from the way investors were thinking about things.

[00:26:37.14] - Speaker 2
But ultimately, if you're the head House Freedom Caucus and you're, we're fairly resolute about not looking to grow deficit spending and wanting to see some tangible spending cuts in this budget in order to fund tax cuts. This is only going to, I think, embolden those parts of the party to try to force, you know, try to force some deficit spending reduction. And so in a way, Moody's helped ignite the bond market vigilantes to some degree. Thirty year yields were above 5% early this morning. 5.03, I think, at the highs. But, you know, then they rallied back, bonds rallied back to close the day, and we finished down at 4.9%, I guess, you know, maybe 5%. 30s was the generational buy. We'll see. But, but ultimately, over the course of the next next few weeks, we're going to get more information. The House may vote as early as this week on a proposal we'll see if that gets through and then needs to go to the Senate which is going to have its own changes and reconciliation will have to happen. I think the administration would love to have this bill signed seal delivered by July 4th.

[00:27:41.13] - Speaker 2
I don't think that's going to happen. I think it's going to take longer than that. Thankfully the, the X date for when the government runs out of money seems like it's really not until maybe the middle of August or a little bit later than that. So there still is some time here but DC typically works best under, under deadlines. Obviously the administration wants to, you know, not have to deal with the debt ceiling issues that could arouse could arise. But I don't think we're going to be getting to any clarity on this this week, you know, or even in the next few weeks here. It's going to still take some time and we'll see, we'll see ultimately what happens. But the bond market I think is on notice here or is noted is woken up D.C. and saying look, if you're going to pass a very sizable deficit enhancing budget, yields are going higher and you know, ultimately yes the government can keep funding itself but the more expensive yields are, the bigger the deficits and the more of a negative impact it's going to have on growth for the private sector. So you know the government's gonna have to deal with, with those dynamics, you know, very rapidly.

[00:28:48.16] - Speaker 3
Yeah, I mean we have our own community at Mentor Q in a discord as well and I do a little write up stuff all the day, blah blah. And back in April, before the Liberation day it was, was it today? Was it Wednesday? I guess. I don't know. I was telling to people if you have bond yields like in the 10 or 20 year up to 5% this will be a problem. Right. The administration, I mean it's obviously that they not watching markets. They told us. But that's a lie. Right. Never forget it. That's. Yeah. But what they are watching more closely are the bond yields. So. And they will act if the bond market starts to acting weird and it did in the week after the tariff announcement. In the futures we had crazy daily ranges like 50, 60 ticks, something like that. That's enormous right there. Something has happened over there and the administration is maybe not that really happy about it. Today we had like in ZB, ZF Z T and Z N nearly. Yeah, 12 hours of buying. What you think, is it more, is it more technical? Like because in 20 you take today 49, 49 40% then you're even lower.

[00:30:22.06] - Speaker 3
But I'm more on the camp. This is technical. Right. Because bond volatility isn't that high. Right. Also today with the announcement from Friday, it's more like a bleeding out. It's not a sell off. Right.

[00:30:37.18] - Speaker 2
Yeah. Look, I mean I, I was, I guess I'd say I was a little surprised that at the rally back, you know, throughout the, throughout the course of the day and ultimately like I said, we ended with a, you know, a fairly sizable range in 30s today. Right. I think the high, high was 503. We closed at 491, you know, kind of that 12 bips rally into the close here. But, but look, I think this is going to depend a fair bit on kind of how, you know, the, the dynamics in D.C. go down and what the deficit process really looks like. And then look, as far as the real economy is concerned, what we, I think we definitively have learned now from the Fed is the Fed is not going to be cutting rates, you know, soon. Right, Right. And so to the extent that, to the extent that the hard data in the economy actually does start to roll over and push down to where the soft date at least, you know, to some degree to where the soft data was implying the Fed's not going to really be in a position to address that hard data concern at this point in time.

[00:31:39.02] - Speaker 2
So if we get a slowdown here because, and, and it was just delayed, not, not eliminated by know by the, the, the tariff delay, then I think it makes sense why we saw a curve flattening today, why the long end rallied back because we are going to see a growth slowdown develop here. So I think the jury's still out. We'll, we'll get some more economic data, you know, throughout the course of the week. I know we get some retail, you know, more retail sales, E types, earnings prints tomorrow from Home Depot and Lowe's and a bunch of other names that'll give a good kind of real time flavor for how the consumer is acting in this elevated tariff regime. So I'm in the camp of the, you know, growth slowdown. It's actually going to, it is going to come, it is going to hit us. Is it going to be recession? I'm not really sure, but it's going to be a deceleration in nominal GDP momentum certainly for you know, the second quarter and likely into the third quarter. And I think given where, where things are priced right now, if we don't get, and I don't expect we're going to get Fed liquidity, you know, before September.

[00:32:40.18] - Speaker 2
I think that's a potentially negative outlook for, for cyclical equities and for, and for, you know, small cap equities. And so that's where I've been focusing more of my, my time on the hedges and on the short side is in some of those areas, I mean oil prices have been largely, you know, muted and under wraps. I mean we've seen, you know, some deflationary constructs out of the commodity universe. So there's clearly something slowing in the global economy here and you know, but interest rates are having trouble falling because of that sticky elevated inflationary environment on, because of tariffs. So yeah, you know it's a, it's a tricky setup here but I think after the big bounce we've seen off the lows with volume coming in as aggressively as it has, then we're getting another chance here to you know, whether you caught the bounce move higher or, or you didn't. I think this is something a reasonably good time to be resetting hedges because there are some time stops coming. Right. We have a six, you know the 60 days left on the, the tariffs with the non China it'll be 90 days. That gets us to you know, middle of August.

[00:33:48.21] - Speaker 2
You got this debt ceiling stuff. You have the budget process. There are some big macro catalysts, variables coming down the pipe. So hedging for you know, negative out outcomes I think makes a lot of sense.

[00:33:58.21] - Speaker 3
Yeah and it's great. I almost forgot it to mention also for the listeners here, soft and hard data. Right. The infamous University of Michigan inflation expectation print. I think you're aware of it, right. Where the print says US 1 year forward inflation 6.7% I guess or 7.2. It's ridiculous high out of nowhere. If people are would dig a little bit more in how those servers, how those surveys are created and yeah where the data came actually from I would say they wouldn't be that surprised. Right. Because obviously that's nonsense for the market. Right. No one is watching it.

[00:34:46.26] - Speaker 2
Yeah, I mean you know that University of Michigan survey is 600 people. It's know there are differences between Democrats and Republicans and in on that are showing up in the inflation data, they're showing up in the sentiment data. But look, I think it's, you know there still is a reasonable part of the population that believes that prices are moving higher, is concerned about the tariff momentum has either bought ahead of it or is waiting for clarity before they start to buy, you know, non, non durable goods and so that uncertainty is what's leading to some economic slowdown. And I think the markets and the economy are just looking for certainty. Right. I think we want to see these trade deals get done, whatever they are. We want to understand what the trading environment is going to be with China. You know, 90 days from now. Are we going to be in an elevated tariff regime? I suspect we are. I don't think we're going to get the type of momentum that maybe the administration is, you know, suggesting is possible. And so if we're in that elevated tariff world, it's going to be harder for small business to get access to working capital to grow their business.

[00:35:58.23] - Speaker 2
So I suspect we're going to keep seeing, you know, large cap over small cap market share gains by big companies. And you know, that for overall economic momentum in the U.S. you know that that becomes a problem. And I think there's a bit of a gap here where some of the negative anti growth things that are coming out of the administration from tariffs and from immigration hurt sooner before some of the positive things on deregulation and tax cuts start to benefit the economy, maybe exiting 2025 and through 2026. So that I think we're in a one to two quarter period here where things can, you know, can slow risk, markets can unravel a bit and if, if it's not handled appropriately, you know, and if, if we actually re escalate, you know, a trade war with China, which look, I mean it's, it's still possible, right? I mean it's possible we will get to no resolution in any quick period of time with China within the next 90 days. And we're looking at, you know, taking tariffs back up to, you know, 50, 60, 70 again and that would be, you know, that would be a real problem for the, for the economy and that's not, that's not a zero percent pro.

[00:37:12.00] - Speaker 2
And I think markets now are pricing it as such. So that does concern me.

[00:37:16.22] - Speaker 3
Yeah. And it feels a little bit that yeah, China has, yeah, more cards in the hand like Donald Trump was telling us about like two months ago and they have a little bit of advantage in this poker game. I say I know it's a broad view because China is always important for every country's imports, exports, this test of capital flows. Would you suggest or would you look also outside of the U.S. like European markets? Because one of my best trades this year so far was actually long defense, EU stocks like the German ones, British ones, Italian ones and stuff like that. So is this stuff also something you Guys are watching and also passing out to clients. Look outside to the U.S. yeah, we.

[00:38:11.29] - Speaker 2
Were, we were early on the end of U. S exceptionalism concept and repatriation of capital out of the US Ideas kind of earlier this year and end of January, early February, we were talking and writing about it. And look, I think again, this is a multi year process that's going to plan, you know, transpire. I think, you know, United States equity market cap as a percentage of total market cap is, you know, 65, 70% versus you know, low 20 contribution of GDP. So there, there's a, there's a lot of room for foreign investors to remove capital from the US Markets and bring that capital home. Now that there's some domestic narratives that have developed. Right. I mean for, you know, for Trump to talk as actively as he has about the need for Europe to, you know, fund its own defense. Europe has taken, you know, has taken the mandible of that and has decided to, you know, break you know, previous treaties about budget deficit spending. And so I think there'll be more capital that flows back to Europe in certain areas. Right. I don't think this is going to be broad based European recovery, broad based Chinese recovery, but I think in the areas of, you know, those economies that are being supported by government spending.

[00:39:24.22] - Speaker 2
Yeah, I think that, that those, those trends are going to be there, you know, beyond a month. There's going to be multi quarter, probably multi year structural flows out of the US into, you know, into the rest of the world. And so I think opportunistically, you know, finding those opportunities makes a lot of sense.

[00:39:43.09] - Speaker 3
Yeah, that's, yeah, that's true. Because as you said years ago, we had always the scenario of China. Right. There is no alternative. It was us always number one. Not saying that the US Isn't the number one anymore, that's not my take here. But I always like it to when people asking, hey, what's your take about this and that market? I also tell them, look, you can invest basically around, yeah, everything in the world. Yeah, there's ETF for everything like Japan, South Africa and stuff like that. India did tremendously good, like over a one year base till today. And yeah, just little reminder for the viewers, there is a world outside of the US and it's investable for you all. But yeah, we don't give advice here. It's just entertainment. Don't forget this. So always have to say this.

[00:40:44.01] - Speaker 2
Yeah.

[00:40:44.13] - Speaker 3
In terms like that, it's, it's important. So yeah, I have a SPX chart open here. One daily candles and yeah, the low was in. Yeah, 7th of April on the Monday and now we are trading shy above 6,000. What's your take, let's say on the next month? Will we see more risk on is the chasing oval? Do we exhaust a little bit?

[00:41:18.29] - Speaker 2
Yeah, my view is we're gonna, you know, I don't think we're gonna make. I don't think we're gonna make new highs right here. I think we're gonna have a bit of digestion, a bit of a. A bit of a pullback. As, you know, some of the euphoria about trade momentum starts to slide as some of the euphoria about deficit spending acceleration and leading to, you know, an improved growth. Growth impulse starts to. Starts to wane and we start to get some of this hard data slowing here in the course of the next few weeks, which I think was already in the cake. And so I think markets are, you know, have gotten ahead of the hard data and markets tend to look through a lot. But. And so I do suspect the soft data and the sentiment surveys will improve over the course of the coming weeks and months because they're very, you know, tied in with. With stock market performance. But I do think that that headwind to growth is here and would expect to see that playing out now over the course of the next, call it two to six weeks with a fed that is completely on the sideline and is happy to be such.

[00:42:30.18] - Speaker 2
And so if we don't get the, you know, further trade momentum, which I don't really expect we're going to. Because look, I think what, you know, the Trump caving the way he did to China I think has opened up an issue in the negotiating tactics with the rest of the world. Right. The rest of the world, you know, probably feels like we didn't retaliate and we didn't, you know, get a chance to put the tarot, you know, you still put 10 tariffs or more on us and we didn't. We're able to get that China retaliated. They were able to keep their 10 tariffs that they put on the U. S. So I think we've already seen some slowdown. The momentum on the Japanese trade negotiations, which were, you know, seem to be one of the first ones to get done. Looks like that's not going to really get done until the summer. So I headlined earlier that, you know, no expectations for deals coming this week at G7 meetings, the Finance ministers in Canada. So I think we're going to start to see some delays and some lagging on the trade front. And as long as the budget stuff remains kind of highly uncertain, where is the incremental catalyst to come from here to keep markets moving higher?

[00:43:39.00] - Speaker 2
Right. We've had the VIX sell down, we've had systematic portfolio re leveraging not back to where it was in, you know, earlier this year or early February, but we've seen a very sizable move back up with exposure for fall control funds and for CTAs. Yes, we have the, you know, share buybacks are back but they start to, you know, lose their power, you know, in it by starting in the third week of June. So look, I think we just came through a nice expiry window. Markets made a very sizable move into, into May expiry. Maybe some of that, you know, those calls leave the table. Some of the fundamental data points start to start to struggle and we get a little bit of a correction here back, you know, and we'll see, we'll, you know, the, the pace and the size of that pullback will be determined by what the news flow looks like. And if the trade stuff really starts to go the wrong way, then we can have a, you know, a broader pullback. And if, if we get a couple deals and it seems like there's positive momentum or you know, a Trump G call that sets up a, a summit later this summer, then yeah, that'll be the, you know, that'll be the next, the next leg that could take us higher.

[00:44:46.01] - Speaker 2
But you know, signs right now don't really point to that and I think we've come, you know, quite aggressively in quite a short period of time. So I'm looking for a pullback here over the course of the next, the next few weeks.

[00:44:57.25] - Speaker 3
Yeah, I mean it's basically, you have to bet on these events like you said, a call with Trump and Xi and they agree on every points and then maybe due to momentum and volatility unclench even further. The SPX may made a new all time high. But to be honest, how will it trade that? Right. That's really hard time actually.

[00:45:27.01] - Speaker 2
So it's, it's, it's. Look, I mean, I think, and I think the administration is cognizant of the, the fact that if they just run the economy hot and they let markets kind of run hot, inflation is not going to be solved. Right. And I, I do think that yes, they talk a lot about lower oil prices and lower egg prices but you know, if you look at, and I don't really love looking at the truflation stuff but that, that has shown A pretty sizable re acceleration here. Seasonally. Food prices are moving back higher again, service prices have stayed sticky, and now you're talking about goods prices which are going to likely re accelerate because of tariffs. And so I don't think the administration wants to get into a situation where they're arguing about inflation, you know, later this year or certainly into, into 2026. So if you have an economy that's running hot, where inflation is reasonably well above Target, you know, 30 year yields have a 5% or more, you know, handle on them, it's. Look, I, I think that, that, that shows that the government's scorecard of things that they were looking to see, which was lower inflation, lower yields, lower deficit spending, are all failing.

[00:46:36.14] - Speaker 2
And so I don't think that's, that's the, that's the messaging that they're looking to get out. So for me, I think they would much rather, you know, see some of that froth come out again here in markets, make sure inflation, you know, doesn't re, accelerate and, and get us closer to the time when they could start really talking up the tax cuts and the deregulation. Which, you know, given the, you know, given the, the political infighting in D.C. seems like, you know, we're still probably, you know, two, maybe three months away from, from this getting, getting solved. So I think we're just, I think we're too soon.

[00:47:11.13] - Speaker 3
Yeah, too soon and too rapid. Right. So like the button forming in the spx, it always felt way too mechanical. I mean, today with the tariff delay, 90 days we had upside like 10. Right. If I remember correctly.

[00:47:28.06] - Speaker 2
Yeah.

[00:47:28.20] - Speaker 3
And that's not normal. Okay. That's nearly a yearly performance on one day. Right. That's truly out of technical factors, momentum, all the stuff. But yeah, that's how markets are working. We're not complaining, just talking about a little bit. And I almost forgot something. Scott Besant, Right. Do you expect he will change something in the issuance of government debt? Will he a little bit diverge from General's way?

[00:48:00.27] - Speaker 2
Yeah, so, so the next time that Besson gets to decide what the composition of issuance looks like would be at the beginning of, of the August, early August, at the next QA is early is early August. And so I, I, I, again, it, it really will depend on whether or not we've extended the debt ceiling by then or not. That's obviously of paramount importance. Assuming that we have, I, I think there's a case to be made that he should be looking to, you know, increase duration issuance to some degree. But my sense is, you know, at, with 30 year yields at 5% plus plus or more, that that's not something that he's going to look to do. And even though he was extremely critical of the prior administration and the prior Secretary of the treasury and her, that's the point, you know, her, her T Bill, you know, fascination, my sense is he's going to continue that policy of continuing to fund at the front end of the curve and, and hope that over time that with inflation coming down and the deficits getting more under control that the Fed will be in a position to cut rates and that will ultimately lower overall borrowing costs.

[00:49:17.22] - Speaker 2
I think that's, that's the play. So I don't think he's going to be, you know, looking to, you know, looking to raise duration issuance yet. Even though he should, and even though, you know, there are some old rules about what the percentage of bills versus bonds should be in the composition of, you know, historically should be in the 15 to 20. We've been running well north of that for the last several years and looks like we're going to continue to do so. And if we keep running, you know, 6, 7% deficits as a percentage of GDP, we're going to need even more bills financing. So look, countries that continue to finance themselves in the front end of the curve typically see weak currencies, balance of payments issues and the like. So that, that could ultimately happen here. I suspect that's part of the reason why term premiums have been rising in the U.S. and if we keep this game going for, for too long, that's going to continue. But we'll, we'll see. It's probably too early to tell because of the uncertainty around the debt ceiling, but I think, I think either if it's not this meeting at the next meeting in November, provided that things are a little bit more under control, I would expect them to, you know, likely bring up the amounts of issuance for bonds and notes, but probably not as early as August.

[00:50:32.21] - Speaker 3
Yeah, I mean if you are watching bond auctions and bill auctions, they, they tend to do well like the last months. Right. There is no big outline or that. Yeah, we have demand and supply problems over there. Foreigners buying is still looking stable. You rarely have, yeah, big tails in the auctions mostly stock fruits or small tails. So.

[00:50:55.14] - Speaker 2
Yeah. Oh, sorry, sorry. No, sorry. What I was going to say is the other thing we're going to have is after the debt ceiling is behind us is we're going to have a fairly sizable restocking of the, the treasury general account. Right. So assuming that the TGA gets run down over the course of the next, you know, two to three months while we're negotiating here, we'll probably get down to, you know, depends on what, what the, you know, how far this goes. But we can get down into the 50, 100 million dollar range down from you know, 5 or 500 million billion, 50 to 100 billion dollar range or in the 5 hundreds now and normalize. We, we should be closer to 800 or 850 billion. Right. So we're going to have a very, very, very material bills issuance calendar once the debt ceiling is lifted. And you know that money is going to have to come out of bank reserves, it's going to come out of the reverse repo facility and will be, you know, a bit of a, of a drain on overall liquidity. I suspect by then, you know, it's possible we'll get that SLR exemption that, that folks have been talking about or yearning for where banks will be able to buy more of that issuance.

[00:52:00.07] - Speaker 2
But it will be a bit of a liquidity drag once it starts to happen. So that you know, that could create some, some angst in markets in the August, September, October period, which is very similar to what happened in, in the last time we were dealing with debt ceiling.

[00:52:16.10] - Speaker 3
Exactly. Yeah. The playbook is always kind of the same. Right. It is nothing new to the market actually. And yeah, it's just a numbers game at the end. But yeah, yeah. The only question I have, and it's the last one, if you would talk to a. Yeah. Like newish investor in this sentiment or in this market, what would be the important advice you would give him? Yeah. Should he wait or should he invest or buy something that's underperforming? Should he play it safe like yeah, US tech stuff that had decent earnings on the last month and weeks. Some. Yeah, some guidance. A little bit.

[00:53:03.05] - Speaker 2
Yeah, yeah. I mean for you know, for, for me I like to look for you know, positive earnings revision stories in, in sectors or you know, in underlying names and so without getting too specific on, on names but you know, find those themes that are going to be supported by the administration, by this return of manufacturing to America. You know, the build out of AI, the build out of power, you know, the build out of infrastructure in America to service this, this capex boom that's coming, you know, kind of the picks and shovels, types of names or subsectors I think is an area to focus on, I think making a broader, you know, Call about the equity market direction, whether it's S and P up or down or Nasdaq up or down and it becomes harder but finding individual story. There's, you know, we're, we're, it seems like we're going to be in a bit more of a choppy trading environment here with some headline risk and tweet risk and some back and forth on things that are very difficult to model where humans like Trump and Xi and Putin and MBS and Powell really, really matter, you know, for overall market liquidity and direction.

[00:54:15.10] - Speaker 2
And so finding those names and themes which, where they're secular growth momentum because there's more capex spending going on and they are being supported by the administration as it looks to return manufacturing here, I think that's where you want to be focused. That's where we've been positioning clients in towards, you know, harder hard asset type portfolios and you know, companies that service that, you know, that build out of infrastructure I think makes sense. The other thing I'd say as we talked about earlier is weaker dollar seems to be something that the administration is very comfortable with and feels like the only true way to bring back manufacturing here is to have a, you know, much weaker dollar. And so finding whether it's those international plays or those hard asset plays that will benefit from a weak dollar environment because I think those are things that the administration supports. I feel like in this geopolitical investing, you know, world you want to be on the side of where, where governments are and so weak dollar ideas I think make, make a lot of sense as well.

[00:55:22.25] - Speaker 3
Yeah, true words would agree on that. Great. I don't know Fabio, if you have something else or something to add.

[00:55:31.14] - Speaker 1
Yeah. So my, my only question, I mean I worked at Bloomberg and of course you mentioned you are part of the institutional crowd and of course the world has changed since then. Most of our customers are retail investors. Going through the next six months. What do you think are the most important kind of data points for retailers to watch? Of course we don't have access to all the tools that you guys maybe access. But I think comparing the world like five years ago before COVID what are the things and we mentioned option flow of course, but, but what are the things in your mind a retail investor should watch going forward in the second half of the year?

[00:56:15.06] - Speaker 2
Yeah, look, I do think at the risk of saying this horrible phrase and looking like an idiot with respect to this time is different. I think what Trump and this administration is trying to do is structurally different than the training and my Dog's going crazy. The trading environment that you know, and the, the, the global trading environment and the global monetary environment that we've seen for you know, the last 40, 50 years. And so there are, there are big things that are going on that this administration is trying to do to reset global trade. And so some of the, the models or traditional things that folks that have worked, let's say for the last 20, 30 years, you know, may not work. Whether it's, you know, the 60, 40 portfolio and a heavy focus on, on, on bonds as a ballast to your portfolio. I mean in a, in more of an inflationary world where supply chains are being duplicated, where commodity prices are elevated as we're building out infrastructure here and Europe is spending and Japan is spending and China is spending, I think the likelihood that we're in more of a, you know, secularly inflationary environment is here.

[00:57:27.14] - Speaker 2
And so I think that commands having a more nuanced approach how you're thinking about overall asset allocation. I think, you know, gold as an asset class is, is heavily under owned in most traditional portfolios. And so you know, we, we've been, you know, we have an outsized allocation towards gold. Me personally, I also have allocation to Bitcoin and, and I think you know, these, these hard money substitutes that, that will benefit in an inflationary world where bonds become more of, I'd say certificates of confiscation on a real basis in an inflationary world I think is very important. So you know, focusing on how things are changing, you know, hit use history as a guide and it's not recent history. You have to go back and look at, you know, how markets traded when the U.S. came off the gold standard in 1971, you know, what happened in the post World War II period with yield curve control and inflationary world where rates were capped with the, you know, we were doing, you know, massive infrastructure and manufacturing build out both here and in Europe and really what sectors worked and what didn't. And so look to history, think about your portfolio from that perspective and, and, and remember that the, you know, investing is a, is a marathon, not a sprint.

[00:58:46.07] - Speaker 2
And you know, we, we often get kind of ahead of ourselves here. We, we've missed it forever on these balances and you know, go slow, have patience, allocate capital responsibly and over time and I think that's the, I think that makes sense. And you know, just because you don't have a access to Bloomberg data, I really think, you know, given all the tools you guys have been developing and others out there and various AI tools. I mean, the retail investor has, you know, tons of information at his disposal at very, you know, inexpensive cost in order to, in order to allocate it and, you know, push your financial advisor as well, you know, ask these hard questions, you know, know help you help them, help them understand or help have them walk to, through to you, you know, how things are different, how things have changed and be critical in the way that you manage your capital because it is going to be a choppy, you know, world and you're going to have to have your capital working for you here. And so I think, you know, from that perspective, things, I think things will be different.

[00:59:47.00] - Speaker 1
Awesome. Yeah, I mean, I think this was an amazing session and thank you Craig for being here with us and thank you Tim, for your commentary as well. And I want to share your link again. So for those who enjoyed the session, this is your X account and of course we also have the link here. So please follow Craig and support his work and I really hope we can see each other very soon. And again, thank you for, for this and it was an awesome session.

[01:00:17.14] - Speaker 2
Thank you guys. Greatly appreciate it.

[01:00:19.20] - Speaker 3
Thank you guys. Thanks Greg for your time and yeah, have a nice day.

[01:00:24.08] - Speaker 2
Take care.