MacroVoices #475 Simon White: The Dawn of A New Financial Order
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This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna.

Macro Voices episode 475 was produced on April 10th, 2025. I'm Eric Townsend. Bloomberg macro strategist Simon White returns as this week's feature interview guest. Simon and I will discuss the Trump tariff tornado, treasuries, why the basis trade is blowing up, and much, much more. And I'm Patrick Ceresna with the Macro Scoreboard week over week as of the close of Wednesday, April 9th, 2025.

The S&P 500 indexed down 377 basis points, trading at 5457. This poorly reflects the historic volatility experienced throughout the week.

Peak to trough, we saw more than a 15% drop, followed by a strong Wednesday recovery, seeing the third largest single day since 1990. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment. The U.S. dollar index down 76 basis points, trading to 102.90%.

The May WTI crude oil contract down 1,305 basis points to 62.35. Peak to trough, we saw more than a 23% decline or $17 before Wednesday's recovery.

The May Arbob Gasoline down 1,245 basis points trading at 204. The June Gold Contract down 275 basis points to 3,079. The May Copper Contract down 1,703 basis points trading to 419. Peaked to trough more than a 20% drop before the short-term lows were established.

Uranium down 115 basis points, trading to $64.40. And the U.S. 10-year Treasury yield up 25 basis points, trading at $4.33. Trouble emerged in the bond market plumbing, driving yields higher. The key news to watch this Friday is the consumer sentiment numbers. And next week, we have the core retail sales and the Bank of Canada and ECB monetary policy statements and press conference.

This week's feature interview guest is Bloomberg macro strategist Simon White. Eric and Simon discuss the current market volatility, liquidity tightening, the basis point trade, and more. Eric's interview with Simon White is coming up as Macro Voices continues right here at MacroVoices.com. And now with this week's special guest, here's your host, Eric Townsend.

Joining me now is Simon White, macro strategist for Bloomberg. And for those of you lucky enough to have a Bloomberg terminal, also the author of the Macroscope column.

Simon prepared a slide deck to accompany today's interview. Registered users will find the download link in your Research Roundup email. If you don't have a Research Roundup email, just go to our homepage, macrovoices.com. Look for the red button above Simon's picture that says looking for the downloads. As we get into the discussion of treasuries in just a few minutes, just follow along with us in the slide deck.

Simon feels to me like one of those weeks when decades happen. We're recording this interview early on Tuesday morning, so you and I have only experienced one day of this week. On that day, we had at one point a 5.5% move up

on the S&P 500 futures in the course of six minutes, followed by a retrace of those 300 points up. We came back down 200 points in six minutes, took another 15 minutes to get the remaining 100 points for a complete retrace. That was after somebody third-hand hearsay said they thought they heard somebody else say something about what might be on President Trump's mind. And then the White House said it was fake news and it all retraced.

Needless to say, it's a headline-driven market. Then we had Keir Starmer basically announce the end of globalism, kind of a

profound thing to say. And that was just Monday. I can only imagine what happens between now and Thursday when our listeners actually hear this interview. What's going on? What should we make of this? Obviously, President Trump's tariffs are kind of the key driver in it. But how should we think about these markets with just so many crazy things happening all at once?

Well, thanks for having me on again, Eric. I think we actually spoke not the last time, but the time before the last time, just when the pandemic started. So very similar circumstances. And I think the Lenin quote about decades and weeks was being used then, and it's certainly appropriate. The amount of uncertainty has ratcheted up by a huge amount. And it's hard to tell really exactly what the main aim is. I mean, my initial thinking was,

when the tariffs were announced, the aim was to reduce trade deficits. So for the US to reduce the trade deficit. But I'm wondering really if they want to close them altogether, which is obviously a very different set circumstance as if that's correct, then Keir Starmer's notion about the end of globalization is right too. But again, we really don't know. I think there are definitely some more ideological people within the Trump administration, obviously Navarro for one of them.

and they maybe do look to close the trade deficits altogether, whereas Trump obviously is renowned for being open to deals and perhaps if the right thing comes his way, he won't be quite as ideological. But nonetheless, these are big changes. And I think one kind of analogy that's fairly relevant right now is Brexit. I mean, it was almost 10 years ago that the UK voted to leave the European Union and the principal motivations behind Brexit

Brexit were a renegotiation of the relationships with your trading partners and taking back control of your borders. And, you know, that's really not dissimilar to what's happening in the US right now. The fundamental difference is it didn't work out well for the UK, certainly in the first couple of years because capital started to leave. But the fundamental difference is

with the U.S. would normally be that the U.S. is insulated from such effects because the U.S. has the reserve currency and there's always a demand for its assets. But I think, you know, like many, many things that we are used to taking as rules of thumb, I really don't think we can take that for granted anymore. So I don't think we can take that for granted anymore that there's going to be the same requirement for or desire for U.S. dollars as

and dollar assets as there once was. Now there's a few things here that make it even more interesting as in

The last few years, the US has been running enormous current account deficits. So normally the rule of thumb, if you like, that the dollar rallies in sort of risk-off events is based on the fact that dollars normally are essentially a funding currency. People tend to borrow the dollar, so there's a structural short in the dollar. And when you have a kind of financial shock that we're seeing similar to right now,

That short is covered, but when you had so much capital coming into the US and the numbers are huge.

that can easily overwhelm any, any short covering that you, you know, structural short covering that you might normally see. And I think that's kind of what we've been seeing. So, you know, the DXY has reversed most of its, you know, post election, before the election and after rally, you know, it's kind of reverse most of that. And I think that's really this, there's a sign that the dollar is no longer what it once was. And, and,

as I say, the current account deficits are huge. Now, most of that money coming into the US has not been for bonds in recent years. It's really been equity. So most of those deficits have been funded by equity. So we've had something like $9 trillion of inflows

into US equities since the pandemic you know doubling its size there's now over 18 trillion dollars that foreigners hold that's something like 16 percent of the total of US equities outstanding so that's a lot of potential capital that can come out now equities are kind of in the heat of the storm right now but it's kind of clear I think certainly to me that why should treasuries be exempt from this now the demand for treasuries had slowed certainly you look

reserve accumulation really began to sort of gradually ease after the financial crisis but that really accelerated in the wake of the Russia-Ukraine war after you know Russia's assets reserve assets were seized and then that confidence in the dollar was kind of further undermined with the recent rumblings we've had about a Mar-a-Lago accord essentially you know you cannot take it for granted that

that the dollar is a politically kind of medal-free instrument anymore. So that's really kind of scared the horses, not just amongst emerging markets and people that might be considered foes of the US, but also amongst friends too. So there's a real fundamental kind of rethink here about what the dollar is, about whether people need to hold as much of it as they once did. And obviously that applies to treasuries.

And that's compounded when it comes to the US by the massive fiscal deficits that the US has been running. So already, I would say that treasuries were facing a demand problem. You know, the US has been running 7% fiscal deficits. You know, treasuries aren't particularly attractive with a 7% fiscal deficit. Then, you know, if we get a recession, and I can get into that in a bit more detail later on, if we get a recession, I mean, the fiscal stabilizer alone would take that

that fiscal deficit into double digits. Now, inflation is already elevated. And when inflation is elevated, the other rule of thumb that people are probably quite used to is that treasuries are a recession hedge. I mean, when inflation is elevated, that's just not the case. And you tend to get bonds and stocks moving positively correlated. Simon, let's talk a little bit more about the fiscal deficit. How wide can it get?

Well, it's a very, very good question. I mean, automatically fiscal stabilisers, so that alone, I think, would take it clearly into double digits. If you go to the slide deck on slide three, the chart on the left shows what the fiscal deficit

it has done in previous recessions in the US. And you can see there just on average, it drops about four percentage points. So with us already at seven, that takes us just based on that average to 11%. That's a massive, massive number. I mean, I think the only time that's been exceeded was in the pandemic.

as post-war. So these are really, really big numbers. And as I say, already the market was becoming hesitant about funding the government at 7% deficit. It's probably going to be even less happy about funding an 11% deficit. So this is something that's problematic. And when inflation is elevated...

stocks and bonds tend to be positively correlated, which means they can fall together. And that's something we've already seen this week. You know, we had this massive move in treasury yields. So treasury yields saw their second largest open to close rise. Again, since the pandemic, you have to go back to the 17th of March. That was a 30 basis point rise. It's really close to unprecedented. So, you know, these are massive moves and the kind of axiom that

treasuries and the dollar are safe havens. I don't think we can take that as read. So how is this going to play out? I think the key thing to watch right now is not so much the stock market, although that is important, it is the dollar. And the administration has made quite a few, quite clear that the reason why they're less interested in the stock market than people would have thought we were is ultimately the stock market is owned by way fewer people in the US. So the vast majority of stocks

are owned by like the richest 10% of households. If you look at what matters to, you know, what are probably more likely to be Trump's base, they're sort of middle income bracket, it's small businesses, it's real estate. And that's clearly where the administration are putting their focus on. So the dollar,

if it carries on weakening, will amplify the effect of tariffs. And you can see again, going back to the deck on slide three, the chart on the right, you can see there that the dollar leads import prices. So if the dollar continues to weaken, that's really going to be an effect on US consumers. And there's way more US consumers than people that own equities in the US. And obviously that ultimately translates into votes. So I think you want to

keep an eye on the dollar for how much, if you like, political pain the administration is willing to take. And the thing is, if the dollar keeps selling off, it might give them a convenient off-ramp because if the dollar is weaker, that means the euro is stronger, the yuan is stronger, the yen is stronger.

And, you know, the administration can say, you know what, we've kind of got some of what we want here. Your guys' currencies are stronger, ours are weaker, and therefore we're not going to have some of the more onerous tariff rates. But as I say, it's really not clear what the plan is here, whether we're going for the ideological, let's close the deficits altogether, or there really is the potential here for making a deal and trying to come up with some sort of happy medium.

I think you hit the nail on the head when you said that the issue is that it's not at all clear here. And it seems to me that what's going on, you look at something like fiscal deficits and you say, OK, so maybe the president is really trying to build a very large revenue stream around tariffs. OK, we'll try to

grok that possibility. Oh, wait a minute. No, he was just trying to get people to come to the negotiating table. And the market says, Mr. President, you got to tell us what to expect. You got to tell us what the plan is because the markets hate uncertainty. And it seems to me President Trump is saying, no, I don't have to tell you anything. It's the art of the deal, baby. I'm not showing my cards. So you'll have to guess.

So that's not what markets like and it's not what markets are used to. Am I right to think that that's what's going on here is just that the president doesn't want to give markets the kind of policy forward guidance that is normally expected in previous administrations?

Well, whether that sees intention, that's certainly what's happening. And as you say, Eric, the markets abhor uncertainty. They find it's impossible to price in. You know, the classic black swan, unknown unknowns, all these sort of things are extremely difficult for markets to price in. And this is kind of what we're seeing, you know, right now. The tariffs were kind of worse than people expected. And the notion of a Trump put is

is clearly, you know, the strike price is not kind of near where people thought it might have been. And that probably also applies to the power put. He's just focused on the economy right now, which, by the way, is always lagging.

So the economy looks okay now, but this is the kind of where we are right now, really, right? So we're seeing these sort of cascading falls in markets. We're seeing the stock market on an intraday basis, it's gone into correction mode. It's not done that on a closed basis quite yet, but we're really in that period where

economies and markets are becoming highly entangled. And that's a very kind of dangerous time because that's the time when you can have these negative feedback loops that develop very quickly between the economy and the market where, you know, the stock market sells off. That does a huge amount of damage to sentiment.

people end up pulling back spending, investment. That feeds into the real economy. And then the real economy data starts to deteriorate. The stock market then looks at that data and then sells off again. And you have this kind of self-reinforcing feedback loop that often culminates in a recession. And if we go back to the slide deck, we go to slide six. There's really kind of a misunderstanding, I think, how the market thinks recessions work. The market tends to think

that economies kind of go from, it's a linear process. They go from a non-recessionary state to a recessionary state in a very linear way. They actually do so in a very non-linear way. And the chart on the left on slide six really kind of demonstrates that quite well. So the top part is what actually happens and the white line is kind of what the market thinks happens. And the top part is probably one of the best real-time based on hard economic data

indicators of a recession and that's the percentage of US states with significantly rising unemployment claims. And you can see that number is either very, very low or it's very, very high. It's rarely in between. And when it goes past a certain threshold, it tends to rise almost all the way and that tends to coincide with a recession. And that's again how

economies actually work. Recessions are regime shits. What the market tends to talk about is recession probabilities evolving smoothly. So the bottom part of that chart shows the NYFED's probability indicator, which I think is based on the yield curve. And you can see that more kind of smoothly moves up and down.

Where we are right now is we're at that point where the flux point where the probability can go from being still quite low. So from an organic perspective, if you look at what's happening in the real economy, you know, the probability of a kind of recession in the next three or four months is still fairly low, purely looking at the economy.

But given what's happening in the market, that can rapidly rise very quickly. And it would go from maybe being like a 10, 20% probability to like an 80, 90% probability. So we're in this kind of maximum time of uncertainty and maximum time of danger.

where you really have to keep an extremely close eye on the soft data. And the soft data is the market data, but it's also the survey data. So the ISM, the PMIs will be extremely important in the next couple of months because they will tell you how bad sentiment has been impacted. But not only that,

they'll tell you exactly what the market's going to be. They're going to be looking at the ISM and the PMI to see how badly sentiment has been impacted. And if that is deemed to be too bad, the market will sell off even more and we'll get one of these negative feedback loops. And very quickly, we're in a recession. And, you know, the market is down roughly 17, 18% now, like Pete Trough, as I say, on a close-to-close basis.

The average recession, you know, equities will sell up more than that. You know, the average is, you know, at least 30, 40%, that sort of range, certainly more than, you know, 17%. So we really are at this time of peak uncertainty and peak kind of fragility for the market.

Tell me if I'm assimilating this correctly, but it sounds like what you're saying. If I think about how we got here, you know, it's not really recession risk that got us into this sell-off. It's President Trump not being willing to give the market a clear indication of what was coming next and give that forward guidance that markets need to avoid uncertainty.

So it would be very easy to write this off and say, no, no, no, we don't have recession risk. This is just a market event that's brought on by a president with very unconventional forward guidance policies, if you will. But then that

feedback loop that you talked about potentially kicks in. And the big sell-off that we've already had of 17 or 18% is very possibly enough to catalyze the recession and becomes a self-fulfilling prophecy at that point. And it sounds like we're right on the hairy edge of that happening. Is that a fair way to interpret what you said? That's exactly right. As I say, we're at this point where market and economy are highly entangled and one can drag down the other very, very quickly.

which is why, as I say, for me, the key data points are the ISM and the PMIs to gauge sentiment and the unemployment claims, because that's your kind of most frequent hard economic data point given it comes out weekly. And so, and as I say, I would look at that by state, you know, not just the headline number, but also what's happening by state. So we really are literally in the next three or four weeks is kind of like, we'll know what's going to happen, whether sentiment has been

damage past the point of no return, if you like. Even if Trump came out and reversed a significant amount of the tariffs that have been announced, you know, there's too much damage being done and we could still go into recession. But we're right in that flux point where we just don't know.

Now, I noticed that you're talking about the Trump put in terms of trying to discover a strike price on the Trump put. I've heard a lot of other commentators use the same kind of language. It seems to me that President Trump has actually been very clear saying and actually Secretary Besant as well have said, look, we've got

a certain set of goals. We want to get the dollar down. We want to get long-term treasury yields down. We don't care what happens to the stock market. So it seems if you took him at face value, there is no Trump put at all. Do you think that that's just a bluff and there really is a Trump put and the strike price is a secret or what do you think?

Well, I think, yeah, clearly, I think it was totally wrong to expect that Trump 1, as in his first presidency, was going to be like Trump 2. And the whole notion that everybody, again, a rule of thumb people jumped on, was that the stock market was his scorecard. But I remember looking at this back in January, and before this really kicked off to the extent it has. And there was a really interesting chart. Unfortunately, I don't have it in the deck.

But it was, you looked at NFIB small business optimism versus the essentially proprietors equity in small business. So essentially, even though these companies are unlisted, the Fed measures essentially how well they're doing as if they did have equity that was on a market.

And there was a huge gap. So the NFIB small business optimism has a huge Trump, not really Republican, it's more like a Trump bias. So both times when he was elected, NFIB jumped much higher. And when Biden was elected, it actually dropped in 2020. But it's going in the opposite direction to this, the actual equity of these businesses. So that was a real kind of hope reality gap.

And I think, you know, this is an issue when most of your base are in the middle income brackets. So the two cohorts that voted for Trump more than any other cohorts were those in the middle income brackets. And these are people that are going to be more impacted by

Either they own a small business or they work for a small business. I mean, there's something like one in four of the workforce are working for businesses with, you know, fewer than 10 people. So this is much more significant. And you look at who owns the equity market, it's the top, you know, 10%. And it's hugely skewed towards that top 10%. And funnily enough, in recent weeks and months, you know, you've had Bessent,

going down this line, talking about small business, talking about that's what matters, talking about real estate, that's what matters because the middle income and the middle wealth cohorts put most of their wealth is in things like real estate. So they're much more focused on that. That's not to say that there is no strike for real estate.

for the stock market. But I think it was obviously misguided to think that it was as high as people thought it was. So we're in that kind of, you know, to borrow the meme that has been used a lot on Twitter is we're in the kind of muck around and find out that's the more palatable version of the meme, of course. But we're kind of in that phrase now where the stock market is trying to probe perhaps where this put lies. But as I say, we're in a very point of peak flux where people

By probing too deeply, it could well trigger the recession, which kind of puts as a certainty that the market's going to sell off much more. So it's going to create more damage than perhaps it bargains for. Simon, moving on to page seven in the slide deck, the liquidity screw is now tightening. I think we noticed that in terms of what's happening in the market. What's driving it?

Yeah, I mean, 100%. But what's really interesting about this is the liquidity thing had begun to tighten really before this all happened, as in before the last few weeks, developments with tariffs, etc. So lots of people have many different ways of measuring liquidity. I always stick to what I think is one of the best because it has the most leading properties when it comes to actual asset prices.

is excess liquidity. And that's the difference between real money growth and economic growth. And the notion behind it is quite intuitive. You know, what money is created in excess of the needs of the real economy is excess. And it tends to find its way into real assets. So the chart on the left in slide seven, you can see there that excess liquidity has a very good lead of about three to six months with equities.

And that's kind of what you'd expect to see. So it's not just the case of like liquidity being created. That's not enough because banks create liquidity. The central bank creates liquidity. But it's only when that liquidity is growing in excess of what the real economy is eating up that it then leads to higher asset prices, risk asset prices. And, you know, this really was kind of back in early 2023 is when it began to turn up. So the market bottomed in late 2022.

And there was obviously a lot, like any bottom, there's a lot of hesitation. Is this the bottom? Will the market, you know, will it make another bottom? And it kept on sort of creeping higher and higher. But then around then, early 2023, excess liquidity started to turn up. And really, since then, that's been your probably best medium term guide of the rally continuing, is this rise in excess liquidity. But at the beginning of this year, so I'd say mid-January,

you really start to see a kind of fairly sharp decline in excess liquidity, partly based on the fact that liquidity is in money growth. And in the excess liquidity measure, you look at M1.

It wasn't growing quite as strongly as it was before, but because it's based on a, it uses a trend basis that caused like quite a rapid turnaround. So you had the kind of ex ante conditions for weakening and stock market before all this tariff stuff happens because excess liquidity is really like a safety net. So we're now in a sort of worst of all worlds that, okay, we're getting this terrible tariff news, which would be bad one way or the other for stock markets.

But in a way, it's kind of worse because excess liquidity is not there to provide the safety net as it once did. And on top of that, it's not just volume measures of liquidity. So excess liquidity is really a volume measure. Price-based measures of liquidity are also declining. So the chart on the right is the global financial tightness indicator, which is essentially

diffusion index of central bank rate hikes again that had been indicating more loosening conditions for most of the last year and a half two years and that too has started to turn down which means rates are becoming more restrictive and that's basically on the back of global central banks have you know really stopped cutting so they've stopped cutting one or two actually started to hike

Now, we'll see what happens with this going forward. You know, what central banks are going to do in terms of responding to the tariff announcements. But the problem, again, is that inflation is much more elevated than they would like. So we've got that in the US. This week, in fact, we have the latest CPI data

But that's really a problem for central banks. They cannot probably cut as much as they would like to. And so that means that rates are probably going to remain more restricted than they otherwise would be. And as always in life, things happen at the last point when you really want them to happen. So this is the last time you really need

liquidity to be tightening, rates to become more restrictive. But yet that's where we are. So we've had this brewing inflation for a while. We've had this massive surge in excess liquidity. And it's all started to turn down, you know, just in a couple of months before the sort of huge change that President Trump has announced with these very onerous tariff announcements.

Tell me about the death of the fiscal cheat code on page eight. So this is the other thing that is not working in stocks' favor as well. So, you know, the elephant in the room for most of the last two or three years, again, going back to it, is this massive fiscal deficit. It's impossible to get away from the fact that it has been hugely supportive for assets. So in one clear way, it's probably supported profit margins. So there's the Kalecki-Levy profit equation.

which basically shows that the savings of households and governments, along with corporate investment, dictates corporate profits. Now, households have been on net saving, but the government has been doing the opposite. And obviously, if it wasn't for the government after COVID, after the pandemic,

we would be in a very, very different situation. But the government has been spending hand over fist, as I say, has been running these very large deficits, and that's enabled profits and profit margins to be larger than they otherwise would have.

So that's really what we've seen in terms of keeping stocks elevated. But second derivatives are what matters for risk assets. And already that fiscal impulse is fading. So the chart on the left there shows how the fiscal deficit is changing. So the fiscal deficit is still high, but it's not getting much, much higher. And that's why you've got that second derivative is dropped by down. And you can see there it's got a reasonably close relationship with equities.

But the other side of this is very interesting as well. So the chart on the right shows gross issuance of treasury bonds and bills versus the stock market. Now before, you know, in a sort of pre-GFC world, you didn't really see this relationship. But what's happening now is obviously the government is expanding its fiscal deficit, which means issuance has risen markedly as well.

But at the same time, we've had this huge kind of revamp or rehaul or overhaul, if you like, of the repo market. So repo is now the kind of principal money market instrument. And we've seen this massive, huge increase in repos and the repo market. Repos are now much more money like than they once were. So they are much more fungible in the way that they, you know, their collateral arrangements are much more seamless.

So in many different ways, they can be much more used as a substitute for high level money. And I think it's impossible to get away from that. That has to be part of the reason why when the government has been expanding its fiscal deficit and has been issuing, you know, so much more debt, that that is not like what would happen before. That would sit idle in balance sheets. The velocity, if you like, of that debt

would be quite low but the repo market enables what was one sort of idle if you like money sitting on people's balance sheets to be used in other forms and ultimately support the market so I think that's kind of what goes behind that chart on the right there you see a fairly good leading relationship between ups and downs in gross issuance and the stock market and now of course that fiscal impulse is fading yes issuance overall is still high but again second derivative it's

it's turning down. So this again is all coming at the backdrop with the tariff announcements. So we had the liquidity, things were already tightening at the beginning of the year. The fiscal is already tightening, so monetary and fiscal tightening. And the whammy, if you like, is now these much worse than expected tariff announcements. So it's really kind of the worst of all worlds for markets.

Moving on to page nine, you talk about the swelling basis trade, which has grown to a trillion dollars, starting to unwind. For anyone who's not a fixed income person, the basis trade refers to traders who are exploiting disparities between the cash bond price and the futures implied bond price. So when the futures and the cash markets don't line up, you arbitrage that difference out. Why is that grown to a trillion dollars and why is it starting to unwind and why could that get nasty?

Yeah, that's a great question. The basis trade has been around for obviously a long time.

But it's probably still the key kind of source of potential financial instability. And you only have to go back to look at what happened in March 2020. So in the very early days of the pandemic, it was almost certainly a basis trade unwind that really pushed the Fed to have to come and backstop the Treasury market. So we saw that the fastest and largest buying of Treasury debt the Fed has ever embarked on, something like ended up being over $4 trillion. Right.

And the reason is that the market obviously just couldn't absorb the unwind of that trade. Now, the problem today is that the trade is probably twice the size. It's probably of the order of something like a trillion dollars. And the second thing is that dealer balance sheets, primary dealers, are more congested than they were back then. And these primary dealers, they are, if you like, the first line of defense to try and help absorb

any of this basis trade unwind, but given their balance sheets are so congested, they won't really be in a position to do so. But the reason why the trade has, you know, as I say, almost doubled in size is it's been this kind of symbiotic relationship that's opened up between bond funds and hedge funds and the primary dealers.

And it's very interesting. It was something I wasn't actually aware of. I was looking at just general sources of demand for bonds and someone got in touch and he said, have you looked at bond funds? They are not buying as many bonds. They're buying futures now. And it's very interesting. So again, the elephant in the room is the fiscal deficit is massive government issue.

So the government has been issuing so much debt. The aggregate bond indices, which are made up of corporate debt and government debt, have been filling up with government debt. So if you look at the chart on the right there, the blue line, this is on slide nine, shows that the percentage of the aggregate index, which is government debt, that's now close to 45%.

The problem is that depresses the return of the aggregate index. So bond funds have been trying to enhance their returns by buying more credit. So high yield credit, investment grade credit,

These have much lower duration than the aggregate index, but they want to be duration matched. So they have to buy a duration hedge. Regulations have changed. Normally they would have to go and buy like an off the run bond off a bank, but now they don't need to. They can just go ahead and use futures, treasury futures. And that's what's been happening. So the chart on the left on slide nine, you can see asset managers, which are basically bond funds. Their longs and futures has risen markedly and that's been almost exactly matched by

by hedge fund shorts because the hedge funds are happy to take the other side of this. So they are happy to basically provide this balance sheet service for a fee, of course, which is the basis. And they've been doing that in ever greater size.

So they basically short the futures against the bond funds. And then what they do is they repo in the treasuries, the cash treasuries, from the primary dealers. And if we go to slide 10, we can see this whole carousel in play in the chart on the right-hand side. You can see that the asset managers net long in treasury futures has risen roughly in line with the primary dealer repo. And likewise, the leverage funds, the hedge funds short in futures,

has risen in line with the repo as well. So we've had this symbiotic relationship between these three parties. Now that's great when things are benign. The problem is, of course, when things become like they are today, the risks rise markedly. And as I say, the problems today versus March 2020 are that it's twice the size, the trade is much, much bigger, and primary dealers are not really in the same position to even help try and absorb

and as much of this unwind as they as they would have done in march 2020 and even that of course wasn't enough you know the chart on the left there shows that dealer balance sheets they're now a lot of inventory on their balance sheets i think i'm not quite sure 100 the reason but

It's partly to do, I think, with less foreign demand for bonds. So they obviously have to go there and they have to backstop the auctions. And also the illiquidity and off the runs as well. Maybe they're getting lumbered with more off the run debt. But whatever the reasons, we can see that their holdings of treasuries and other bonds are much higher. And that's leading to their balance sheets being congested. And

This is, as I say, a big issue. A Brookings paper came out with a very controversial suggestion that maybe the Fed has to introduce an explicit facility to backstop the basis trade. So either they would go into the market and take the other side of the basis trade if there was a systemic event,

or they could give hedge funds direct access to the standing repo facility. But either way, it's kind of crossing the Rubicon. I mean, the Fed has obviously done indirect bailouts of hedge funds, LTCM being one of the most famous examples. And obviously you can argue what happened in March 2020 was an indirect bailout, but they've never done a direct bailout.

bailout of hedge funds but the costs are potentially vast I mean if you don't backstop this basis trade it has the potential to do a massive amount of damage and the longer term costs of say just doing more QE especially when the Fed's been trying to run down its balance sheet really wouldn't want to do that

you know, that's probably not something they would like to do. So something that seems highly unlikely and would be deeply controversial is something that you cannot rule out because this trade, as I say, is so big and where we are right now in this very kind of fluid environment, things could potentially unravel quite quickly.

Simon, before we close, I want to touch on a piece that you recently wrote for Bloomberg talking about the alternatives to U.S. markets. I think this is a really important point because for really as long as most anybody can remember, the U.S. market was pretty much the place to be. If you were an international investor who had the physical ability to invest in any market you wanted, it was really hard to beat U.S. markets.

Why do you say that there are now alternatives? Is this about the potential loss of dollar hegemony or is there something else driving it? What's going on and what does it mean for investors? Yeah, I think that's exactly right. I mean, what prompted this piece was a lot of what we've discussed today in that the dollar is no longer what it was. I'm not saying people can completely divest out dollars. Obviously, it's still the biggest market

But it's not that the TINA does not apply anymore. There is no alternative to the US, does not apply anymore. So it was worthwhile looking at other markets, given that when, you know,

as much as there's a lot of volatility and flux right now, it also offers opportunities. And this is the sort of time when you really want to try and take advantage of those opportunities. So, you know, first of all, obviously the concentration risk in the US was so high. And so, you know, the MSCI world got up to 75% US weighting, which is obviously just this fast. It's huge. So there was a huge amount of concentration risk. So that reason alone

would be a reason for thinking about diversification. And then we had the prospect of fiscal stimulus in other parts of the world. So the US was talking about fiscal tightening and the rest of the world was talking about fiscal stimulus. So that, I think, has started to trigger, if you like, a flow of capital from west to east. And therefore you're like, okay, so where should I put my capital? So obviously Europe is the obvious place.

And I think, you know, obviously it's outside the US, one of the deepest and most liquid markets. But there might be other places too that offer more diversification because at the end of the day, Europe and the US have been pretty much tied at the hip. So first of all, I looked at essentially correlations of different markets.

and which markets popped up as being the kind of the most anti-correlated to the general markets. By general, I just mean the overall global markets, which are mainly dictated by US and Europe. And the ones that popped up were things like Indonesia and China, Korea, and also Latin American countries too. So I think these are interesting. And a lot of these as well, they have much cheaper valuations than the US. So just looking at things simply like

P ratios again like Indonesia, Colombia, Korea, China much cheaper than the US and European markets too and the second thing as well is that currency effects are often boosts emerging market terms when you have money a lot the return you make is actually on trying to find if you find a currency that looks structurally cheap then you've got a much better chance of enhancing your returns and again you know some of the cheaper currencies that popped up there Korea

Indonesia, Chile, you know, if you look at this from a structural perspective, so looking at the real effect of exchange rates on a long-term basis, these currencies are very cheap. Unlike the US, again, the US's currency is quite rich on a structural basis. And then you're looking at, you know, current account vulnerability. So again, in the current environment, you probably don't want to be running too big a surplus. And so you want to be looking at countries that are fairly balanced overall.

And things like, you know, again, Indonesia and Latin American countries like Chile and Colombia come up. And Latin America, I think, is actually interesting in its own right from more of a geopolitical perspective.

they've been rising lately. I think there's a sort of a notion that we're going to have a kind of, you know, you mind your backyard, I mind my backyard kind of world where China has its backyard and Europe has its backyard and the US has its backyard and part of the US's backyard is Latin America. So maybe there's a kind of notion that these countries might kind of ultimately end up benefiting from US trade in a way that other parts of the world aren't.

So I think this is definitely the sort of time you want to be looking at these alternatives. And these are the ones that popped up, as I say, Indonesia, Korea, and some Latin American countries that looked the most interesting. You're talking about how someone who has the latitude to choose their markets would make intelligent decisions. Is, I think, maybe bigger picture about the way that Keir Starmer and Scott Besant are talking about the end of globalism.

Are we headed back to, you know, not for the last few decades, but way back when it used to be that European asset managers invested in European markets because that was their mandate. That's what they were allowed to do. And North American asset managers invested in North American markets because that's what they were allowed to do. Are we headed toward that?

is that kind of globalism going away? Or are we only talking about trade globalism as we talk about this trend shift? Yeah. I mean, it's the flip side, isn't it? I mean, I think we're trade nationalism and capital nationalism are two sides of the same coin. So, you know,

capital will there probably will be more capital that will be invested at home there'll be more things to invest in like if other parts of the world are boosting their fiscal stimulus I mean we talked about your you know military spending in Europe but now we've got this global tariff shock potentially you know it's going to really encourage other countries to think about boosting fiscal stimulus so there'll be more reasons to bring capital home and I think if capital doesn't come come home willingly then you're going to see more financial repression

So we're going to see more insistence that essentially capital comes back to help this fiscal stimulus, the borrowing that will be needed to run this fiscal stimulus. So it will be definitely a lot more siloed world and things like financial repression will be a tool that I think governments will use and maybe ultimately the US itself will

We'll have to use that if the US, the overvaluations there, you know, cause more downturns and the fiscal deficit of 11%, you know, that pushes even the US to look at financially repressing to try and bring capital home. But yeah, capital nationalism, I think, is definitely something that's going to be a flavor of what's going to happen in the next few years. And that really is the flip side of this trade nationalism.

The big question is whether these deficits are zeroed or not. I don't think that's the case. I think that's basically impossible unless we all go back to autarky. But it just depends on how far these deficits are closed, how much of these imbalances are resolved that really will dictate how the world will actually look like.

Simon, I can't thank you enough for another terrific interview. Before I let you go, tell our listeners a little bit more for the benefit of those who do have a terminal subscription, what they can find on your macroscope column on the terminal. And for people who don't have the terminal, where can they follow your work?

Thanks, Eric, again, for having me on. And as I say, pandemic to global tariff war, we seem to have a good form in picking the most volatile times. Yeah, I write the Macroscope column on Bloomberg. I also write for the Markets Live blog, which is also on Bloomberg as well. So they are my main contributions that I put out on the Bloomberg terminal. Patrick Ceresina and I will be back as Macro Voices continues right here at macrovoices.com. ♪

Now, back to your hosts, Eric Townsend and Patrick Ceresna.

Eric, it was great to have Simon back on the show. Now let's get to that chart deck. Listeners, you're going to find the download link for the post-game chart deck in your Research Roundup email. If you don't have a Research Roundup email, that means you have not yet registered at Macrovoices.com. Just go to our homepage, Macrovoices.com, and click on the red button over Simon's picture saying looking for the downloads.

All right, Eric, let's start off with your thoughts here on the equity markets. Well, Patrick, I am really kicking myself for how I handled the whipsaw that we all just experienced in equity markets. And I don't mind publicly admitting how badly I screwed this up because frankly, I'm pretty confident that I did better than most.

I think that what we're going through here is a deer in the headlights moment in market history where professional investors simply aren't taking the risks that have already been made plain as day clear to heart.

Ever since the end of January, I've been rolling my eyes and shaking my head at other investors when I read their comments presuming that there's a magical Trump put under this equity market. And I'm just shaking my head in reaction to the general level of complacency that's existed in the finance community ever since the election.

Look, this couldn't be more clear. President Trump and Secretary Besant told us in plain English multiple times that they have major plans involving aggressive tariff policy. They want a lower dollar and lower bond yields at the long end of the curve, and they're willing to sacrifice the stock market in order to achieve those goals.

In other words, they warned us multiple times that this was coming, but nobody listened.

I privately ridiculed other investors for being too complacent and not taking this clear message to heart. But did I adequately hedge my risks? No. Why not? Well, I guess because like everyone else, somehow I managed to subconsciously downplay the extent of market risk that was being created by Trump and Besson's very clearly telegraphed plans to get aggressive with tariffs. Now, yes, I hedged downplayed

downside risk in my portfolio. But I did that with put spreads rather than outright puts, and with a lower strike price of $52.50 on the June E-mini S&P futures contract.

Now, look, the reason that we sometimes get fancy and use put spreads rather than outright puts is because we like to tell ourselves that we're smart enough as professional investors to use technical analysis to tell us what the downside target's going to be, knowing that it can't go any lower than that because we're so smart we know where the levels are in the markets, and we can save money by hedging more efficiently with spreads than with outright puts.

Well, that line of reasoning ignores the true nature of the risk that we're hedging against. The name of the bull in this China shop is Donald Trump.

Anyone who thinks that technical analysis is going to determine where a market move ends in reaction to Donald Trump prosecuting his agenda that he went out of his way to warn us weeks ago was coming and would jeopardize the stock market. If you think technical analysis is going to keep that under control, you're crazy.

but I still hedged with put spreads rather than outright puts, and my lower strike ended up being several hundred points above the actual market bottom.

Now, in fairness, I can't say all professional investors screwed this up. Patrick, I've got to hand it to you, buddy, because you perfectly called this. You told our Macro Voices listeners several months ago when the S&P was still at all-time highs that it was time to hedge. Then you covered your shorts on Monday right at the market lows and went aggressively long and participated from the long side in this huge reaction move up.

Needless to say, you and your subscribers were very well rewarded for playing this perfectly. My hat is off to you, and I wish I had followed suit.

And for anyone who doubts that chronology, it's all documented in Patrick's YouTube channel videos, which are completely free. But for the rest of us who frankly should have known better and didn't hedge adequately for the extent of what just happened, I think we should reflect a little more on the lessons learned. The biggest point I want to make now is this isn't endgame.

ending. This battle does, in fact, appear to be ending, but it's the first of many battles in a war that will likely be waged for years. And just in case anyone still isn't listening, Trump and Besant have said clearly they are willing to sacrifice the stock market in order to achieve their goals. If you didn't get that memo the first five times, and I admit that I didn't, it's time to take it to heart now.

I am still today reading professional commentary about how the market just found the strike on the Trump put. Bullshit. That's not what happened. I couldn't possibly disagree more with that interpretation. I say what just happened is that it just got even clearer that there is no Trump put under this market. Trump is going to do what he wants to do in his heart of hearts to make America greater again in his interpretation of what that means.

Just look at what happened on Monday after someone leaked a rumor that Kevin Hassett, director of the National Economic Council, supposedly said on Monday that Trump was mulling a 90 day ceasefire on tariffs. The S&P shot up over 300 S&P points in six minutes. Then when as soon as the White House said it was fake news, the S&P retraced the first 200 points.

downside in six more minutes, and then it took another 15 minutes to fully retrace all 300 points back down to the downside. Now, I, for one, don't believe that that was fake news. I think it was an intentional trial balloon, intentionally staged by the Trump administration to test how the market would respond to a 90-day ceasefire on tariffs announcement.

That's speculation on my part, and I certainly can't prove it. But when you consider that the exact thing that Trump really did announce on Wednesday was identical to the supposedly fake news that we had on Monday, it seems highly suspect, to say the least.

So the point I think everyone should really take to heart is Trump and Besant are engaged in guerrilla warfare. And if I'm right, they don't think twice about intentionally whipsawing the S&P up five and a half percent in six minutes, then back down to a full retrace in the next few minutes after that.

they're not worried about the damage that that does to traders, nor do they think twice about the fact that they knew all along that their tariff negotiation strategy would do this to the markets. Their response to that is not to avoid hurting the market. It was to

tell us in plain English that they were going to do this so that we would have the opportunity to hedge our risks appropriately. I, for one, didn't take that message to heart, and I learned my lesson from that. So the message to take to heart now is they won't hesitate to do the same thing again or even something more disruptive to markets if that helps achieve their bigger picture goals of how they want to restructure the monetary system and balance of power in world trade.

So what that means for those of us trading markets is we're playing soldier in a hot war zone where people with bigger guns than us are going to continue shooting live rounds over our heads. Okay, had to get that off my chest because I for one feel like a complete fool. I fully understood all of this. I made fun of other people for not taking Trump seriously and then I didn't hedge adequately for what just happened.

There is no Trump put, folks. Anything can happen here. Patrick, now I'm going to put you on the spot since you can afford to be on the spot, having just made a fortune in both directions on this trade.

For someone with my views, which is, look, obviously the battle is over. We're very much, momentum is now up with this 90-day ceasefire. I want to wait out this giant sigh of relief bounce that's now underway in markets. But whenever we get to a point of a top on this sigh of relief here, I want to figure out how to hedge and fully hedge my risk. And I don't mean just against the next little whipsaw that might come in the next week or two. I'm talking about

putting on a hedge that will protect me from what could be several more of these events in coming weeks and coming months. I'm hesitant to again use put spreads, mostly because they don't fully realize their potential until just before expiry. Because of the time value still on my put spreads, I ended up only realizing about two-thirds of that difference, even though the market was trading several hundred points below my lower strike.

So people who understand options understand why that's the case. So I think it's outright puts. Well, gee, I think outright puts just got a whole lot more expensive here. So, Patrick, give me an upside target on the S&P for where you think I should start scaling into a new basket of data.

downside hedges and tell me in professional investor terms how to best structure a hedge now that the jig is up and I'm obviously no longer likely to have the opportunity to buy E-mini S&P future puts at implied vols in the teens like we had the chance to do when you first recommended it to our Macro Voices listeners.

Those are all great questions. So let's break this down. First of all, what are the levels we should be looking for? Well, the interesting part is we already hit some of the upper levels that we were originally expecting this market bounce to go to, like the 5,500 to 5,700 area.

i mean can the market go to 5800 for sure it can but generally once we're uh in that 55 to 5700 zone above on the s p those are all levels where once again it becomes tactical to be considering new hedges

The type of hedges that we put on is going to be very reliant on where we are in volatility. And right now with the VIX still up in the 30s, it is very challenging to just buy a straight output option like you were suggesting.

And you were also talking about some of the downfalls of using spreads. Well, there's a couple of considerations when hedging with spreads. One, you know, do you decide that you want to hedge for your return at end, which is that you're willing to hold the spread till its expiration in that it will be in the money and that intrinsic value will be captured and

as a way of reducing the overall losses you're incurring on other investments. But when you're being tactical with the intention of closing the spread halfway through at a moment when the market hits a particular target,

Like you suggested, you are a point where you're not realizing the full profit potential of that spread. And that's normal. So one of the things that I often do is that if I know that I'm going to be tactical about a spread hedge, then I estimate what will be the profit of that spread when those target levels are being hit.

And if I don't, if I feel I need more hedge, then I'll just simply buy more spreads to ensure that your total dollar payoff, uh, at a tactical time is what you were originally targeting. Now, overall, uh,

This environment still is one where spread trading is a more tactical way of approaching your hedges, especially at these elevated levels of volatility. It's not just volatility. It's also the skew. We have a very steep skew in the markets where those really far out of the money puts are paying rich premiums, making the spreads usually have very good payoff profiles.

One of the things you can do is simply widening the spreads even further, uh, rather than let's say doing a 500 S and P point wide spread, you might end up doing 700 or 800 points spread to allow, uh, there'd be more room for intrinsic value to be built. And you're often not sacrificing a lot and widening that spread because of the steepness of that skew. And so, uh, this is where, uh,

I still think the spread trades are a way to go. Now, if you want all of the downside gamma of a protective put, then the alternative is that you go back to a caller strategy like we talked about, selling call premium in a way to help finance the cost of the downside put hedges.

And so it's a way of offsetting some of those costs and in a period where if you are in the mindset that this isn't over and that there's more vulnerability to the markets.

Then selling some of the upside away, especially after a huge rally like we've seen, is something that may be acceptable to many investors. Lots of really different ways to approach it. But I would say as we get here in the next week or two to levels on the upper end in that 5700 give or take range,

is a level where it does make a lot of sense to re-engage hedges going into the summer. Now, I wanted to quickly look at the charts on page two here, Eric, and I wanted to show that the S&P 500 bounced right off of that 5,000 level, right at the level where we highlighted for members just last week.

now that we've got this bounce in the market approaching that 50-day moving average up above and the Fibonacci retracement zones, this is going to be a level where once again we should see the market start to struggle with overhead resistance and be far more trade range bound. Now while I don't see a huge upside in the market, it is also likely that we could spend weeks

grinding up here and that the most immediate downside risk is not as highly probable. And because just the market is so exhausted from the selling and having discovered all these lower levels, it often spends time consolidating these things in.

And so we'll be looking for where and how far this rally goes to project out where are some of the further downside targets going into the summer if this does end up being something much more like a bear market. On page three, I have that volatility index. And one of the things that spurred me to profit take when I did is

was the huge spike in volatility. We have not seen a spike of volatility of this magnitude since COVID. And then you have to, before that, go all the way back to the financial crisis. The type of volatility particularly

spikes was extraordinary. Typically, this is that fear moment in a market where short-term lows are established. And the VIX really, this time around, did help identify that very moment. And so I think that there's a very good chance here now that volatility could consolidate back into the 20s

But one of the things that will be a big tell for me, Eric, is whether or not volatility consolidates in the 20s or whether or not we go back into the teens. Because if we see volatility go all the way back under 20 down to the 18 or 19 or something like that, then that would actually increase the likelihood that a major low could be in and that the market is pivoting.

But if we see sustained higher levels of volatility where the market is rallying even for several weeks and just holding up at these zones, but volatility stays at 25 or 27 percent, then that tells me that that there's a lot of nervousness in the market and volatility premium is staying high for a reason. And that would be a bit of a warning for me.

Nonetheless, thanks for the plug on the YouTube. People that want to watch my Monday macro outlooks where we called all of this stuff, just go to my channel, Patrick underscore Ceresna on YouTube. All

All right, Eric, let's move on to the dollar. What do you see here? Well, we've established a clear downtrend and I expect it to continue. Obviously, upside vol is possible in this crazy market environment. But over time, I expect that if the president wants to devalue the U.S. dollar relative to other currencies, he will succeed at doing so. And he's in good company with Scott Besant showing him how to do it.

So Eric, on page four, I have that chart of the dollar index. And one thing that is very evident technically is the distribution continuing. All rallies are failing and the path of least resistance remains to the downside. A number of these different measured moves line up perfectly with all the previous lows. So at this stage,

dollar index going back down to the 100 handle would be very natural. And that would be a euro testing the 112, 113 areas up above. And at this stage, when we get there, it'll all be about how the dollar settles in that will, in my mind, set up for whether or not the dollar is starting some

really big bear market or whether this was just a big trade range and we just went to the bottom of the trade range and then settling back into the middle.

All right, Eric, on page five out of the crude oil chart, and well, what a move. We got all the way down to a $55 handle on WTI before Wednesday's ceasefire news obviously turned everything around. I was looking at that, telling myself, wow, 55, that's too cheap to resist. I ought to buy this, and almost did, and turned around a few minutes later, and it was already 60. So I missed it by that much. Congratulations to anybody who caught the bottom there.

What I think is really profound, though, is not how low it got, but even at $55 WTI, we still had modest backwardation across the first year of the forward curve. That's really saying something. After a flat price sell-off this pronounced, the term structure usually collapses into contango. So what this says to me is that we still have reasonably tight supply, despite the fact that we're being pushed into these really low numbers.

So the fact that it was still in backwardation at $55 made $55 all the more attractive. Wish I bought it, missed it. Congratulations to anybody who caught the bottom while it lasted.

Yeah, extraordinary breakdown of close to $17 from peak to trough before we got ourselves a bounce. Now, we are overdue for a bounce, and it would not shock me here, Eric, if we got back to $63 to $65 on crude oil. But there's a rule in technical analysis where what were all the previous lows when broken act as overhead resistance.

And it is very likely that when oil approaches that $66 area where the lows over the last six months were being established, that will now act as an overhead resistance and oil will likely be at this new lower level for at least a few months into the summer period.

Until we see the dust clear in terms of the prevailing trends and then see whether oil actually puts in a low here or whether there's going to be more selling in a recessionary environment.

All right, Eric, let's touch on gold. Well, this correction appears to be over, to say the very least, with gold now up more than $150 off its lows in just two days. But let's not forget Rick Rule's famous words on gold. When gold is doing this well, it's nothing to celebrate, even for those of us who are fortunate enough to be profiting from being long on the trade.

What it means when gold does what it's doing right now is that the financial system is falling apart at the seams and the dollar's reserve currency status is at risk. I'm still glad to be long rather than short in this gold market. Wish I hadn't taken off some of my size a few weeks ago. But the reason that this is happening is because everyone is starting to question the long-term stability of the entire global monetary system.

Yes, it's great to be on the long side of gold, but it could also be the harbinger of worse things to come.

Well, Eric, what was interesting to me about gold was that it was only when the stock market had started suffering from a liquidity drain that gold finally started to sell. And the pullback basically came straight to the 50-day moving average, right to the Fib retracement zones. And as soon as everything stalled, gold ripped right back towards its highs. So far, gold remains in a very clear bull market.

A pattern of higher highs, higher lows continues. All dips are being bought and it actually is doing incredibly well. At this moment, I don't know whether I want to say some sort of bold upside target, maybe retesting of 3200 or 3300 target may be on the upside, but it is certainly behaving as a safe haven. It is holding a primary trend and it continues to be one of the few things that are working.

So what's interesting, though, was the big sell off in silver and silver got hit by, I guess, far too many investors being leveraged in the play. And there was just one big squeeze in that silver market. What's interesting about that is, is that gold seems to almost be marching to the beat of its own drum now as gold.

A lot of the other precious metals got hit with the liquidity and never recovered the same way. So to me, that implies that gold may hold up here well, but it may not have an extraordinary upside.

All right, Eric, let's touch on uranium. Well, I tried to promise myself not to buy any more uranium because I'm already ridiculously overweight and the trend was obviously already down. But I just couldn't resist another million shares of Lotus Resources at 13 cents. That's only $78,000 U.S. equivalent for a million shares. And all it has to do is go back to its

previous cycle high in order to be a quadruple from here. It's already up 20% since I bought it on Monday. I also couldn't resist buying more Silex at $280. Silex is the laser enrichment company based in Australia that's building the big laser enrichment facility in Kentucky in the United States. Laser enrichment is the new replacement for centrifuges, experimental stuff, but super exciting.

Anyway, as much as I shouldn't be buying more uranium because I already have too much, I couldn't resist. Another round of Trump tariff mayhem could easily, easily take us to lower lows. The trend is definitely still down. We have not yet seen any...

any technical signs of a reversal yet. So I'm probably early to be buying here. I've been guilty several times on the way down of doing that. I can't help myself because the longer term fundamentals just couldn't be better. But the technical trend is still down. So probably the smart thing to do here is wait for clear signs of a new uptrend. But boy, when this thing starts to go, there's going to be tremendous upside.

Interestingly, Eric, the Sprott Physical did sell, but that was largely probably due to people raising cash. But it really was simply increasing the discount it's trading to its net asset value. Uranium itself didn't seem to move that much during this whole period. And overall, uranium has actually been relatively quiet compared to some of the other commodities out there. So let's move on to copper.

Patrick, I see kind of a conundrum here. On one hand, Dr. Copper is one of the most reliable recession signals that there is. And after 25% down in two weeks, that's a screaming loud recession is imminent signal if ever I saw one. But wait a minute, there can be no question that what got us all the way up to 550 on copper in the first place was traders front running Trump tariffs.

And what got us all the way down to 420 was traders reacting to Trump's tariff tsunami. So was that a real recession signal that we should take seriously and that we can't afford to ignore? Or was this so distorted by traders gaming the tariff announcements that it doesn't really count as a fundamental recession signal?

Well, I could argue either side of that. And frankly, the truth is, I'm not sure. But what I am going to do is to keep watching this carefully because, look, if copper retraces, rebounds with the same exuberance that we're seeing in equities now and retraces to the upside proportionate to the equity market retracement,

Okay, that's one thing that says to me maybe this was just a lot of traders gaming tariffs and it didn't really mean anything. But if copper lags behind here, as appears to be the case so far, it really strengthens the argument that this is a very important imminent opportunity.

recession signal that we should not ignore. And if that's the case, it could very well mean that the final low is not in yet for the stock market. So I'm definitely going to be taking your earlier hedging advice to heart, Patrick, and thinking about how to hedge my

equity market risk going forward. Copper to me seems like it's kind of a canary in a coal mine here. Well, Eric, we just basically saw an Eiffel Tower formation develop on copper as it literally gave back the entire year's gains in one fluid motion.

a 20 plus percent drop. But we are now back to the lows where we were trading for over six months throughout the summer of last year, all the way to the start of the year. And this area certainly can offer technical support for the short term.

But whether copper has another leg down, I think will be obviously about this, whether we have this negative feedback loop in the markets that spurs another wave of settling in the months to come. And right now it's at a support line expecting a bounce. We could likely see 450 to 475 on a reaction to the upside.

But I'm not eager to be rushing in to buy the upside of copper, at least until the dust settles and we see some new bottoming formations develop over the next couple of months. Finally, I just wanted to touch on the SOFR and treasury charts. And the SOFR futures chart that I have up here, which is the December 2026 chart,

We saw interest rates approaching 3%, basically anticipating some further Fed cuts coming. But after the FOMC meeting minutes, this quickly receded back down. We're at a stage where clearly they're anticipating that the Fed will have to be more dovish in the quarters to come.

But at least at this moment, it's a struggle in this market to determine how dovish the Fed will end up being or having to be if the situation continues to deteriorate. On page 10, I just have that long bond, the T-bond futures. And what we can observe is an extremely

volatility for one day. But what was particularly interesting about it was we saw once again a scenario where bonds were selling at the same time as stocks.

And that is not something we commonly would have seen in decades past. And it was something we did see a lot of in 2022 when inflation and other bond bear market scenarios were developing. Now, with a breakdown like this, one of the big things for me will be, will we see this quickly recover? You know, maybe it was a bit of stress from the basis trade unwinding situation.

And then when settled down, will we see these bonds recover? Or is this the start of some new round of selling? It's a little premature to jump to a conclusion, but this is a very interesting moment that we have to watch carefully to see how bonds react in the next one week.

Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Big Picture Trading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com. Patrick, tell them what they can expect to find in this week's Research Roundup. Well, in this week's Research Roundup, you're going to find the transcript for today's interview and the chart book we just discussed here in the postgame, including a number of links to articles that we found interesting. You're going to find a lot of information about the chart book,

You're going to find this link and so much more in this week's Research Roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners, and we're always looking for suggestions on how we can make the program even better. Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners,

Send us an email at researchroundupatmacrovoices.com and we will consider it for our weekly distributions. If you have not already, follow our main account on X at Macro Voices for all the most recent updates and releases. You can also follow Eric on X at

at Eric S. Townsend. That's Eric spelled with a K. And you can also follow me at Patrick Ceresna. On behalf of Eric Townsend and myself, thank you for listening and we'll see you all next week. ♪

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