Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,
Speaker 1: and I'm Lodona Hio, Across Acid reporter with Bloomberg. This
Speaker 1: week on the show, well do you remember Tina, the
Speaker 1: acronym standing for there is no alternative two stocks for
Speaker 1: investors looking for positive returns? Well, Tina left the building
Speaker 1: in two and no one seems to expect her to
Speaker 1: return this year. Either. With investment grade corporate bonds offering
Speaker 1: yields of almost six percent and even to year treasuries
Speaker 1: yielding well above four there are alternatives two stocks this year.
Speaker 1: We're gonna get into it with the director of Global
Speaker 1: Macro at a major investment firm. But Voldonna before that,
Speaker 1: I've noticed it's a new year. I am still not
Speaker 1: a member of your professional network. On Lincoln, this week's
Speaker 1: guess actually is a member of I think I'm a
Speaker 1: member of his professional network. I don't know how it works.
Speaker 1: I definitely added him because I was looking at his
Speaker 1: LinkedIn earlier and in preparation for the show, and he
Speaker 1: has some really great posts about food. He's a good follow,
Speaker 1: he's a good chef. He's a good person to follow.
Speaker 1: I was just going to say, you can make a
Speaker 1: name in social media either with great charts, financial charts
Speaker 1: or with good food picks. Yeah, good foods. I think
Speaker 1: he's got both bases, have both. I'm getting hungry. I
Speaker 1: get hungry every time I see is. Can I just
Speaker 1: tell you I have so many invites pending on LinkedIn. Now,
Speaker 1: even if I tried to add I would never You
Speaker 1: couldn't possibly even find it. Take me like years. Yeah,
Speaker 1: that's that's the reason I'm not. But I am friends
Speaker 1: with with our guests. It's it's Ran tim Or. He's
Speaker 1: the director of Global Macro ad Fidelity Investments. Yourian, thank
Speaker 1: you so much for joining us on the podcast. Yeah, well,
Speaker 1: thank you for having me. And you know, it's funny
Speaker 1: you mentioned the food on on social media because you
Speaker 1: can never please everyone, you know, like I'll get comments saying, oh,
Speaker 1: you know, just you know what is his Facebook? You know,
Speaker 1: just just to stick to the market commentary. And then
Speaker 1: how about the vegans out there, like show me somety
Speaker 1: and so you can never please everyone? Will want some cauliflower.
Speaker 1: I think I love cauliflower. I am vegetarian, so I
Speaker 1: actually would like to see more vegetables. Yeah, absolutely he did. Uh.
Speaker 1: I think he did bee fund for for Christmas. I
Speaker 1: did not know that was legal that you could do
Speaker 1: beef fun. You can actually dip the beef in the cheese.
Speaker 1: This is like a dream come true for me. It's
Speaker 1: an old recipe from It's a recipe from my My
Speaker 1: mom is a great chef. She's eighty eight years old.
Speaker 1: But some of my my best recipes are really vintage
Speaker 1: retro recipes that were hers from the nineteen seventies. And
Speaker 1: you know, beefund was like a big thing back there
Speaker 1: back then. So most people think of cheese fondu, but
Speaker 1: beefndu is a very good social social type of dinner.
Speaker 1: You can have ten people over, so it's a lot
Speaker 1: of fun. I'm salvating just thinking about it. Should have
Speaker 1: a party mine. You're into the party. Yeah, But I think,
Speaker 1: all right, you're let's let's shift to your recipe for
Speaker 1: the markets. Though, I think, how's that sege? That's a
Speaker 1: really good segue. So on one of your LinkedIn posts,
Speaker 1: actually you said two was challenging, So I'm wondering what
Speaker 1: you foresee for three? And maybe if you don't want
Speaker 1: to give a full year outlook what you see for
Speaker 1: the next couple of months at least. So two was
Speaker 1: all about undoing the excesses in the markets stemming from
Speaker 1: the basically the over stimulated system following the COVID you
Speaker 1: know crash and the lockdowns um and you know that
Speaker 1: whole that whole story episode, which I hope is behind us,
Speaker 1: but you never know with with COVID UM. But you know,
Speaker 1: when the FED went, you know, on the on the
Speaker 1: gas pedal together with the Treasury, and we had that
Speaker 1: one to punch of fiscal monetary stimulus. Obviously it was
Speaker 1: needed at the time. It was a very timely, very
Speaker 1: active response. It certainly did what it was supposed to do,
Speaker 1: but I think we can probably all agree that there
Speaker 1: was maybe too much and it stayed around for too long.
Speaker 1: The FED appreciated the supply chain bottlenecks and the you know,
Speaker 1: the transitory nature of that. Obviously the FED could not
Speaker 1: see the Russia Ukraine war coming, But in retrospect, maybe
Speaker 1: there should have been more of an appreciation for the
Speaker 1: kind of the magnitude of the fiscal stimulus that happened
Speaker 1: that we haven't really seen since world War two, UM,
Speaker 1: and so was about taking that punch bowl away in
Speaker 1: a very big way. And it cost evaluation reset in
Speaker 1: all markets, right, the bond market, the stock market, the
Speaker 1: crypto market, the commodity markets, you name it. And so
Speaker 1: that was so it was a big valuation reset. Basically,
Speaker 1: the FED raised the cost of capital on everyone, homeowners,
Speaker 1: the government, corporations, consumers, um, and the bond market. You
Speaker 1: know you mentioned Tina early here. The bond market went
Speaker 1: back to being a viable competitive asset class, I mean
Speaker 1: positively correlated to the stock market. Unfortunately for anyone in
Speaker 1: a sixty forty type portfolio, which is really most of us,
Speaker 1: but that level the playing field that we now actually
Speaker 1: have a menu of asset classes that actually is more
Speaker 1: closely resembles what we have historically seen rather than you know,
Speaker 1: the last few years. So now we're in three and
Speaker 1: for me, the big question and for many investors of course, is,
Speaker 1: you know, will the FET be able to thread the
Speaker 1: needle by raising rates just high enough to tame the
Speaker 1: inflation monster, but without causing a severe recession, which would
Speaker 1: then mean an earnings contraction, which then would point to
Speaker 1: the risk of another leg down for the stock market.
Speaker 1: So I think the bond market has largely reset itself.
Speaker 1: We went from one sent long yields to you know,
Speaker 1: over four point three were now at about three and
Speaker 1: three quarters or so. So I think that reset is
Speaker 1: behind us. But for the stock market, when you look
Speaker 1: at historical cycles, there are some cycles where all of
Speaker 1: the reset in the market, all of the bear market
Speaker 1: basically was evaluation component, and by the time earnings maybe
Speaker 1: did start to fall, enough of it was discounted that
Speaker 1: the market actually was able to rally because price generally
Speaker 1: bottoms before earnings. That certainly happened in two happened in
Speaker 1: twenty I should say happened in two thousand nine. But
Speaker 1: you know, when you look at the macro data and
Speaker 1: you look at the inversion in the yield curve, you know,
Speaker 1: we when the yield curve was the most inverted about
Speaker 1: a month ago, we were at the nine percent of
Speaker 1: most inversion of all time, you know, the most inverted
Speaker 1: since nineteen the early nineteen eighties. And you have a
Speaker 1: FED basically saying, as per the December f o MC
Speaker 1: meeting that you know, we're gonna go to five ish percent,
Speaker 1: which given where inflation expectations are now via the tips,
Speaker 1: market would be in a you know, at a significantly
Speaker 1: restrictive zone, and the Fed is saying, you know, we're
Speaker 1: going to kind of stay there for a while. And
Speaker 1: so if if when you combine that with the possibility
Speaker 1: or the likelihood of a recession maybe in the second
Speaker 1: half of the year, which would then cause an earnings contraction,
Speaker 1: you know, it's not unreasonable to worry that there was
Speaker 1: another shoe that's going to drop. But again, it's it's
Speaker 1: a very much a nonlinear type of thing because price
Speaker 1: does bottom before earnings. I don't know if you remember
Speaker 1: two and a half years ago. You know, in the
Speaker 1: summer of the market was roaring back, going to new
Speaker 1: all time highs fairly quickly after the crash in in
Speaker 1: February and March, and a lot of people were scratching
Speaker 1: their heads, saying, how how is this possible? The world
Speaker 1: is coming to an end, people are dying, the economy
Speaker 1: is lockdown. How can the market be justified by going
Speaker 1: to new highs? And in retrospect, the market was just
Speaker 1: feeling that that lead lag timeline between price and earning.
Speaker 1: So it is possible that the October lows were the
Speaker 1: lows um and that if we get a mild recession
Speaker 1: or a mild earnings contraction or only an earnings contraction
Speaker 1: in real terms but not in nominal terms, that we've
Speaker 1: seen the worst of it. But it is a risk
Speaker 1: that there is an earnings wave coming in uh let's
Speaker 1: say later, and that we're not out of the woods yet.
Speaker 1: So my very safe forecast is that is going to
Speaker 1: be kind of a choppy, sideways market where we're going
Speaker 1: to revisit the lows maybe once or twice as kind
Speaker 1: of the fear grows that there's an earnings wave coming.
Speaker 1: But at the same time, there's going to be opportunities.
Speaker 1: There's gonna be a lot of under the surface rotation.
Speaker 1: I think, like we saw in two, I think international
Speaker 1: markets are looking a lot more interesting. Value I think
Speaker 1: will continue to outperform growth. So I think it's going
Speaker 1: to be a very very bifurcated market where at the
Speaker 1: beta level not much is going to happen, but at
Speaker 1: the alpha level, at the second order asset allocation level,
Speaker 1: there will be opportunities. And I think the forty side
Speaker 1: of the sixty forty will be a port in the storm.
Speaker 1: Uh If if that's sixty side still has another down lick.
Speaker 1: It's interesting your and I are colleague Sam Potter in
Speaker 1: London put together this monster compilation of sort of every
Speaker 1: strategists or fund managers predictions for three and that notion
Speaker 1: that there's a lot of bullishness on bonds. Obviously some
Speaker 1: even saying well maybe you flip the sixty relationship and
Speaker 1: got bonds or even bonds thirty equities. But I feel
Speaker 1: like embedded in all this bond bullishness is this notion
Speaker 1: that inflation has peaked, might not get back down to
Speaker 1: that supercent level this year, but it's going to head
Speaker 1: in that direction. We've seen the worst of it. I
Speaker 1: just get nervous when I see a consensus like that
Speaker 1: where everyone's sort of thinking the same thing. It makes
Speaker 1: a lot of sense that that should happen. I think,
Speaker 1: you know, if you have, if you're forced in your
Speaker 1: career to make predictions for the coming year, that one
Speaker 1: makes tons of sense. But how big of a tail
Speaker 1: risk or regular risk is the idea that inflation isn't
Speaker 1: as under control as everyone hopes it is. You know,
Speaker 1: is there a risk there that's that's not really being appreciated? Yes,
Speaker 1: I think that that is correct. And if you look
Speaker 1: at the tips market, uh, and the tips market is
Speaker 1: by no means always correct. No, no market is I mean,
Speaker 1: any market is just a subset of human behavior and
Speaker 1: human expectations, and so market signals are often wrong, which
Speaker 1: of course is a risk for the FED when they
Speaker 1: look at financial conditions. But that's another conversation. But it
Speaker 1: seems like a no brainer that if we're going to
Speaker 1: have economic weakness and now that inflation is going down,
Speaker 1: I mean it is right. I mean, the c p
Speaker 1: I piked at nine percent year over year in June,
Speaker 1: and it's you know, it's well off of those levels,
Speaker 1: and most economists that I follow, and even our in
Speaker 1: house economics team, it seems fairly likely that inflation will
Speaker 1: continue to come down at least still about four percent.
Speaker 1: But as you point out that, the risk is that
Speaker 1: it stops there or that it doesn't go all the
Speaker 1: way back back down to two. And one thing that
Speaker 1: the FED has been very clear about recently is that
Speaker 1: it's not enough just to see inflation come down. It
Speaker 1: has to come down to the FEDS target, which is
Speaker 1: two pc, which generally the CPI runs a little higher
Speaker 1: than that because of the different compositions. So basically two
Speaker 1: and a half percent on the c P I would
Speaker 1: is the Fed's target. And the risk is that, you know,
Speaker 1: the FED will go to around five percent in the
Speaker 1: next three months or so. I mean, the FED has
Speaker 1: been fairly clear about that. The dot plot suggests the
Speaker 1: same thing. Uh, But there's a disconnect between what the
Speaker 1: forward curve, you know, the SOFA curve or the FED
Speaker 1: funds curve is saying the FEED will do and what
Speaker 1: the FED is saying the FED will do. Right, if
Speaker 1: you look at the three dot plot, the median dot
Speaker 1: is like four and three eight or so, and the
Speaker 1: FED funds curve or the SOFA curve is at three.
Speaker 1: I mean, that's a big disconnect, right, And so I
Speaker 1: think the risk is that, and I think the FED
Speaker 1: sees this, is that the FED wants to contain inflation
Speaker 1: all the way back to its target because if it
Speaker 1: doesn't do it now, even at the risk of a recession,
Speaker 1: then it may never be able to do it unless,
Speaker 1: you know, unless much more severe measures are taken. And
Speaker 1: imagine we do go into a recession second half of
Speaker 1: this year and inflation goes all the way to four
Speaker 1: which is of course help of a lot better than
Speaker 1: nine um. But that's then the trough. And let's say
Speaker 1: inflation then accelerates in the following expansion off of a
Speaker 1: base of three or four instead of you know what
Speaker 1: normally would be zero or one, right, because the pendulum
Speaker 1: is always swinging through that average target. And I think,
Speaker 1: you know, I mean, it's a conversation for another time,
Speaker 1: because we're very far from that happening. But that would
Speaker 1: create the risk that bonds are indeed no longer support
Speaker 1: in the storm because if you think about where the
Speaker 1: term premium is, which is around zero or so. Uh.
Speaker 1: And let's say that inflation does become more embedded at
Speaker 1: a higher rate, even if it's only three or four,
Speaker 1: it's still you know, almost double what the FED would
Speaker 1: like to see. Then you could see a period of
Speaker 1: structurally higher real rates and nominal rates. But I think
Speaker 1: for the focus will be more on recession risk and
Speaker 1: the forty starting to negatively correlate again against the sixty,
Speaker 1: which is what has happened in the last few months. Again,
Speaker 1: although it's only a few nts, do you just want
Speaker 1: to pause and say it's the year finally people are
Speaker 1: talking about SOFA it's taken a while. Finally the secured
Speaker 1: overnight financing rate that replaced library Are you impressed with
Speaker 1: You're not as impressed as I am. Not just you know,
Speaker 1: because I bug you with these topics all the time,
Speaker 1: where I email I'm like, what does this mean? All
Speaker 1: the time? So first, huge, Now going forward, we were
Speaker 1: finally out from under the shadow of live work. We've
Speaker 1: been talking about it for years. Yeah, well you're in.
Speaker 1: I wanted to ask you if you feel that we've
Speaker 1: definitively made the switch from worrying about inflation to worrying
Speaker 1: about growth and what it is in terms of economic
Speaker 1: signals that you're tracking that might sort of give you
Speaker 1: clues in terms of whether or not or how severe
Speaker 1: of a recession. We get, Yes, I think for that
Speaker 1: is correct. Maybe we'll be worrying again again about inflation,
Speaker 1: but for now, clearly inflation is on a decelerating track.
Speaker 1: We see this in your w prices, used car prices,
Speaker 1: I mean, you know, price of energy commodities, uh that,
Speaker 1: and you know the p M I price is paid,
Speaker 1: So all of those numbers are heading in the right direction.
Speaker 1: Of course, the FED is focused on the labor market,
Speaker 1: which remains very tight. But um, I think for three,
Speaker 1: the big question is, you know, last year the first
Speaker 1: shoe dropped, which was the valuation reset driven by the FED,
Speaker 1: driving the cost of capital higher for everything. And remember
Speaker 1: all assets are are really just the present value of
Speaker 1: future cash flows, whether it's a bond or you know,
Speaker 1: a rental property or a stock. And so when when
Speaker 1: the discount rate in that discounted cash flow model goes up,
Speaker 1: the present value of those cash flows goes down, even
Speaker 1: if the cash flows themselves are still growing. And that, really,
Speaker 1: in a nutshell, is what explains what happened last year.
Speaker 1: So that that I think is largely in the rear
Speaker 1: view mirror. When you look at past economic cycles or
Speaker 1: past bear markets, even the really really bad ones like
Speaker 1: the financial crisis, the dot com bubble four, all of
Speaker 1: those rarely produced a rate of change in the PE
Speaker 1: ratio that was more negative than what we've seen in two.
Speaker 1: So it's really it's it's it's a stretch to me
Speaker 1: to argue that the PE ratio is going to go
Speaker 1: down even more than it already has. Right, it went
Speaker 1: from the twenties mid twenties to fifteen, but the PE
Speaker 1: is only as good as the E, of course, and
Speaker 1: so the E is what the question is, fore will
Speaker 1: that E hold up? And maybe it holds up in
Speaker 1: nominal terms because of inflation, but not in real terms.
Speaker 1: Maybe it doesn't hold up in either. But when you
Speaker 1: think about disconnects, and you mentioned, you know earlier about
Speaker 1: the bond market where everyone seems to be bullish, you know,
Speaker 1: another disconnect is that it seems like a lot of
Speaker 1: people are worried about the recession. But you look at
Speaker 1: the earnings estimates, the aggregated estimates, and I get mine
Speaker 1: from from my Bloomberg terminal every Friday. It still points
Speaker 1: to positive expected growth in and you know, I would
Speaker 1: be a lot happier. It sounds silly, but uh, you know,
Speaker 1: sort of wearing my contrarian hat if the earnings estimates
Speaker 1: were really bad right now, because then you have a sense, okay,
Speaker 1: investors are under paying for you know, what could be
Speaker 1: a positive surprise if we end up getting either no
Speaker 1: recession or a mild recession. And that's one of the
Speaker 1: disconnects that kind of worries me a little bit. That uh,
Speaker 1: that the that you know, that's something that's not apparently
Speaker 1: in the price that the p is, but the E
Speaker 1: still is kind of hanging in there, and that I
Speaker 1: think is what in a nutshell is going to be about,
Speaker 1: is will the E hold up right, especially in those
Speaker 1: further out quarters in the year. You know, it seems
Speaker 1: like everyone seems to backload the growth for an EPs
Speaker 1: towards the end of the year, and slowly that gets
Speaker 1: whittled down perhaps, but you're in One post of yours
Speaker 1: really caught my attention because it talked about both the
Speaker 1: two day moving average in the SMP five and just
Speaker 1: the basic trend line. And for listeners who who aren't aware, basically,
Speaker 1: if you take a chart of the SMP five hundred
Speaker 1: uh and you start at the record last about a
Speaker 1: year ago, almost exactly last January, and just connect the
Speaker 1: top of the chart going down, it's just a straight
Speaker 1: trend line down. And what's really been fascinating is that
Speaker 1: any sort of rebound in the market over the past
Speaker 1: year has failed right at that trend line, and if not,
Speaker 1: the two day moving average a similar trend line, though
Speaker 1: not as straight. For a lot of fundamentally investors minded investors,
Speaker 1: um that's a hard thing to to swallow, you know,
Speaker 1: How can you draw a simple trend line and have
Speaker 1: it work. You know, is is it really that simple? Something?
Speaker 1: I'm curious, you know, how important are the technical goals
Speaker 1: these days, specifically that trend line? Is it really that simple?
Speaker 1: And do we need sort of some big fundamental change
Speaker 1: of tides to break that trend line? Well you ask
Speaker 1: a great question, and it actually it brings me back,
Speaker 1: and I hope you don't mind me digressing for a moment,
Speaker 1: but it brings me back to the start of my career,
Speaker 1: which is like almost uh just years ago, thirty eight
Speaker 1: years ago. I started in the business working at a
Speaker 1: bond desk of a Dutch bank in New York, a
Speaker 1: b N bank which became a ban Emero. Then I
Speaker 1: ended up running that small bond desk. So my history
Speaker 1: starts as a bond geek, but I got really into
Speaker 1: charting and technical analysis and that still is in my
Speaker 1: d n A today. But you know, then ten years later,
Speaker 1: so so almost twenty eight years ago, I was hired
Speaker 1: by Fidelity as a chartist. I like it, like we
Speaker 1: have a chart room. Tom Keane always speaks very highly
Speaker 1: of of that, of that whole history and legacy. But
Speaker 1: I was hired as a technical analyst, and I quickly
Speaker 1: found out the hard way. I guess that I was
Speaker 1: catering to an audience of mostly fundamentally oriented portfolio managers,
Speaker 1: and they all look at charts, or at least many
Speaker 1: of them do. But if I you know, you know,
Speaker 1: back in the day, I was an analyst on knocking
Speaker 1: on doors, you know, trying to trying to you know,
Speaker 1: show you know, ideas to people like Bob Stansky and
Speaker 1: George van der Hyden and you know, people running the
Speaker 1: really big funds. And you know, when you're a one
Speaker 1: trick pony and you just have a chart with some
Speaker 1: lines drawn on it, the conversation is going to end
Speaker 1: pretty quickly. So I realized that, um, that technical analysis
Speaker 1: is important. It's a very important compliment to other analysis.
Speaker 1: But you need to have you still, you know, like
Speaker 1: the technical analyst to me is the is the when
Speaker 1: and how much part of the question, But the fundamental
Speaker 1: side is the what and why right and so UM,
Speaker 1: I think to your specific question about the SMP peaking
Speaker 1: your right January four two at eighteen on the SMP
Speaker 1: UM from that peak until the low UM in October,
Speaker 1: you look at all the little counter trend highs you
Speaker 1: draw a trend line, and the last one held perfectly,
Speaker 1: and that was also at the two day moving average.
Speaker 1: And by the way, if you look at a chart
Speaker 1: of kind of the overall liquidity in the market, it's
Speaker 1: not a chart that I created, I've seen it elsewhere.
Speaker 1: But you take the FATS balance sheet minus reverse repose
Speaker 1: minus the t g E the Traadury general account, and
Speaker 1: it's that same line, right. So, um, I think technical
Speaker 1: analysis is used by a lot of people either as
Speaker 1: something to confirm or deny a thesis, but for instance,
Speaker 1: for the c T a crowd which had a banner
Speaker 1: year last year, I think it actually provides actual signals.
Speaker 1: You say, Okay, you know, I'm long. I'm going to
Speaker 1: sell at the declining two hund day moving average, especially
Speaker 1: if there are other technical features that complement that. And
Speaker 1: so I do think that there is a cohort of
Speaker 1: traders and investors who actually will use those indicators as
Speaker 1: as ways to execute trades. And the nice thing is,
Speaker 1: you know, if if a moving average is kind of
Speaker 1: a confirmed resistance point or a down trend line, and
Speaker 1: you sell against that trend line, you know very quickly
Speaker 1: if you're wrong and right for and for c t
Speaker 1: as or hedge funds. Uh, that's the name of the game.
Speaker 1: It's risk management. So if you sell at four thousand
Speaker 1: and it goes to well, then you're out, and then
Speaker 1: you'll you'll wait and see what happens next. And so
Speaker 1: I think in that sense, these technical tools are still
Speaker 1: very very viable tools for trade location and timing, But
Speaker 1: from my perspective as a longer term investor, it's really
Speaker 1: there to confirm or deny a thee and to help
Speaker 1: with kind of trade sizing and timing and things like that. Mike,
Speaker 1: do you know where you can find the best technical analysis?
Speaker 1: Why don't you tell them? In crypto? Oh? Yeah, Well
Speaker 1: that's what it's all about. You can make up chart patterns.
Speaker 1: I've seen the Bart Simpson chart patterns. You're in one
Speaker 1: more quick thing, and you kind of made me think
Speaker 1: about this. When you talk about your career started thirty
Speaker 1: eight years ago. One thing you hear a lot of
Speaker 1: people say these days is, oh, these so many fund managers, strategists, traders, whatever,
Speaker 1: today are young. They haven't worked through a high interest
Speaker 1: rate environment like you saw in the eighties, um to
Speaker 1: which I often reply, well, yes, but they've also been
Speaker 1: working with high powered computers their whole career. You know,
Speaker 1: they're able to back test stuff much more quickly and
Speaker 1: efficiently than anyone could back then. But I'm wondering how
Speaker 1: you think about that notion that you know, there's this
Speaker 1: generation of investors, fund managers, market participants all over the
Speaker 1: place who who haven't lived through this type of inflation
Speaker 1: shock that we've seen. Have you noticed any sort of
Speaker 1: you know, effects of that already or anything you would
Speaker 1: suspect going forward, or is it just a just a
Speaker 1: bunch of talk. Uh? No, I think it's important, and
Speaker 1: it doesn't just pertain to to inflation. It's just you know,
Speaker 1: market cycles in general, you know, Like so I've been
Speaker 1: around for a while, I've directly experienced a lot of cycles,
Speaker 1: and I remember, like yesterday, the green span cycle. Um.
Speaker 1: And that doesn't mean you can't be a good strategist
Speaker 1: or investor if you weren't around back then. But for me,
Speaker 1: as a strategist, especially one who is you know, very
Speaker 1: visually oriented, I find it very helpful that the more
Speaker 1: cycles I've experienced, the more context I have in my head,
Speaker 1: because you know, you kind of I can I can
Speaker 1: look at this cycle and say, you know, no cycle
Speaker 1: repeats exactly, like, that's not how it works. Every cycle
Speaker 1: is unique in some way, but we kind of borrow
Speaker 1: different things from different cycles, right, I mean, the fourties
Speaker 1: is one area. I mean I wasn't around back then,
Speaker 1: but that's one major cycle that I have kind of
Speaker 1: used as an analog because that's the last time we
Speaker 1: had this huge, double powered fiscal monetary response to you know,
Speaker 1: to an event, which back then was of course the
Speaker 1: US entering World War Two, but has some parallels the
Speaker 1: way Greenspan kind of went nonlinear in and how often
Speaker 1: and in what increments he would raise rates. And of
Speaker 1: course the nineties seventies are their lessons learned the late sixties,
Speaker 1: and of course the late nineties have things in common
Speaker 1: even though they were totally different periods in time, but
Speaker 1: they had a lot of speculation in what today are
Speaker 1: are the meme stocks, but back then it was the
Speaker 1: space stocks or the dot com stock. So an advantage
Speaker 1: of having a long experience is that you know, even
Speaker 1: if you don't directly remember it, it kind of rings
Speaker 1: a bell saying, you know, this kind of feels like that.
Speaker 1: So whether it comes down to inflation or just appreciating
Speaker 1: what happens in a recession. I mean, you know, like
Speaker 1: you know, we used to have recessions every four or
Speaker 1: five years, right, That's why it was called the four
Speaker 1: year cycle. But over the last couple of decades, we've
Speaker 1: had recessions only one every ten years or so, and
Speaker 1: the Great Recession was the last one. And actually that
Speaker 1: creates the opposite kind of confirmation bias, because people think
Speaker 1: of recession, they think of recession, they think of the
Speaker 1: financial crisis, even though that was a perfect storm that
Speaker 1: only happens, you know, every hundred years or so. There
Speaker 1: are much milder recessions that we can look at the
Speaker 1: dot com period, So it's a it's limitation. But as
Speaker 1: you as you mentioned, you know, we have lots of information,
Speaker 1: a lot of it that I get from my Bloomberg terminal.
Speaker 1: You guys have done a great job building that arsenal
Speaker 1: of data um and um and you know, and this
Speaker 1: is one of the reasons why I make my stuff
Speaker 1: publicly available on Twitter and LinkedIn, because even though it's proprietary,
Speaker 1: of course, it's our I p. I think if it
Speaker 1: helps everyone make better decisions, then I think we all
Speaker 1: win in the end. Well you're in timmer head of
Speaker 1: Global Macro at Fairy. Great to catch up with you
Speaker 1: and hear your thoughts. Well thought it. Maybe he can
Speaker 1: get us recipe for cauliflower. I will make it and
Speaker 1: I will tag you on the post. How's that? Absolutely?
Speaker 1: But before we let you go you're in. We do
Speaker 1: have to get to our attrition. Hear the craziest things
Speaker 1: we saw in markets. I'm gonna get it started because
Speaker 1: our good friend Twiggy. Sunday, he tweeted at me thebanna
Speaker 1: of Reuter's video. It was about the Saudi Arabia Camel Festival.
Speaker 1: We've talked about this, the King Abdullah's Ease Camel Festival,
Speaker 1: forty five days long. It features daily auctions of camels. Now,
Speaker 1: camels are big in Saudi Arabia. They like to race them,
Speaker 1: They have miss pets, transportation, everything, and according to this video,
Speaker 1: at least an ordinary domestic camel goes for about four
Speaker 1: thousand dollars. But it's time to play. You're in the
Speaker 1: prices precise, the prices precise, first prices, percise prices precise.
Speaker 1: Not the prices right, You're absolutely not completely different game.
Speaker 1: What do you suppose the highest price ever paid at
Speaker 1: auction for a very nice camel ever ever, according to
Speaker 1: the Riders video at the King Abdullah's Ease Camel Festival
Speaker 1: in Saudi Arabia, was it? Was it in the past year.
Speaker 1: I do not know the date of it. No, shoot, okay,
Speaker 1: but I do feel like there's a bowl market in camels. Okay, okay,
Speaker 1: I'm going with three d seventy dollars ran in seventy
Speaker 1: five dollars. You're in. What do you think? What do
Speaker 1: you think the highest price paid for a camel at
Speaker 1: auction in the King's Camel auction if you go over island,
Speaker 1: so the average you set is four thousand, that's sort
Speaker 1: of the entry that's your entry level camel, you know. Yeah, yeah,
Speaker 1: it comes down to the pe ratio of camel ratio there.
Speaker 1: Maybe there's some hump rate you know analysis you can
Speaker 1: do if during the dot com bubble the pe of
Speaker 1: a NASDAC one hundred stock was a hundred, where normally
Speaker 1: it would be twenty. That's five x so that but
Speaker 1: that's only twenty thousand. That seems too low. I'm gonna
Speaker 1: say a hundred thousand, hundred, five point five million, five remember,
Speaker 1: oh my God, I think for for grants kind of
Speaker 1: a bargain. I wonder if I could get one shipped over.
Speaker 1: I think we're gonna should go. You put in that
Speaker 1: second to see what we put in the ticket. Yeah, wow,
Speaker 1: I'm so shocked by this. And thank you Twiggy Sunday.
Speaker 1: Of course, of course, thank you Twiggy. Okay, I'll go next.
Speaker 1: So you probably saw this, but fourteen years ago this
Speaker 1: week was when the very first bitcoin block was mined.
Speaker 1: Okay years ago, fourteen years ago this week and since then,
Speaker 1: this is a story courtesy of Joe Wisenthal, who I
Speaker 1: think is your seat mate. We don't sit in the
Speaker 1: same seat. That would be awkward. That would be awkward
Speaker 1: because you have competing podcasts. But since then, Bitcoin is
Speaker 1: up one six nine zero seven zero six nine seven one. Wait,
Speaker 1: how many commas in a million percent? Three? No, there's
Speaker 1: three commas a billion percent? Yeah, oh my goodness. Because
Speaker 1: it was trading for like it went from a penny
Speaker 1: basically for a fraction of a penny. Too. Well, you're in.
Speaker 1: You know, Fidelity has made a big inroads in the crypto.
Speaker 1: What what's your thoughts after this? You know, just disastrous
Speaker 1: year for crypto going for Yeah, I mean, I think
Speaker 1: a lot of what we've seen and certainly what's in
Speaker 1: the headlines now, you could argue that doesn't really even
Speaker 1: have to do with with crypto like that. That's an
Speaker 1: old story as old as as as human kind. But
Speaker 1: it happens when you have a newly developed market that
Speaker 1: is unregulated or underregulated and that you know, has a
Speaker 1: lot of promise, gets a lot of people excited, but
Speaker 1: the lack of regulation also creates creates the opportunity for fraud.
Speaker 1: And you know that that's a very old story that
Speaker 1: keeps getting repeated, but just with different circumstances. And you know,
Speaker 1: when I look at this year, I kind of think
Speaker 1: back to two thousands. You know, it was a different technology,
Speaker 1: but there are similarities, right, and and and that translates
Speaker 1: not just into crypto but the meme stocks in general.
Speaker 1: And it just shows you that speculation. You know, you know,
Speaker 1: people learn from their mistakes, but they don't learn it
Speaker 1: for very long or or the next generation then has
Speaker 1: to learn it from scratch, which and that's why these
Speaker 1: bubbles tend to be spaced a couple of decades apart um.
Speaker 1: I think that will be you know, there is still
Speaker 1: a future. I think there will be another wave coming.
Speaker 1: I don't know when it it happens. Usually when you
Speaker 1: see the kind of winter that we're seeing now and
Speaker 1: that we saw, for instance, in two thousand and one
Speaker 1: and two for tech stocks, it does take a couple
Speaker 1: of years for uh kind of those animal spirits to
Speaker 1: come back. I think, you know, the next wave, when
Speaker 1: it happens, will be the one that's based on hopefully
Speaker 1: prudent regulation that gives you know, institutions, um and other
Speaker 1: investors a sense that, Okay, the water is safe in
Speaker 1: that sense that to play in. And then it's a
Speaker 1: question of you know, again using the dot com boom
Speaker 1: and bubble as an example, is which ones which tokens
Speaker 1: or which assets are the pets dot COM's of the
Speaker 1: nineties and which ones are the Apples and the Amazons
Speaker 1: because Apple and Amazon and Google will Google was launched
Speaker 1: after but those all had very large draw downs, but
Speaker 1: they all came back, and Apple is now sevent of
Speaker 1: the NASDAC And so I think it's it's separating the
Speaker 1: ones that are you know, that are long term market
Speaker 1: share leaders from from the ones that were kind of
Speaker 1: a flash in the pen. I think that's being separated
Speaker 1: right now, of course as we speak, and the fact
Speaker 1: that Bitcoin, even though it's down a lot, is still
Speaker 1: there um. And what's happened to you, of course in
Speaker 1: the rest of the space, if anything is is is
Speaker 1: um justification for why bitcoin was better than all the
Speaker 1: other stuff? Um. So I think all of that will
Speaker 1: be sorted out. But but these these massive cycles take
Speaker 1: time to to to play out. Do you think a
Speaker 1: much lower interest rates are pre prerequisite to get those
Speaker 1: animal spirits going again? Well? So, you know, for for
Speaker 1: crypto assets, of course, it's all about the network, and
Speaker 1: I'm glad you just mentioned that, um, And certainly for
Speaker 1: bitcoin it's about the adoption curve, right, and that and
Speaker 1: I've done work on this looking at god knows real
Speaker 1: road miles, you know from a hundred and fifty years ago,
Speaker 1: or you know, or the our cell phone adoption or
Speaker 1: internet adoption. And so bitcoin and other cryptos follow that
Speaker 1: adoption curve. And that curve is going to grow on
Speaker 1: on a micro level because of the use case of
Speaker 1: the token or the asset, but it can certainly be
Speaker 1: sped up or slowed down by macro right, and so
Speaker 1: the macro was very favorable in because you know the
Speaker 1: money printer stuff and all that, and of course it
Speaker 1: was very unfavorable in. And so I think the macro
Speaker 1: of real rates and at policy matters because they can
Speaker 1: speed up or slow down the adoption curve, but ultimately
Speaker 1: the adoption curve has to grow on its own. And
Speaker 1: so those are the two dimensions that I look at. Vildonna.
Speaker 1: You know where animal spirits are always present, the camel market.
Speaker 1: Camel market. I was trying to find something clever to say, down, Wow,
Speaker 1: that's well you're in. How about you? Have you seen
Speaker 1: anything crazy in markets this week? Well, the year is
Speaker 1: still young, so not so far this week, but we've
Speaker 1: certainly seen plenty of crazy stuff. And part of it
Speaker 1: I think is the result of the machines taking over
Speaker 1: the short term flow. Right. If you think about how
Speaker 1: much of the options value in the SMP has a
Speaker 1: maturity or an exploration like less than forty eight hours,
Speaker 1: I mean that we used to never see that happen,
Speaker 1: and so it creates a lot of volatility. And I remember,
Speaker 1: you know the October thirteen low, which so far is
Speaker 1: the low for the SMP. I don't know if it's
Speaker 1: going to stay that way. But uh, in the two days,
Speaker 1: you know, we had that very big reversal and I
Speaker 1: think the SMP was up something like seven percent in
Speaker 1: two days. But the meme stocks, you know, the Goldman
Speaker 1: Sachs nonprofitable growth basket, I think it was up in
Speaker 1: two days. And that's just that's not normal. And that's
Speaker 1: the machines, right, that is the algoes and the machines
Speaker 1: taking over. And I think it's important for regular investors
Speaker 1: not to get kind of swept away by that, thinking like,
Speaker 1: oh my god, something is happening and I'm missing it.
Speaker 1: But no, it's it's it's options and machines and stuff
Speaker 1: like that. Yeah, fascinating stuff. Urian Simmer had a global
Speaker 1: macro at Fideliti. Really great to catch up with you,
Speaker 1: and I hope we can bring you back again sometimes great. Well,
Speaker 1: thank you for having thank you for coming on What
Speaker 1: Goes Up. We'll be back next week. And so then
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