The “Biblical” Rotation Out Of U.S. Stocks | Julian Brigden on Flight from Dollar Assets, Tariffs, and Rumored “Mar-a-Lago Accord”
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Got an extremely important conversation. I'm joined by Julian Brigden of MI2 Partners. Julian, welcome to Monetary Matters. Thank you for having me, Jack. It's a pleasure to be back.

Julian, we've got a really important conversation. The dollar is going down and it's going down a lot. European stocks, Chinese stocks are all up while the S&P US stock market is going down. What is going on? How are you thinking about this? And how does it tie into maybe some longer term goals of the current Trump administration? Julian Willis: Essentially, we think that since 2011, but really heavily since 2014, so we're talking bear case,

you know, the last decade, we've had this reflexive self-reinforcing cycle whereby starting in 2014, we had divergence monetary policy between sort of the US as Janet Yellen was starting to reduce the balance sheet and yet Europe and Japan were pushing further into negative interest rates and so on and so forth. We think that initiated a wall of cash that came from the rest of the world looking for a home where it could pick up yield and poured into US asset markets.

The outperformance of those US asset markets led to some concrete economic impact. So firstly, there's a very strong wealth effect. We've seen, let's just say in the last four years, for example, 200% of GDP added by wealth creation alone.

And then secondly, we have this theory which we call hyperfinancialization, which is relatively simple. And I'm a relatively simple guy. Basically, if stocks are rising, CEOs higher. If stocks are falling, CEOs higher. So this sort of big outperformance of the US equity market created this wall, this sort of tailwind underneath the job market. And so we get this booming, strong economy.

The next bit is a little bit mechanical, Jack, in that typically when we get a large and strong economy, we tend to have a very large current account deficit. And the current account deficit, in other words, what we import from the rest of the world on a relative basis, can only be funded by foreigners.

They can either lend us the money or they can buy US assets unhedged, un-FX hedged, and that's how we get the money. And that's essentially what we've been doing, Jack. So if you think about it, the analogy I like to use, which always gets a laugh in Europe because they're just pissed off with this, is we've essentially been selling US assets, in some cases, the family silver, Nvidia, et cetera, et cetera.

to the rest of the world so that US millennials can go to Santorini, stand on a cliff with 500 other US millennial influencers and ruin it for all the Europeans, right? And take a picture. So that's what we've been doing. So the problem with that setup, Jack, is if I'm right, and this is reflexive, in the true Soros-esque sense of the word, in other words, the purchase of the asset...

drives the fundamentals that underpin said asset, then it's inherently unstable. And that's exactly what Soros came up with a theory of reflexivity to explain to economists who always assumed that markets were always equal. Everybody went, no, no, no, no, no. So if that's the case, Jack, where was the vulnerability? Well, the vulnerability lay in three potential movements. Firstly, if you weakened a dollar, all that money that was in

from the rest of the world that come into the US unhedged, right? And bought US assets. If the dollar fell sufficiently, they could take their money home. If Mr. And Mrs. Watanabe or Mr. And Mrs. Schmidt looked at their statement in yen or in Euro terms, even if Nvidia had gone nowhere or was even up, if it was down in their home currency terms, they could take their money home. So dollar weakness is a problem. Secondly, uh,

Asset outperformance, US assets have to continually outperform. Otherwise, at one point, someone's going to go, "Oh, look, Aussie mining stocks, German defense stocks." Money goes home. And within that, you can throw demands for funding, which clearly we're starting to see rise elsewhere. And then thirdly,

at any point we slide into a recession, the current account deficit will mechanically collapse. We just won't need the money here in the US and the money will go home. So I think, Jack, we're essentially beginning to see all three. And I think that opens the question. Firstly, I would say, I think this is just embryonic. I've been looking at some of my charts and trends, which

have happened for 15 years that have been straight into the US, no question asked, all the money, right? Apparently there was someone, and I can't find the quote, but if any of your guys find the quote, ping me, that there was a Bloomberg interview done, and I think it was either with one of the guys from Apollo or from Bridgewater, who said last year,

Over 70% of global savings went into US stocks. I did read Apollo were talking about over 65% is necessary just to keep the relative performance going of global savings. So essentially, all the money is here, Jack. And now we've told the world we want a weaker dollar.

We're going to impose some sort of austerity maybe. I'm convinced they'll actually manage to do it, but it's got people concerned. And it's pretty clear that in that environment, you don't own US stocks, you own everything else. And now the big question is, how does this move happen? And I just have this very simple expression, is it nice or is it nasty? Do we gradually take money out of the US and the US kind of goes sideways?

unless the world outperforms, nice, right? Or in the process of taking money out of the US, does the whole edifice tip over and the correction is nasty? Sure, European stocks will outperform, but they won't go up. Everything will go down. So that's, I think, the question. I'm more in the latter than the former, but I think that's where we are, Jack.

Thank you, Julian. I know you've been bearish on the dollar, bearish on U.S. stocks over the past month. You've been writing about it for your clients. So congratulations on the great call. You are a massive dollar bear, but you don't think this will be a garden variety top in the dollar. You write that this is coming, could be the most significant market event in the last 40 years. So that reflexive dynamic of money flooding into the United States, boosting asset prices, creating economic performance that therefore increases

demands more and more capital. Do you think that is going to unwind? I think it's in danger. I think for the first time, Jack, you can see a roadmap now of how that unwinds. Some of this is counterintuitive. The knee-jerk assumption is that when you get a risk-off event, US stocks going down, the dollar typically rallies. And I'd say in our view for a while that that wouldn't happen.

And, you know, obviously there's some idiosyncrasies relating to Europe and the defense spending, but we think the setup, um,

does not lend itself to that, Jack. And how does that tie in with current policy, with the rumored Mar-a-Lago Accords, where everyone's paying attention, the front page of Financial Times, Bloomberg, NBC, tariffs, but tariffs are only one of seven potential policy things that you have identified. I think, let me just say, Jack, and I'm writing another piece on this at the moment in the relationship to the bond market moves that we've seen, so the German bond market moves that we've seen over the last few days.

We have been an egotized over many decades now to control tempered movements in market. Sure, we've had some big swings, but generally, you know, vol has been low across most asset classes and has trended lower over many years. And so that has forced us from a trading perspective to adopt a very

focused on the minutiae kind of approach, where we're interested in arbitraging this against that, right? And looking at this false service against that false service, right? And so we've dismissed the possibility of tangential historic change. And yet, if we look at the collapse of the Berlin Wall, where a number of people have made comparisons to the moving bunds to that, right?

That was 1989, right? I was certainly around in 1989. I was trading in those days. Now, I'm an old git. I know compared to certainly you, Jack, you young sprite thing, you. But the point is, is it happened before. When we look at the possibility of a Mar-a-Lago accord, it may seem outlandish, right? Because this is policy intervention on a grand scale, right?

But Reagan did the same thing in 1985, and Nixon did the same thing essentially in 1971, where they threatened to impose or impose tariffs to force partners to agree to a devaluation or revaluation, shall we say, of the dollar.

So just because we haven't seen these things in our 10-year or 5-year or 20-year lifespans,

Please, please, please do not think this stuff can happen because history tells you time and time again that these events happen. And when they do, you need to forget that focusing on this vol surface versus this vol surface and this minutia against this minutia. It is utterly irrelevant. You will get blown away if you think, oh, well, in the last two years, every time the S&Ps dropped 5%, you bought it. Right.

Right. When it's down 30 percent, then and there's true blood in the streets in this type of environment. That's when you think about it. Right. So you start off from that perspective. So if we go back to Mar-a-Lago, I would say, look, when the paper came out in November, written by Stephen Mirren.

It's a heavy piece of research, very well thought out piece of research. But back then, it was kind of a conceptual intellectual exercise. And we were like, oh, this is kind of interesting. And then, of course, Stephen Mirren's been appointed to the administration, the National Economic Advisors Group.

So what does Steven outline? So essentially he's trying to address how the US rejiggers the global trade system while at the same time, essentially maintaining its hegemonic power. Because one of the problems with being the reserve currency and while reserve systems have generally collapsed,

we've kind of had to Devon through history, you know, the best one known as sort of Pax Romana or Pax Britannia, or, you know, we're now in arguably Pax Americana or we are in Pax Americana, um, is that they create this sort of symbiotic, but stressful relationship between the sort of reserve provider and those people within the empire or security dome or whatever you want to, however you want to refer to it. And typically what it requires is that, um,

the reserve currency to push it out into the system. The reserve provider runs a very large current account deficit. Yields tend to be suppressed for the reserve provider. So

Because they have these irresponsible animals called politicians who can never control their spending, you tend to run large budget deficits at the same time. And so you kind of reach this tipping point where you've had an overvalued currency for a long time. It's hurt your industry. It ultimately perhaps brings into question your ability to provide that military protection. There's too much deck out there.

creditors, even if they are within your defense umbrella, start to question the validity or money goodness of your debt or your currency. And typically that's when the system has collapsed. So I think Stephen Mirren has come up with a

quite ingenious concept about how to try and address this. Because I do firmly believe, Jack, through my personal contacts, that this is an administration that believes that the maintenance of the current trajectory or the last trajectory was ultimately going to lead us to a tipping point.

where people were going to question the money goodness and soundness of the dollar and US debt. And at that point, you have lost. China wins. You cannot fund your military. You are done. You are thinking the UK post the Second World War with an extended period of

relative economic decline relatively high inflation horrible horrible horrible horrible right how do you address that well steven says one thing that you have to try and do is you have to try and get this trade deficit down okay how do you do that give fx intervention right you go in and you say potentially to the koreans or the japanese or to the um

to the Chinese, your currency is too weak, ours is too strong, yours the dollar. And you go in there and you sell. Now, this fills a little gap, which I've always sort of looked there and go, well, how do we get a sovereign wealth fund? A sovereign wealth fund within the name implies you have wealth. We have none. We are the largest decker in the world.

Sure, if we sold off all the forests, right, they're owned by the government or, you know, revalue gold, you know, we get a bit of money, right? But not enough. But if you start intervening in the FX markets, you sell dollars and you buy yen and Korean won, et cetera, et cetera.

You're going to raise quite a lot of assets arguably, potentially quite quickly. So that's how you get sovereign wealth fund. The second thing that- Preston Pysh : Wait, how do you put the FX foreign exchange currencies? How does by weakening the dollar and how do you raise cash to go into your sovereign wealth fund? Explain that. David Collum : Well, no. So the Fed prints money.

I mean, the Fed or Treasury instructs the Fed to go and to sell on their behalf. And basically they can print as many dollars as they want and they can sell those dollars in the market and buy yen and currencies. So that's how you would do it, Jack. Now, you're supposed to sterilize that.

So we'll see how that would work. Generally, it doesn't work quite so well when you sterilize it. But let's say if this is a plaza type accord like in 1985 where you coerce your fellow members to get involved as well, you will get the dollar down. Period. End of story. So intervention. Secondly, Stephen talked about the concept of disincentivizing the accumulation of reserves by sovereign wealth funds and other

and central banks by basically forcing them to sort of haircutting their coupons by putting some sort of holding fee for you holding treasury. So they want to encourage this sort of I'm Korea, I sell you a Hyundai America, you send me dollars, I take those dollars, I push them immediately back to you into the treasury market. And so I get wealthier.

you get a nice Hyundai. But long-term, who's winning out? The person who has the treasury and produces this Hyundai or the person who drives it? Well, I would say it's the former. So they want to disincentivize that. So maybe they don't encourage so much this sort of round tripping. Because in the old days, Jack, to give you another history lesson,

when we had the gold standard, the way that it would work would be was this. If I start, my economy was booming and I started to import a lot, gold would leave my country and go to the countries that were exporting to me. That would crunch my money supply. That would slow my economy. At the same time, the inflowing gold into my export economies

would boost their money supply, their economies would grow. And then the whole system would rebalance as I slowed down, my imports slowed down, my exports picked up as their economy grew. Doesn't happen anymore because it's just this financial flow that goes on. So you want to disincentivize that.

Next, you want to force countries to potentially pay their share of the defense bill by potentially forcing them to accept a treasury swap, where the rumored thing is, is, you know, you would take all their existing holdings of treasuries, sovereign holdings of treasuries, not private, right?

And you would say to them, "Oh, Japan, you've got a trillion dollars of treasuries. Your average coupon's 4.5%. But except this new trillion-dollar treasury, it's got a duration of 100 years and I'm not paying you any coupon." And then the Japanese will go, "Well, why would I take that deal?" "Well, if you don't, we're not defending you. This is your cost for being defended." That's another plan.

I think you're toying with danger on that one. It's technically a default. It's certainly a restructuring. We've seen these in the past, the UK with First World War debt. It kind of screwed up his relationship with the US for 40 years afterwards. But we'll see. What else would you do? You could levy tariffs on countries that

consistently run those persistent trade surpluses that don't pay by the rules, don't accept the FX swap, the debt swap, sorry, or don't accept the idea of joint intervention in the FX market. So tariffs are kind of the stick. And then you use the Fed in sort of to

offset any excess volatility you get in the treasury market where people go, what the hell did the US just do? That's a default, yours. And then the Fed just sits there and accumulates all the treasuries. And then at the same time, you're trying to pursue your bilateral trade deals and all this sort of thing. So this is the Mirren plan. I think some of it... And Mirren will be the first one to accept that this is fraught with danger. But I truly, as I said, Jack, when I...

When I've had conversations with people in the administration, who are now in the administration, my sense is that they believe that we're on an unsustainable path. Hence, we were going to lose the reserve currency status. We were going to lose our hegemonic stand in. So this is the hail Mary time, right? This plan might be fraught, the Miralago or elements of it might be fraught with danger.

But we've got no choice, Jack. We're an insolvent country dependent on the kindness of strangers, and we have to rejig this thing pretty damn quickly. How does the treasury debt swap of, okay, Korea owns US treasury debt with a duration of 10 years on average, let's say, we're going to replace that with a 100-year duration of

treasury debt and it doesn't pay any coupons, you say that's a technical default. What could that possibly accomplish that would be good, that would be more than offset the very negative consequences of- So, I mean, look, I think it saves by my calculation roughly, if you figure out who might take the deal, 100 billion in coupon payments a year, trillion over 10 years, that's

Not insignificant, right? And obviously over time, it's much bigger. It ties them into the sort of circle of trust, you know, the friends group, whatever you want to call it, right? You know, we've just got to lower the costs on our debt servicing. We have to have to do. So that's kind of what it does. It's a two-part thing. You're part of the circle of trust and it helps the US fund its ongoing spending.

Do you think Trump wants a weaker dollar? He does. He does. David Collum: I do. I do definitively believe he thinks that excess dollar strength is hollowing out or has hollowed out US manufacturing, and that in itself threatens US hegemonic standing, because without the industry, you can't have a strong military.

He's talked about, you know, if we don't have steel, we can't build tanks. Right. We can't have a military. Right. And he's right. You can't.

I've heard President Trump say something to the effect of, we love the dollar. I don't know if he said a strong dollar. And also I've heard now Treasury Secretary Besant say that, oh, tariffs won't be that inflationary, it won't be inflationary because the dollar will strengthen. What happened? Are tariffs supposed to be, U.S. imposing tariffs on the rest of the world, supposed to be bullish for the dollar? Why has the dollar gone down 5% since Trump got in office and is now putting tariffs on? What's going on? So I, look, I just want to,

differentiate between two things. There's having a structurally strong dollar, Jack, and there's having an expensive dollar strong in FX exchange terms. So a strong dollar is a economically sound dollar where we can pay all our debts. We're not running massive deficits. That's what they want.

It doesn't mean that the dollar can't fluctuate. The dollar has fluctuated throughout history, well, since 1970, really, since we've had flexible exchange rates. We've had three big swings on the dollar. We've had three big declines, and we're now in the sort of third up leg, and I think probably entering the fourth big decline.

But I think, look, I think some of this is, you know, Scott knows, I would suggest he's not an idiot by any stretch of the imagination. He's a very smart macro guy.

that you have to have a weak dollar. It's just that you don't, you know, there's a balancing act here, Jack, right? The risk is if suddenly you trigger this very weak dollar and you haven't got anything else in place, that you're going to get an inflation burst, right? And tariffs themselves are inflationary.

If you look back through history, the get out of jail free card that you play to offset that potentially inflationary decline of the dollar and caress would be lower oil prices. That could make a big difference. In the mid '80s, that's what saved the US after Plaza Accord. The situation was much worse after Bretton Woods. And the reason is the oil didn't fall, it rose.

So I think there's an element of kind of getting these things into place. You're trying to balance lots of things, Jack. Because the worst case scenario for the US would be a disorderly run in the dollar, right? Where foreigners just go, shit, they're going to push this thing lower. I've got, you know, and the numbers are enormous. I've got 17 trillion of net increase in my, you know, US asset holding in the last decade. Jaws.

right? Yours. And you just get this meltdown in US assets with a meltdown in the dollar, and we go straight to jail, do not collect our 200 bucks. And when you say yours, that's a trading term for I'm selling. Yes, correct. Thank you, Jack. Yes, yes.

So how weak do you think the dollar could get, whether it's the US dollar index against the Euro, against the Chinese dollar? Right here right now, our sort of fair value for the dollar index is about another 8% lower. And I think a Euro move up into the mid-teens for now,

The question then is if they do then start to talk about implementation of a Mar-a-Lago Accord, because I think at that point,

You'd be talking of a sort of decline. Typically, the declines top from bottom would be somewhere in the range of 40% to 50% top to bottom. 40% to 50% top to bottom. Wow. And what do you think about the stock market? How much do you think the European and Chinese and Japanese stock markets could outperform the US? Either them going up and American stock markets staying flat or by the S&P 500 going down a lot. I mean, a lot, mate.

I mean, if history is any guide, then I'll give you some numbers. I'll just look at them. So if you look at Post Plaza, which 1985, they drove the dollar down. It was all coordinated. It was all good. In dollar terms, I think the S&P went up 54%. The DAX in dollar terms went up 80%.

and the Nikkei went up 130%. Now, post the end of Bretton Woods in 1971, where the dollar really kind of dropped, the Nikkei went up 450% in the next half a dozen years. The DAX went up 170%, and the S&P went up 5%.

We have referred to this as a potential rotation of biblical proportion in the sense that the last become first and the first last. Like literally everything you've owned for the last decade, tell it, and buy the stuff that no one's loved for the last decade. Chinese stocks, European stocks, gold, materials. Materials, commodities, gold.

Sell tech, sell healthcare, sell consumer discretionary, sell financials, right? Everything. The U.S. is a growth market, which ironically means it grows when there is no growth, right? And typically that is an environment where the dollar is strong. So the U.S. does well when the dollar is strong.

It tends to do horribly when the dollar is weak. And I'd like to think, Jack, we can get this nice rotation. I'm just worried there's so much money here, right? That we've had such a strong trend for so long that there isn't an

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And Julian, President Trump is...

very focused on the trade deficit, more focused on it than many, many U.S. presidents, maybe any president in U.S. history. Earlier, you referenced the current account deficit, which is a similar form of including it's not just goods, but it's also services and then also payments between countries. So if you look at the current account deficit, you're right, it's running at $1.3 trillion a year.

over $350 trillion for the last quarter. Goods, in terms of goods, has gone even more negative. And also services has gotten less positive. Primary income, secondary income, even worse. I mean, back in 2019, at least the US had primary income. Now that primary income has gone negative. It's getting worse and worse. I mean, Jack, the delta change on this thing since 2020 is mind-blowing, right? I mean, we were running basically a $400 billion deficit.

back then, it's now almost a trillion dollars higher. I mean, and I just want to emphasize to people, at that run rate, right, you're running over 4% of GDP. And that is not the aggregate number, right? That is every year, another 4% plus of GDP that foreigners either have to lend us or buy our assets.

Yes, and we're not talking about the fiscal deficit, we're talking about trade between countries. Yes, trade. And this is before they fund 30% of the budget deficit, right? I mean, these numbers are mind-blowing, Jack, right? Mind-blowing. That's why there's this, you know, it's a little technical, but there's this thing called the net international investment position.

with the NIP, which is the difference between the assets that Americans own overseas and the assets that foreigners own in the US. And that thing is now running at close to 80% or over 80% of US GDP. I mean, it's insane.

It's truly insane. And the foreigners are not just buying a lot of the U.S. debt. They're buying a lot of equities. And they used to, you know, for many years, they've been buying a lot of debt. But now tons of tons of U.S. equities and also Europe since 2020. It's not Asia anymore. It's Europe, isn't it? That all this money is coming from. It's as you say, Mr. and Mrs. Schmidt in Germany. Yes. Yeah, exactly. No, look, I mean, this is.

When you look at the relative flow positions, I mean, we're very, very dependent on Europe.

since 2020, where that, you know, NIP has gone from, you know, 50% of GDP to 80% of GDP. I mean, you know, just ginormous numbers. And, you know, the debt component has decreased since then, understandably, because, you know, we went on this profit spending spree, right? Who would want to own bonds in that scenario? I mean, there's some elements are good. We've seen more foreign direct investment. So kind of, you know,

you know, interfactories and things like that. That's great, great news.

But the equity component, Jack, is what worries me because this goes back to what we started talking about, this kind of reflective cycle, right? You know, that you had to fund the US. You know, you're sitting there and go, what do I want to, you know, buy? I could build a bit of factory, but oh no, look at that stock market. That's a really good one. Let me go and buy that, right? And so that's what they've done. They've piled money in to fund us so that, you know, you and I can go off to Europe and go on holiday and...

We haven't done anything productive with it, unfortunately, really. And now they may want their money back, right? And they might start taking their money back if it starts underperforming in Euro terms. So I think the precariousness that is set up needs to be understood. And I think this, just a note of caution for the young bulls in the room, from an old bull, if we are a tangential tipping point,

then do not expect the behavior to act like it has in the last few years when you have learned to trade, right? 5% dips may not be bought, right? Or sustainable. You may have to look at something much, much, much deeper before you get there.

And Julian, what are you seeing now in terms of the flows from Europe and Asia into the US markets? Is it starting to reverse? How much of it is related to the announced tariffs versus the potential Mar-a-Lago plan that we have so far discussed? So you brought this up earlier, and I probably didn't really answer it properly. Look, I mean, the assumption in the FX markets at least initially was that you get tariffs and then

You'd get a tariff on Canada and the Canadian dollar would just adjust to absorb that, would weaken just to offset the tariff kind of impact. And now what we're seeing is now that it's affecting US assets, we're not seeing that.

We've actually seen quite the opposite. We've seen Canadian dollars strengthen as Canadians are starting to sell US assets and Europeans and so on and so forth. Now, I don't want to overemphasize this. This is very early in the scheme of things. I think we forget how young this administration is. It feels like we've been doing this for six months, Jack. We've been doing it for six weeks.

But what you're really, if you're looking for signs and they're quite hard to find them, is if you started to see when you walk in in the morning as a US citizen, that you switch on CNBC and the ticker is futures are down.

0.1, 0.2, 0.3, 0.4, right? And then the following, and then they claw their way back in US time maybe. And then the following morning, they're down 0.1, 0.2, 0.3, right? Then you can be pretty sure that foreigners are selling.

Because the S&P trades pretty well overnight. It's in their time zone. They're disgorging those assets, which they've accumulated now for a decade. So don't expect this thing to just stop quickly. And if you add at the same time dollar weakness on there, the incentive for foreigners to sell is going to continue to build, Jack. So there is a risk. I'm not saying it's the base case, but there is a risk that this is like the Rolling Stone that continues to build momentum

essentially, through a very toxic combination for a foreigner of US equity weakness, either absolute or relative, and dollar weakness. Stig Brodersen Julian, it's so interesting about if futures are going down, you know that Europeans, people in Asia are selling because I actually know that

All of the over 100% of the stock market gains in the S&P 10, 20 years, I don't know, has actually been overnight. The average move from 9.30 a.m. to 4 p.m. is actually down. So Americans who are trading in the market are selling and it's everywhere in Europe. Correct. I mean, look, it isn't quite as simple as that, Jack, but as a sort of rough

rule of thumb, I think that's a fair assumption. What are you more bearish on, the US stock market or the US dollar? I'm pretty bearish on both. I think it's more a question of sequencing. I think the dollar is starting to create the cracks in the equity market. I think if I were to look at the risks of the equity market, they're probably greater. I mean, equity is a 50% move in a currency.

can happen and it can happen, but it tends to happen over time. A 50% drop in an equity market can happen in six months. So, and I think they're just going to be a next to be holding hands. They were holding hands on the way up, right? A bit sort of Thelma and Louise, like they could be holding hands on the way down.

For those of you who are too young to remember that movie, it's not a bad little movie. But the two ladies hold hands, get in their car and drive off a cliff. I think that's a possibility. It's a combination of policy event and then the mechanics. And it's this mechanics bit, which I think most people don't get, Jack. Yeah.

right? Most people don't get. And if I'm right about it being reflexive, I think we'll see the economic fallout really pretty quickly, I'm afraid.

in terms of a recession in the US while the rest of the world has a better economy? Will Barron: Well, I mean, no, they won't escape the recession, but we'll have a bad recession. Because what will happen within weeks, your PMI data will start to deteriorate if equities go down. I've always kind of joked, when these guys fill out that ISM survey, what are they really thinking? Are they thinking how well my company's doing or how well my stock options are doing? And I think it's definitely the latter. So I

So ISMs will get pummeled. Employment will almost certainly fade. As I said to you before, we have this thesis we call hyper-financialization. So stocks are rising. CEOs are feeling good. They hire. They spend capex. They're falling. All of that reverses. They go to the closet to get the ax to start chopping costs. And then thirdly, and I think arguably most worrying, is I fear the dependence on...

of the economy on the spending of the wealthy, which is itself predicated on the value of the equity market. And we have never in post-war history seen a period where we are more dependent on wealth to generate consumption.

than income. Stig Brodersen : Talk about if there's a peace deal with Ukraine, how that might be very good for the European economy because you have the resumption of Russian oil and gas flowing into Europe, into the German industrial giants that now require cheap energy to do well. Then also there's a huge half trillion dollar refinancing need, according to the World Bank and you, that

is going to have to be funded from somewhere and the Europeans might sell their dollar assets to fund the reconversion. Yeah, look, I mean, so as I said, I think to go back to this idea that all the money's here, essentially, you know, we are the piggy bank now, right? And, you know, if you create a funding need, which, you know, a peace deal, you know,

and rebuilding in Ukraine would do, along with defense spending, because I'm afraid I don't think the Europeans trust this administration to be there if something were to happen. Then they're going to pull money out of the piggy bank. I think there is obviously as well, there is potential positive on the energy side.

that if you were to do a deal in Ukraine, I'm not sure we would... Well, maybe in the short term, the Germans might take indirectly Russian gas. But yeah, I think it becomes...

Very important, Jack. If you're going to spend a lot of money, the US clearly is not going to foot the bill for European defense. It is clearly not going to foot the bill for rebuilding of Ukraine, but it is imposing these potential settlements and these events on the Europeans. And so now the Europeans have to

have to raise the money if and when these events come to pass. And you're talking potentially very, very large amounts of fiscal spending, which we could be woefully underestimating.

Does the move in, for example, the German stock market, is it a little overdone? I mean, it's up like 17% this year from October. It's up close to 30%. I understand, okay, Germany is going to be spending on its own defense. So defense contractors' stocks are rallying a lot. But I mean, German real GDP growth has been extremely anemic over the past five, six years.

The DAX has done really well while the German economy has sputtered.

What's going on? Is it that the DAX is pricing in basically the fact that German companies sell to the rest of the world and is not as affected by domestic conditions? It was really bloody annoying. Right before Christmas, I was looking at some long-term charts of mine. And one of my charts, which tracks sort of confidence in Germany, had hit levels that we haven't seen since the global financial crisis, COVID, and...

post the ERM crisis, so the collapse of the European exchange rate mechanism in the early '90s, which is a bloody huge shock to the Europeans. And this is sort of like uber extreme. Now, what I also had on that same chart, Jack, was the DAX. And I was watching it because that's when you bought the DAX. Historically, that was when you just went all in on the DAX and the thing just rallied. The problem was is

Typically at those points, the DAX is on the lows, not on the highs. And I think essentially the DAX has, don't get me wrong, the DAX has underperformed the US by a country mile, right? But it was not low. We hadn't seen a sell-off. And so I think there is...

rebalancing because people don't own it. I mean, I think if you were to ask if this is going out to mostly US listeners, I suspect if they looked at their 401ks and they talked to their wealth managers, they would find that they're probably 90, 95% in US stocks. Well, that's not what you're supposed to be, right? You're supposed to be 65, 35, right? But you haven't been that for a decade because it's been the wrong trade.

right so these actual allocation moves i think are just sort of starting and it's been a bit difficult and you know to so long term i think straight up now you ask a valid question from a trading perspective jack i mean i think look it looked a bit toppy the other day then it blew through the hive again am i chasing it here no right no right because if i think

there is a not insignificant risk that the US market continues to accelerate lower as this money gets pulled out, right? Then we end up getting a nasty rotation.

you're going to get what is referred to as a VAR event. So that is a shock across the trading books of funds. And in that situation, they have to de-gross to use the parlance, so they have to reduce the size of their trading book. And so they have to sell the winners and the losers as they shrink their risk-taking. And in that environment, you're just going to get everything go down. Now, the stuff that's heavily owned, US tech,

will go down the most or your stocks will go down the most. But the DAX is certainly owned. I mean, look, I love gold. I'm not long from a trading perspective at the moment, right? Because I think it's heavily owned. And if we are going into a vol event, then yeah, sure, it'll come off too. I think that might be your last opportunity to back the bus up and buy it for a move that I think is to possibly...

double-figured tens of thousands, but not yet. Technically, I think you've got to be very careful here. Structurally, as I said, the dollar top is in, the outperformance of the US equity market is in. I don't want to use the expression exceptionalism because that just annoys me. What is exceptional about spending money like a drunken sailor? And that is what we have done, funded by foreigners. If that's exceptional,

great. We've got a pretty low standard of what exceptional is. Will Barron: And you think that a weak dollar will cause a recession because a weak dollar stimulates exports and stimulates domestic industry. So you think that is in line with President Trump's vision, but you think that the sell-off and tightening of financial conditions will more than offset that and cause a recession? Jack Kornfield: Yes. I think that's the risk, Jack. I think there is a risk that we will find that as the dollar starts to weaken and foreigners take their money home,

that US equities will start to, you know, the reverse of what we had from 14 to now, that US assets start to underperform as US equities start to decline. I'm at the key question. Can we just hold them in here, Jack? Can they just tread sideways or are they going to decline? Because if they decline, your wealth effect goes into reverse. Your confidence effect goes into reverse. Your, um,

employment effect goes into reverse, your current account deficit shrinks, and then you turn that virtuous cycle, that virtuous reflexive cycle into a vicious reflexive cycle. What do you think is going to happen with tariffs? What do you think is ultimately going to happen and going to be the economic consequences? If tariffs are raised, that probably is going to be net negative for real growth, either by inflation going up or by GDP going down.

But there is a chance, and President Trump, Scott Besant, Commerce Secretary Lutnick will say that with reciprocal tariffs, it actually does incentivize other countries to lower their tariffs, which would be a good thing. And that, I suppose, is a possibility. What do you think is going to happen? So look, I think there's a couple of things to consider. I think timing is one, right? Timing is one. Even if...

people would ever buy a Tesla again and it was made in the United States in Europe, it would take time for Tesla to build up its production. I'm not sure that Tesla, that Musk is going to sell another car in Germany ever again

Because I just think support of the AFD, the far right, has basically screwed him in that country. And I think across a lot of continental Europe, and most of my UK friends now have stickers on the back of their Teslas to some effect that I bought this car before I realized the guy was a blank. Right? Preston Pysh : Yeah. And do I, Tesla sales in Germany were down 76% in February, 2025.

And there's a quote from the show Mad Men about half of this business is just, I don't like that guy. And regardless of if President Trump and Elon Musk policy is objectively going to be the best thing ever and it's going to work, if Germans don't like that guy, they're not going to buy it. They ain't going to buy the car. Right. So I think that's one element. So there's a timing mismatch. So if the tariffs came down and you could

Build up production here and so on and so forth. And if we have the product that they want. Second issue is on the tariff issue, I think is the role of tariffs. Now, I think there are tariffs as the stick. We want you to accept a currency accord if you don't.

right? We will put tariffs on you. We want you Canada to deal with the fentanyl issue. I didn't realize it was a big issue, but someone did an amazing podcast the other week, a Canadian guy, and explained how Canadian politics and financial system are riddled with drugs money.

And a lot of the property market too. So you're like, oh, okay, fine. So we, the US, will threaten you with these things until you bring in various pieces of legislation and you address these issues. I think those are clear use of tariffs. But then there's a second use of tariffs, Jack, which I've maintained. And I've been very much, from the day that he was elected, I've broken down this trade

the Trump trade into sort of three stages. And we're in what I call the last stage, which is the reality check stage. And I just said, I don't think he's going to be nearly as positive straight out the gate as the markets assumed. I think there's going to be a real dose of cold water and a reality check. And I think one of the reasons for that is I vehemently believed what I've been told.

that there is going to be a baseline tariff that has to be applied to use that revenue to go towards funding of the tax cuts. And that number I was told was about $2.5 trillion over 10 years, $2.50 a year. That works out about 8% to 10% kind of on

every import, put some exclusions in, maybe make China pay a little bit more than someone else. But that's roughly what you were looking at. And so I've always believed that tariffs are coming. I think they are at least initially, they are transitory definitionally because it's a one-year thing. And if she goes and whacks you, next year, they are a one-year thing, but they are at least initially stagflationary.

How bad do you think they are going to be for the economy? You know, I just had on Johnny Matthews, who I know you know, and he had some. Yeah. Most of U.S. consumption is in services. And in terms of goods, it's only a small percent that comes from China and Mexico and Canada.

But ultimately, so even if it's only 6% of the economy, it could have huge effects on the rest of the economy. It could dampen consumer confidence. Yeah. I mean, look, we import 50% of our goods, Jack, right? 50% of all our goods. Goods are about 25% of the CPI basket, 75% being services.

If core goods inflation is zero at the moment, if you impose, by my calculations, an 8% tariff, then you're going to push core goods inflation up to 4%. If it is 25% of core CPI, that means you're going to add 1% onto core CPI. So we're not going to be in the mid-3s, we're going to be in the mid-4s.

right and obviously you know if people I'm actually an aggregate right but obviously you know if suddenly they were used people were used to paying X for a TV that's made in Korea or you know Japan or somewhere right and it's

X plus 10% or X plus 5% or something, they're going to feel it. And where do you think the Trump put is? I feel that in Trump's first presidency, he was quite sensitive to financial conditions and particularly the stock market, tweeting about it often, as a matter of fact. This time around, he seems less concerned with the stock market pullback. He gave a speech to Congress where he said there will be some pain. And then you have on CNBC, Secretary Lutnick

saying, "The stock market's down 0.5%. Who cares?" Again, I'm paraphrasing. Stig Brodersen : Musk said temporary hardship and Trump said discomfort. Will Barron : Yes. They do seem quite willing to sacrifice short-term financial or economic news for their longer-term goals, which let's say they're completely right to do that and they will be successful long-term, still that will be a tightening of financial conditions short-term. And if there's bad economic news over the next few months,

I doubt that the market will be willing to look past it and say, "Oh, well, at least in four years, we're going to balance our trade." Well, no. It's particularly an environment, Jack, where every single morning the risk is now that we walk in and overnight people have sold S&Ps. I think that's the risk. So where's the put? Look, firstly, I don't think Trump has a put. What's the guy going to do? Reverse his policies?

What's he going to do? Reverse. He's going to turn around to Europe and go, it's okay. We're going to defend you. They're not going to believe him now. They already think he's a lunatic. They're not going to believe him. They're not going to stop spending their money now. What's he going to say? No tariffs? Well, then no tariffs, no revenue. Then you can't pass your tax cuts. I don't think he has the ability to deliver a sustainable put.

You could come out like and say, "Oh, no, no, no. We're going to delay the tariffs on Canada for a month." And then until two days later, Trump will go, "Well, yeah, but they're coming, but they're coming." So I don't think there is a Trump put. There's only one institution that can deliver a put.

That's the Fed. Okay, but Julian, I completely would have agreed with you. So far, we're an hour into our conversation. We haven't even mentioned the Federal Reserve yet. That's all I talk about on the show. That just goes to show the Federal Reserve is, in my opinion, taking a backseat. The Fed is not moving markets. It is President Trump. It's fiscal, not monetary. It's fiscal and tariffs. Yeah.

Wouldn't you say that if fiscal and President Trump is what's moving markets, that Trump has the put, not the Fed? Look, I don't think Trump has the put. I think once the decline starts, Jack, which I think we're arguably seeing now in equities, Trump doesn't have the put. I don't know if there's anything, bar like a complete tangential change, which has said, I don't know anyone will believe him.

I don't think he has a put. I think the Fed's the only one arguably with the put. And I would say that the Fed's put is a long way off. Will Barron: Julian, what do you think of the Chinese stock market, which is in a huge, huge bull market? Julian Willis: On a relative basis, it looks attractive. I mean, huge bull market. I mean, we've been

We've been stuck going. So we've basically gone nowhere for like four years. I mean, yes, it did drop to, you know, if you look at taking the Shanghai comp 2650 or something like that, we're now 3380.

Julian, so yeah, the past four or five years, it's down 41%. I'm not denying that. I'm saying that from its low, it's up 50%. So what you've got to... Yeah. So yes, yes. But the law of small numbers. I'll tell you the anecdote that my first pay increase when I was working on a trading desk, my boss said to me, I'm giving you a 50% pay rise, Julian. I want you to understand that 50% of F all is still F all. Yes.

So look, don't get me wrong, Jack, yeah. But I'm not yet convinced that... Look, and I want to own an overseas asset. Is it China right here? Not yet. Right? Not yet. I mean, my choice would be to own Japan and Europe and then within the US, mining metals, materials...

But even then, only, as I said, I'm worried about that risk off VAR event where everything just gets thrown out in, it's very hard apart from owning two year treasuries to own anything in a risk off event. And it's beginning to look to me like we have a risk off event building. As I think I said before the show, I mean, I think, you know, we got lucky,

going into COVID because we were mentally looking for a slowdown in the market. The economy was slowing. We had a number of trades that we were viewing in the equity market to sell, and they worked out well. Better to be lucky than smart. But I think it's important to have a framework. And if you have... My framework is relatively simple at this point. US exceptionalism, as I said, which I hate as a phrase because I don't believe there was anything particularly exceptional about what we were doing, has peaked. If it has peaked,

and the dollar is starting to materially underperform, then every trade of the last decade that worked is the wrong trade to be in now. And you have to think completely differently.

And if you can get in at the right levels on some of these things, it's not easy. You want to buy things like silver and silver miners and gold miners. And they're not trading well yet. They're not trading badly. They're not coming off as much as tech stocks. But they're not trading well. And the reason that they're not trading well is because we're in this

risk of environment. So what we really need to like, like the touch paper, is the Fed going

Okay, now we're cutting rates. Now we're cutting rates. And they can't right here, right now, because we haven't addressed inflation. We have 4% unemployment. Yeah, sure, it might go up because we fire all these people from Doge, but we have 4% unemployment at the moment. We have an equity market that's barely off the highs. And I know people get their knickers in a twist about this and go, oh, it's down 5%. You're going to get some idiot. Right?

I just want to remind people, in 2000, the Fed hiked 50 basis points with the NASDAQ down 40%. Now, it was small back then, but the point is,

They'd only care if it starts to affect the real economy. These guys are not coming to your aid immediately. But that also means that that true kind of period, Jack, where you see that positive cycle, where you get weak dollar rate cuts, which generates reflation, right? Which is when all these cheap assets really do well. We aren't there yet, right? And unless you can go long this and short that, right? This is quite a difficult trading environment.

I want to be long Europe, short the US, but do I really want to be outright long the DAC? Like we said, why are you here right now after the run up we had? I don't know. So it's tough. And my focus has been on FX. Our focus has been on FX and on some of the rate trades. The relative equity trades, even for professionals, are tough, tough to hold.

Absolutely. Julian, what are you seeing in rates world? Today, the European Central Bank cut interest rates, but I know the German longer-term interest rates, the two-year, the 10-year, have been going up massively because of the stimulus and the borrowing there. And then also in the US, going into this year, it was pricing and basically no cuts. And now I don't know how many cuts. Yeah, we're back to sort of spree now. I mean, you know, I think we just have to be a little careful on this, right? I mean, we've had very...

I mean, bond market moves like up to five, down to 380, to 480, down to 450. Look, I am a structural bond bear. I believe that global demographics will drive global bond yields, absent policy intervention, which I suspect will have to come, but that's another topic of conversation, up and to the right for the next 20 years. Right?

I do not believe we are absent like bird flu wiping out 60% of the global population. I do not believe that we are going to see the lows in bond yields ever again in our lifestyles.

Because the 10 year on March, whatever 2020 hit like 80 basis points. You just think it's, yeah, no way. I mean, no way. I think absent COVID, the low would have been in 2016. And because the demographics are already turning against it. It's just people are now retiring globally. They own assets. They start to sell those assets. Yields don't go up in that environment. They don't go down in that environment. They go up. Right. And I think this is the fundamental problem. I think we've got a problem where we've been reliant on foreigners.

Everyone's been relying on two countries basically to fund them. China and Japan, those are the countries with excess savings. They flushed throughout the world, the big countries with excess savings. And I'm not sure that they're going to put it into bond market period end of story. And as we all compete for funding, the pressure on bond yields is up and to the right. Now, we have had a decent rally in treasuries. Some of that was positioning related, related to CTAs.

Bond yields have come down in that situation. You know, we are getting concerned about the recessionary call. But really, to me, this is an equity trade right here, right now. And if, you know, the equity market weakens, bonds couldn't rally, right, because we're going to move into a recession at some point. But absent that,

you still really don't want to own bonds. You really just want to sell equities. And if you're trading, not the same, that's not the same, that's not the same trade. Um, and, um,

So this is the problem, Jack, for the bond market. Jack Kornfield : Now, against that as well, we have this thing called fungibility, where basically in sovereign bond markets, you can play one market against the other. You can synthetically create one market with the other with a currency swap. So if we're finding, which we have, spiking JGB yields and spiking bunge yields, it isn't going to help the treasury market. The treasury market might outperform because we're the ones who are running

tight fiscal policy relative to Germany's loose fiscal, but there's a limit to how far that can run. Julian, could you sum up your views and could you be as provocative as possible? So I got asked a few, about a month or so ago for this, and I said, I am short US tech, long European stocks, all in euros.

right, all in euros. And so far, so good. But I think, Jack, the moves have barely started. If you look at, say, the IBEX against the NASDAQ over the last decade, so the IBEX being the Spanish equity market, we know Spain's actually got a pretty solid economy. The relative performance is like 2000%. We're breaking those trend lines as we speak.

right as we speak i think peak u.s exceptionism i've never believed it was exceptional peak dollar get ready for the next best investment opportunity and as i think a period of exceptional money making i think it might be very volatile i think it could be economically quite disruptive particularly here in the us but it is a way to protect but it is

the antithesis of what you have done in the last decade. Julian, it's a pleasure to get you on. I know you got a new product called MacroCapture by MI2 Partners. What is that product? Tell us about it. So look, I mean, we had a very successful product with Raoul Pal and the Real Vision Boys. You know, Jack, how we met many, many years ago. And, you know, it was a good experience.

a product we used to offer to our retail clients and then you know basically Raoul and I kind of went in different directions you know he he went uh and focused on crypto and has done extraordinarily well doing that and I've just stuck to my guns and I do what I'm doing maybe I'm just the older the older um less flexible Luddite um and um so we've so we decided we would launch our own retail

And it is that. It just focuses on the macro. I will stress that I think the macro is important at times and it is less important at times. It's important at inflection points. And I really, really, really think this is one of those inflection points. We've had great feedback from the macro capture clients. I think we're doing a really good job. You're getting a big team. It isn't just me. I think we have something like 160 years of collective market experience within the MI2.

And these are guys who run risk, manage portfolios, not just pontificate. We're not economists. No offense if they're only listening, but that is not our job. And our job is to try and make you money and importantly, save you and preserve your wealth into what I think is going to be quite a tumultuous macro period, Jack. And judging by your response, like, oh my goodness, this last month, right? This is just starting, mate.

Julian, pleasure as always. People can find you on Twitter at JulianMI2. I'm of course on Twitter at JackFarley96. People can find this show, Monetary Matters, on YouTube. And if you like it, please like and subscribe. Of course, Monetary Matters is also available on Spotify, Apple Podcasts, and all other apps. Until next time. Thanks for watching. Remember to check out vanek.com slash NLRJack to learn more about the VanEck uranium and nuclear ETF.

Thank you. Just close this f***ing door.