The World Is Dumping U.S. Assets | Julian Brigden
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this door. I'm about to have a really special conversation with Julian Brigden of MI2 Partners. Since my beginning in macro, Julian is somebody that I've been following and learning from.

Before the tariff news rocked markets, I interviewed Julian and he made multiple big calls on stocks, bonds, credit, and the dollar. All of those calls have worked out incredibly well. Julian's really had his eye on the ball here. So with markets in flux, I want to get Julian back on the show and see how he's thinking about things. Oh, and by the way, Monetary Matters listeners can get a 10% discount to Julian's research service for individuals, MacroCapture. Click the link in the description and use code MM10 for annual membership and MM10Q for quarterly membership.

Let's get into it. Extremely pleased to welcome back to Monetary Matters, Julian Brigden, co-founder of Macro Intelligence 2 Partners. Julian, great to see you. Thank you very much, Jack. Lovely to be back. I'm really glad you're here, Julian. When you were last here in the first quarter, you made some big, bold calls. You said that the U.S. dollar would decline alongside widening in credit spreads and a fall in the stock market and a steeper yield curve. At least that's what you said in your research. Yep.

I think you are four for four for that. So that is exactly what has happened. Not only have we had a severe repricing in the risk markets, but it's happened as the U.S. dollar has sold off and weakened against other currencies. As you know, Julian, normally when the risk assets sell off like stocks and credit, the U.S. dollar strengthens. So what's going on? And first of all, congratulations on the call. But what's going on here?

Well, thanks, Jag. It's been a culmination of, as we were talking offline, of sort of many years worth of work where we've looked at kind of the setup in markets. And essentially, the whole world is invested here in the United States. It's just very simple. I think Bridgewater did some great research recently. They said of every dollar globally,

that has gone into equities, 70 cents has gone into the US. I mean, that's pretty extreme. And what it's done is we've created this kind of, we call it a reflexive cycle in the true Soros-esque sense of the word. So in other words, the purchase of the asset, in this case, let's say equities and dollars by the rest of the world,

underpins the fundamentals that justify the price of said assets. And we have kind of three economic fundamentals that that requires. So the first thing is, is that as stocks rise in dollar terms, the wealth effect kicks in. And we know, we've seen recently from surveys, Moody's did one where sort of 50% essentially of all consumption now is coming from the top 10%. I mean, ridiculous.

Secondly, we have this effect that we call hyper-financialization, which is simply that as stocks rise, CEOs hire. As stocks fall, CEOs fire because they're just shepherds of their stock price. And that's what they're paid for as the most leveraged member of the capital structure. And so as we've had this rising equity market, we've had this extremely strong jobs market and boosted overall consumption.

And then the third economic effect, which is somewhat sort of mechanical and completes the sort of circle, this sort of reflexive cycle, is that, as we've seen, when America tends to do well, we love to spend money, right? Our marginal propensity to consume is like double, say, a European. And that we tend to import quite a lot as well. And so our current account deficit blows out. And that has to be funded 100% by foreign inflows.

in one way, shape or form. And so that sucks that money back in, Jack. And so you get this kind of circular reference. And so what it's left us is it's left us, I think, with the whole world fully invested into US stocks, very long dollars, very, very long dollars. And those dynamics have started to change, right? The Trump administration wants a significantly lower dollar.

I think it's not a radical thing. We've seen this twice in post-war history. We saw it at the end of Bretton Woods, so in the early '70s, when Nixon imposed tariffs on Japan and Germany to get them to agree to revaluing the dollar, Dow.

And we saw it under the Reagan administration in the mid 80s ahead of the Plaza Accord, which once again got the Germans and the Japanese to agree to a weaker dollar and a policy intervention. So

They want to put a tock on the dollar. They want the dollar to be inherently strong, but just lower. And they're not the same thing, Jack. I want to stress, just because you want a lower dollar, it doesn't mean that you want a weak dollar. You want an inherently strong dollar, economically sound dollar, but you can just have a lower exchange rate. And they want to rebalance this trade deficit

And if there's one thing that I would stress is that people do not understand. And in this sense, Elon Musk is absolutely correct. Peter Navarro is a moron.

When it comes to balance of payments accounting, right, this is just double entry accounting. If you run a very large current account deficit, so a trade deficit, you must run a large capital account surplus. And that capital account is mostly interest.

funded via foreign direct investment, which the administration wants to re-industrialize. They want more of that. But then there's a lot of portfolio inflows and investment inflows. And so if we are going to shrink the current account deficit, the current account or the capital account surplus is going to decline, which means less money coming into

US assets. So that was kind of the setup. As we thought things, Jack, we thought that the tariffs were going to be much more aggressive than people certainly initially believed. We thought there was far too much euphoria. And we actually wrote to our clients and we said, we're going to have this sort of three-stage process. On the day of the election, we said,

It's going to break some eggs. People don't realize this is going to be much more aggressive. They want to reshape the economy. This is a radical agenda. But we'll go through this phase where everyone will go. They'll assume it just looked like the first administration. And then we'll get this kind of confirmation period as all the data picks up on the soft data looks fantastic. And then we'll get to the inauguration. Then we said reality is going to hit and it's going to hurt.

And so in that sense, we've been right. We still think the tariffs, frankly, are even more radical than we thought. We thought they were going to be much more radical than the market thought, but they're even more radical than we thought. And I'm not saying that any of these things are wrong, Jack, right? I think it's a laudable objective to improve the lot of the vast majority of working Americans relative to the 1% or the 10%.

I think it is laudable to re-industrialize from a security perspective the US. I think it is laudable that you get the rest of the world to pay a bit more of their own share when it comes to defense. I question the tactics. I think the tactics may backfire.

But I'm not really my job is not really to to assess whether a policy is right or wrong or politically, you know, justifiable. It's just to figure out the consequences. And I, I, I know when I talk to my U.S. friends and I am in the U.S. that.

the views just become incredibly partisan, Jack, right? So we have this silly thing like the Republicans say, well, the University of Michigan Consumer Confidence Survey, that's just totally invalid. And you go, why? Because they give you the breakdown of opinion by voters? I mean, does that make the data invalid? Because you're in there. Republicans are in there. It's just

But you can see the extremes when I think the number for the Democrats now for inflation one year out is like mid-sixes or something. Maybe I think independents are even higher. It's in the sevens. And Republicans are 0.1, right? Year over year, 0.1. And I'm like, you know, what are we going back into deflation? So I just, you know, my job, and I think that's the same. I think people's opinions are being...

driven by their political belief to some extent. And my job is to cut through all of that and just to give you the cold, hard facts as to what I believe will happen in financial markets. There are people who say, oh, I think Trump is not going to succeed with the tariffs and therefore I'm bearish. You're not saying that. You're saying that even if President Trump is successful in lowering the U.S. trade deficit or the U.S. current account deficit, which includes services and financial payments and stuff, that there's

that mechanically will mean that less money from the rest of the world is going to flow back into the United States. And if there's been a lot of foreign direct investment announced from Nvidia and Apple, that is going to be in the capital surplus account too. So actually out

outflows or net inflows are going to be even lower into the United States. Julian, tell us about the scale of what we expect. I mean, so far, the dollar has weakened. The dollar index, what, 4% or 5%? The US stock market was down as S&P as much as 17%. Now it's down 10%. Credit spread widened, but they pulled back a little bit. Just tell us what is the scale of what you expect and how you think things play out from here. So,

When we look at the dollar, we think, you know, our models are already suggesting sort of a year from now, like another 10% lower jack. They're dynamic models, so they could increase and they only go out like a year. I could see, you know, another 15, 20%, maybe. You know, so we get sort of the euro back into the mid-20s.

130s, maybe possibly 140s. You get dollar yen down to 120, some 120. And I think that is going to be quite a... I mean, that's a normal kind of dollar cycle, right? Typically pans out over a number of years. I'm not suggesting it happens tomorrow. I do think that some of the moves are happening quite rapidly. And this is one thing that we've been stressing to our clients. And one thing that sort of worries me

When I look at positioning in the equity market, it looks to me like US domestic investors have just once again aggressively bought the debt, Jack. I mean, one of the things... I like to look at some of these ETFs and you can look at the shares outstanding and a lot of these ETFs, which tend to be bought by domestics, you can see the shares outstanding have doubled since the election.

and are now sitting at absolute highs despite the fact that these guys have lost water. So retail in the US is like fully in. I know, I don't know whether that's a reflection of wealthy retail being more Republican and so they're fully on board with the agenda. I don't really care. They're fully in. Okay. But when I look at foreigners, foreigners have had basically...

I mean, at least a decade plus of gains in the S&P. And they've also had huge currency gains, right? The euro has weakened against the dollar. The yen has weakened against the dollar as they have bought US stocks. So they've had this two for one trade where they made out on US stocks and their currency has weakened. So they've made even more. And

Those gains have been enormous, Jack, right? Enormous. And the inflows have been enormous, right? Foreigners own close to 19 to 20 trillion dollars worth of Euro stocks, like a third. And Europeans own a very large proportion of that, like almost half of that. So,

When you look at this, Jack, and you say, if you're a real money account in London or Paris or Frankfurt, and you've made hundreds of percent in what was a very straight line trade where you probably got incredibly complacent, where if you are a global investor,

fund manager, the models were telling you, you could own even more US stock because they diversified and lowered the overall portfolio risk. Because when stocks sold off, the dollar rose. So in your currency, it acted as kind of a damper. And oh, that didn't happen this time, right? I think that judicious profit taking, even before we start to hit on sort of ideas of

you know, is the US the player that you think it was, right? Is it a good ally? Just judicious profit taking when you've just seen, you know, in the last few weeks, 20, 25%, depending on what currency, all of those gains just evaporate, right? I mean, it literally is up the escalator, Jack, and it was just down the lift shaft for these things. So

Just judicious profit-taking, I think, has to happen. And I think that is why, when I look at this setup with U.S. domestic investors, I worry they're getting all enthusiastic and they don't realize there are literally trillions of dollars worth of foreign money to be sold or hedged or whatever, and the money is going to go home. And that's when you... And I'm not... You know, this is something that we were talking about

you know, a few months ago and we talked about in the first quarter. But now, I mean, if you look at, you know, standard US banks, Citibank, right, just cut their expectations in the US. They double upgraded. I don't quite know what that is. Double upgraded Japan and they upgraded Europe, right? We just had, I was listening to Bloomberg this morning, Invesco, huge global fund manager, sell the US, buy the rest of the world.

And the dollar is the linchpin that does that, Jack. And if the administration, rightly or wrongly, I think there's some very sound logic between behind Scott Brissett's policies and the administration. I'm not sure totally the execution has been quite as smooth as we might have liked, but I think there's a sound rationale here. There's just going to be consequences. This is not the time to invest it in tech.

This is not the time to be invested in the US. This is absolutely the wrong time. And we haven't had that flush out, Jack. So when I look at stocks, I'm concerned that, you know, look, 20% down was kind of our initial target where we said to clients in our retail clients in November, we said, look, our target's like 5,000. And, you know, that was a ballsy call at the time. We've got there.

I think you have to come back and back and fill. Wouldn't be surprised to see maybe a move up to 5,600, 5,700. But I'm a structural seller of US stocks here. And I think until we have that true capitulation event, which could take us down into the low fours, then this is not over. This is not over. Yeah. Julian, just to give...

a sense of the scale from your work, I learned a Norwegian investor and actually Norway's largest sovereign wealth fund in the world. A Norwegian investor who bought US stocks in 2011 is up about a thousand percent because- Will Barron: Well, at the highs, we're up a thousand percent. Will Barron: At the highs, yeah. Thank you. Because the stocks were up 400, 500% and the currency basically was cut in half against the dollar. So if you didn't hedge your exposure, a Norwegian investor

who bought US dollar, the S&P 500 in dollars was up a thousand percent. So they're just sitting on massive, massive profits. Yes. Yeah. And just as I said, I mean, just logic would dictate

You've had a good run, an extraordinary good run. You know, do you double down here and think you do a thousand percent again? I mean, it just, the world just doesn't work like that. Not when you have an administration that is saying to you, the dollar is too high. We want a deal to drive the dollar lower. And when you look at Plaza and you look at the end of Bretton Woods,

Jack, I mean, those periods were periods where the U.S. asset markets underperformed their peers, certainly for a U.S. investor. Right. So you were you were better off being in the Nikkei or the DAX, you know, in euros or in yen. Certainly in the first one, you were better off being in precious metals. Right. Maybe we can get away with with that. I'm actually a big precious metals bull.

But just the US and tech, I mean, if you look at the period like 2002 to 2008, Jack, that was a period of dollar weakness, right? I mean, wasn't the end of the world, right? You know, we weren't running around going, woe is me. Oh, you know, the US is screwed, right? That was a period of dollar weakness. And it was a period of like literally biblical rotation within the equity market from the prior decade where...

We'd had the dot-com bubble, so tech had done exceptionally well. Tech just massively underperformed. Energy, which hadn't done anything in the dot-com bubble, massively outperformed from 2002 to 2008. Mining, metals, all of the things that people didn't own going into the bubble hot. And so even if this is a relatively benign bubble,

scenario, right? I mean, we're certainly not priced for a recession. Anyone tells you that is wrong. And I'm not saying we're going to get one. I think there are quite significant risks around a recession.

But a standard recession, if you look back near 90 years worth of data, and as a matter of fact, it's been more recently. Remember, it's very big corrections in the equity market and coming from where we are coming in terms of the hype of where U.S. assets are. I don't think it's impossible, but it's just a standard average correction in U.S. stocks in a recession is 30%.

So I think, you know, we can go quite a long way, but I just think structurally, if I'm talking to my retail clients, it's like, look, guys, you know, if you're positioning your portfolio for the next five years, right, it's not going to look like the last five years if this is what we are trying to achieve.

And it looks like the Trump administration is pretty serious about why we're achieving crime. It's a very, very different world.

How are you thinking about the mechanics of how this plays out? Because there is a mechanical way of the lower the US trade deficit is, therefore, the lower the capital surplus and therefore lower asset prices, all things being equal. But the reason the dollar is actually down 8% or 9%, and by the way, the dollar is down 8% or 9% when I said it was down 5%, I was undercounting. Right.

is because basically foreigners have sold and there's been a migration of money out of U.S. assets to European and Asian assets worldwide.

So isn't that kind of a popularity effect in anticipation of the tariffs, right? It's not like two weeks of tariffs has caused this massive rotation mechanically. It's just that it's caused a stampede of money out by investor sentiment, right? Yeah. So I think, as I said, I think that as the equity market is corrected, I think people have realized that they weren't over their skis. I think as

We've had a degrossing in the hedge fund space. The real money is now getting back. They were overweight US. They're now getting back to benchmark to the US. Could they go underweight? I think that's entirely possible depending on that's probably the next stage. But I think the mechanics are quite simple, Jack. I mean, if you look at if we go into recession,

US rates are going to get cut. Now, I'm not saying that European rates are not going to get cut. They are, but this is all relative, right? This is all relative. All the money is here. You know, the current account, I mean, if we go into recession, the current account deficit will shrink. It always shrinks, right? Because Americans don't go on holiday to Santorini, you know, and ruin it for everyone else, you know, on their Instagram posts. But, yeah,

But that shift was mechanically, if we're going through a recession, we mechanically drop it. And so I think what you're going to see, let's take the benign thing. Let's say we just have a slowdown, I think, right? If you have a slowdown and the dollar continues to gradually weaken under this sort of aura of the Plaza record is coming, right? I think it's going to take, look, I don't think tomorrow the Japanese and the US are going to walk out and go,

we're done. That's it. Dolly N 120 tomorrow, wham. I think it's going to take some while to get out there, but the plan is there. It's definitively out there and it's something that the administration wants. And I think in that situation, foreigners, as I said, are going to gradually just bare minimum hedge their FX exposure

And given that a lot of equity guys generally don't hedge their equity exposure, probably, you know, reduce it to the US. And people say, well, where does the money go? Well, in many cases, the money doesn't go anywhere because it just evaporates. Right. I mean, until it's in your bank account, it isn't real money. It's just a mark on a screen. Right. So all those, you know,

Norwegians who were up a thousand percent, the money's gone nowhere. It's just gone, right? Unless they sold it up a thousand percent,

Now they're only up, whatever it is, you know, 900%. But if they do sell it, let's say a Norwegian fund sells NVIDIA and Apple, they suddenly have dollars. What are they doing? So, I mean, if we're talking about the Norges fund, they don't put it back into Norwegian kroner. Their benchmark, I think, is in euros. So they'll probably put it back into euros.

And I think this is why you are seeing this drip, drip, drip move in the currency. Real money guys who've accumulated these positions over decades, decades or a decade plus, sorry, a decade plus, you do not flush them out in 10 weeks. These are hundreds of billions of dollars, if not trillions of dollars that have to get

rebalanced right and and you have these you know uh you know these t-wap t-wap orders where they come in and it's time weighted average price so they'll they'll give you know some bank like x amount of time to buy a billion euros right because we're doing some bond switch or we're doing some

equity switch. And these things just get executed. You can see it in the markets if you study, if you're a scholar of price action, the euro kind of comes down and it just goes, boom. And you think, oh, it's going to come down and then it just goes, donk, donk, donk, donk, donk, donk. Because there's a big order there just going, thank you, thank you, thank you, thank you. Getting filled all the way up. Yeah. And then, can we do another billion? Right? I mean...

This is a true... If the administration is serious, which I believe... I've always believed they were earnest from the day of the election. I've got very good policy contacts who haven't steered me wrong, didn't steer me wrong for the election in 2016 on the night of the election when everything was imploding. We were turning around to our client saying, buy US stocks, buy US stocks. They're going to spend a lot of money. They're going to cut taxes. It's going to be great. This time we said...

No, they're going to push this policy through and this is going to have truly tangential impacts. I mean, if you look what Scott and the team on the economic side are saying, they want to shift the US economy away from consumption to more of re-industrialization, right? And if that is the case,

which, as I said, I think is great if they manage to achieve it. It just has significant consequences. And American investors, I don't think, are really thinking about them. I mean, you're moving away from a globalized world where the likes of Google and Apple and Nvidia have done exceptionally well.

And you're moving to a world where, you know, domestic industrial companies should do better. And the size of that market that's available to some of these global firms, right, shrinks. I mean, to be brutally honest, Jack, if I were the president of the United States, I would call Tim Cook in and I would say, you employ 140,000 people in this country. You pay no tax. How about screw you?

I'm going to put 100% tariff on your product and you can, here's your choice. You move it all back or your tax rate's 30% and I'm closing down all those loopholes. I mean, this is what people don't understand. I mean, I think, you know, people get wound up about, oh, you know, it's China and then Mexico and they're the evil villains. No, the evil villain is the C-suite.

of corporate America. China and Vietnam and Mexico are the recipients of decisions that were made in corporate America to outsource, maximize profit. They're the ones that screwed middle America. It wasn't the Chinese. I mean, they're a convenient poster child, right? Because you don't really want to say, Tim Cook, you're a villain. But Tim Cook,

You're a villain. The way President Trump frames it can be quite helpful in terms of like, he's a little bit funny, but he says that, you know, I don't blame the Chinese. If I was the Chinese, I would have done the same thing because they're getting a great deal. Julian, we've gone so far. We've barely mentioned the T word tariffs. I want to get into it. But first.

For Monetary Matters listeners, you and the folks at MITU Partners have graciously given a 10% discount to quarterly and annual subscriptions of MacroCapture. Tell us what is MacroCapture? Why did you build the product? And what does it feature? Why might it interest some of our listeners here today?

So for many, many years, I had a joint product with Raoul Pal, as some of you may know. And then Raoul sort of went sort of all crypto all the time. And I just the fundamental underpinning of that we were really supposed to be a macro product sort of got lost. And so we decided to go our own separate way. And my philosophy was relatively simple.

I think we're in an increasingly macro world. I think this is a point in history where macro is the driving force. And in that sort of scenario, it just overwhelms everything, Jack, in terms of your portfolio allocations, in terms of your personal financial decisions. And it's quite a complicated space, right? I mean, I've been doing this for nigh on 40 years. It's my birthday today.

this week and I'm not telling you how old I'm going to be but it's a big one and so we're trying to offer and within the firm we have something ridiculous like 180 years worth of collective experience because everyone's sort of pretty much my age and so

We're trying to bring this skill set, which has been honed over many, many years in slightly different areas from FX to bonds to equities to so on and so forth, to help clients understand macro so they can start making their own decisions.

And then ultimately make them money, right? Make them money. And so, as I said, you know, we suggested the first thing we came out in November when we launched it was you said to people, you know, you've had a good run. We really think this thing is toppy. We really think you want to be raising some cash. We really think you want to be cutting down some risk.

um we really like you know in stocks but we really like gold we really we ever get you buying there and so it really is to try and help people position and think longer term as well so it's kind of educate develop kind of a framework because that framework is hugely important because when things are frenetic if you don't have the framework if you don't have the thought process you can make

Emotions can get in the way, right? And you can say, oh, look, my gold is down. Oh, it's down 200 bucks. I'm going to sell it. But if we think we're going into a weak dollar environment and gold's going to 5,000, then the drop is really I should just be buying more, right, as an individual investor. So that's kind of what we did. It was really to try to educate people, give them a framework for decision-making,

And then ultimately make the money. Because I'm not interested in... We do not just want to talk about the economics and stuff like that. I've sat on trading desks the whole of my life. This is just a waste of bloody time. There are...

the people who the research I really respect and I find valuable for my own process. And I want people to know that it's not like, oh, I'm having so-and-so so that we can sell a bunch of research. Actually, I mean, there are people who I interview who I would not do this program. Like I'm only doing this with people who I consider to be triple A plus. And

you know, in future affiliate deals, people will see that it is people of very high quality. And I also two things, two nice things I want to say about you. One, I think you have a trading mind.

And for example, even though you had a bearish view, I got a report, we can do a flashed on screen of two days after liberation day. So I, or actually technically three days, I guess it was Saturday. So the market was down 10% in two days. You, you still had a bearish view, but you said like, look, I think we could totally have a bounce. And then the next week was a significant bounce. I think the biggest, you know, one week moves in, in over a year. So I think you have a trading mind and then also you have actionable calls. Like there are,

people who are good macro thinkers and economists, but basically like they just write poems and it's like, what am I doing here? You know, it's a, it's a poem to PayPal. Like what's going on here? Like,

I sell. What's your view on, you know, H-Y-G? You had a nice, you know, H-Y-G put trade. Like, yeah, that's good. And if you were wrong about that, then that trade wouldn't have worked. But at least it's a call, you know, at least it's a call and you can have a track record and be held to account. All right, Julian. So just, you know, people can get a 10% off and we'll have a link in the description. Julian, let's now talk about tariffs. Mm hmm.

All right. As we record, the tariff rate on China is well over 125%. Correct. Reciprocal tariffs on the rest of the world are at 10% floor. In 90 days, they are scheduled, maybe, probably, who knows, to go up to their reciprocal levels. In some instances with countries with very large trade deficits, very high levels of 40% or 50%. In some instances, countries...

that have a trade surplus with the United States or US has a trade surplus with them, rather, it would be 10%. What is the overall economic impact? You write that we believe the approach to tariffs is akin to carpet bombing, not a precision strike. What is going to be the economic consequence of these tariffs? Walk us through it, please. So look,

Look, I mean, certainly the initial phase has not been, it's hardly sort of a strategic precision execution. It really has been, you know, a tariff for you and a tariff for you, hence the sort of carpet bombing effect. So I think, Jack, look, I think there are three objectives of tariffs. And I think we have to take a step back. And we've been writing about this for a while. So there was a revenue element.

of tariffs, right? There is a key revenue element in the Senate budget proposal that's penciled in $2 trillion of revenue from executive orders, aka tariffs, right? So that, I think, is kind of that 10% baseline tariff. I think there are some strategic

We are ensuring to ensure control over strategic industries that are domestically satisfied. So whether that's semiconductors or pharmaceuticals or whatever. And then I think there's the I don't like you. I want to achieve something. I'm going to just bash you around a little bit kind of tariffs and those are some of the extreme ones.

I think, I fear that, I mean, most people have reacted as kind of you would hope they would. So they've done what Scott Persson advocates, so they haven't escalated them. So we've seen a calming down. I fear about China. I think the Chinese are in it to win it. I think they are not going to back down. I do not think they're coming to the table.

And I think they are quite capable, and you can see it in what they're trying to do fiscally, of at least sticking this thing out. Now, we can make a decision that five years from now they've lost, we've won. But I think it's very naive to assume that they haven't got cards to play, right? When they are the largest provider of savings in the world.

And we are running a now, as of this morning, like a 7.3% of GDP budget deficit. This thing is not going down. It's going up. They've just downgraded what they think they can save from Doge, from a trillion to 150 billion. We are very, very dependent on the rest of the world. But for US consumers and for the US economy, this is bluntly...

Very simply, initially, and we don't have to think about the good stuff yet, right? The inverse of Ricky Gervais saying, oh, you're still thinking about the bad stuff. We don't have to think about the potential for the good stuff yet. We have to deal with the bad stuff. And this is stagflationary, right? You can see it this morning. If you look at Empire, Empire,

PMI prices received, it's spiked enormously. It's commensurate with PCE being back above four. And so this is just, this is going to be inflection. It is demand destructive because of that impact on consumers.

And so the risk is that consumption will weaken. It is negative for investment. I mean, one thing I do, I really question is, as I said, on this execution side, is unless you create certainty. And look, I think they had various different tariff levers that they could kind of pull. The ones that they picked are temporary. They could really only run for

six months. And so IEFA and that sort of stuff. And then that gives them time to complete these longer investigations so that we come to a permanent tariff. So I think this is stagflationary. We're not yet in a recessionary environment, but the mechanics for a recession are really there, Jack, right? I mean...

We already had arguably since the third quarter quite a weak labor market. Like we haven't been hiring many people. We haven't fired them, which is great. But the level of hiring just has dissipated. So if you look at lots of metrics of, you know, you were working full time and now your boss comes to you and says you have to work part time for this thing called part time for economic slag. That number is just steadily, steadily inexorably rising.

And that loss of momentum in employment is very dangerous. Employment is definitively a momentum play. And what we've lacked so far is that kind of the one-two punch. The two always came from an equity correction. And we didn't have that in the third quarter or the fourth quarter, Jack. We had a strong equity market. And now we've had it. And historically, when you go back like 70 years, that does raise the odds of a recession. And so...

I, you know, and I would talk to some of my Republican friends who are pretty aggressively Republicans. And they, you know, came back from some of the meetings in the White House and so on and so forth. They're like, absolutely, we're going to get a recession. Now, I think much more of that was assuming some more aggressive cuts around Doge. Right. But the mechanics are there, Jack. And I think people are going to be shocked.

right, about how high these prices go up. And I think this is just assumption that all foreigners are going to eat it. I don't know whether that's the case, right? I don't know whether that's the case. We live in a world where the corporate sector is kind of profit maximizer. And certainly since COVID, prior to COVID, I think we lived in this world. I think this is one of the biggest changes that COVID initiated, where

There was a reluctance to kind of raise prices. We kind of got used to a world where you didn't raise prices and you grew market share or you maintained your market share. And then COVID came along and they went, we can jack prices and we can still maintain our market share, especially in the US, which is a very uncompetitive economy in many sectors of the consumer goods, where economic rent is disproportionate in the corporate sector to pay through other parts of the world. So I just...

I think the concept that we can rely on the corporate sector to be this benevolent partner that will eat some of the costs, it's laughable. So I think we are going to see quite a big rise in costs come through in the next few months. And I think that's going to be dangerous. And ultimately where we end up, look, I think we'll end up with a baseline of that kind of age 10% rate of tariffs. We raise about $2 trillion.

Some countries do deals, they get kind of exempted maybe, but certain sectors are going to get hit with bigger tariffs. And then we'll have this constant sort of Damocles hanging over anyone who doesn't do what the Trump administration wants so that you can wake up one day and go, it needs 50% tariffs on you because you've just been a bad citizen. Sorry, you said $2 trillion? Is that over four years? Yes.

Over 10 years. Okay. Yeah. So it works out roughly like a 7%, 8%, depending on how you calculate what import substitution would be. So in other words, how much imports would drop as a result of said increase. But yes, roughly a sort of, you know, just for all intents and purposes, you just call it that is your universal, that comes from the universal tariff, your 10% baseline.

So you say that we stagflation, which means inflation will go up and nominal growth won't be strong. So adjusted by inflation, real growth is going to go down. The growth of that is going to go down significantly. So inflation is defined as a longer term sustainable rise in the price level, not a one time price level. If the price of oil triples in a day and then it's

doesn't do anything from there, that's not really inflationary, some economists would argue. The Trump administration says that if there are any price increases at all from tariffs, there'll be a one-time price adjustment. What do you think of that theory? And by the way, the Federal Reserve has made some mumblings that it kind of agrees with that. It's entirely possible. As I said, I'm a little worried about the corporate sector.

I mean, it is technically, look, all inflation is a one-time hit because, you know, pretty much because, you know, if you get an oil shock, it's a one-time hit. It goes up once. Inflation is moved year over year. So it's in one year's numbers and then it drops out the following year, right?

Now, the problem is, is from a consumer perspective, you know, if your price goes up 100% one year and then the following year over year and then the following year goes up nothing, the price is still 100% higher actually at the pump. So it didn't rise the second year again. And this is the problem for consumers, right? They're like, oh, inflation's come down, but I'm still paying 25% more for my basket of goods. Yeah, you are because that happened a few years ago and it's dropped out of the numbers.

So the year over year rate of change. So I think the issue, Jack, I would say is, is this behavior, and this is something that the Fed has to be very wary of. To what extent does it get built into a second round effect? Do you start to see it filter into the service sector? Right now, typically, that's what happens. Service prices lag, goods prices lag.

Do we end up with said booming economy and we avoid recession? Let's say we just go into a period of soft disc growth. And next year, all that CapEx investment is picking up, painting a picture. I'm not saying this is my best case, but all that CapEx investment is picking up. Those factories are coming into the US and unemployment still sitting at 4.3%.

And workers are like, well, yeah, you know, I'm still down 25% of all my COVID food basket. And then we got another 10% in 2025. And this is 2026 and unemployment's fall. And there were no workers to go work in those southern factories. So I'm going to ask for a big pay rise. Right. And then that becomes the security round effects. It becomes ingrained. And that's something that the Fed has to worry about. So I think.

It can be a one-off, but I think in the economy that the Trump administration wants to create, this very strong domestic economy,

the risks there are significant risks that may not be quite as transitory as you can think and sure you know prices maybe jump up to whatever the number is you know five six percent and then they drop back down again but they ain't gonna go back to two again jack they get stuck at three again right or they jump up to whatever number you know but the point is is i think this makes the job the fed extraordinarily hard right extraordinarily hard and that's why

I think they really want to kind of sit on their hands and just wait to see, is this going recessionary or is this going inflationary? And then they can kind of move accordingly. Because if we get a recession, it will kill the inflation. That's what recessions do.

If we don't get a recession, the odds are it will not kill inflation. And then maybe the Fed will have to make the decision. Or if the Fed is being replaced by some flippity-floppity-fled by there because of Donald Trump, then I suspect the bond market will make the decision for the U.S. But once again, that's further down the track.

So the economic effects of U.S. tariffs in the U.S. is going to be stagflationary. I think that's all we... We're not even seeing that yet. I don't think we have to complicate this and look too far ahead. Um...

and sort of say, oh, it's going to be great in 2026. Let's get through 2025, right? Let's get through that autumn period where typically that's the shitty time of the year for the equity market, right? Let's get through that period. Let's see where we end up, right? And then we can reassess. So I think right here, right now, I'm focused on

the stagflationary impact of this. You can certainly see it in the prices. You can certainly see it in consumer confidence. We haven't yet seen it in concrete data, but I think we're going to start seeing it. I think certainly the high end

There were some comments from, I think it was Hermes who was saying that the US now has started to soften. We've seen it from the airlines, right? That premium travel is starting potentially. We've got United tonight. It's going to be very interesting to see what they're seeing. So I think that's the risk, right? You've just dropped stocks a lot. That wealth effect for that top 10%, it's all about the wealth effect, right?

So the economic consequences are going to be stagflationary in the U.S. What about Europe and China, countries that are on the receiving end of those tariffs? Europe now 10%, but maybe 20% reciprocal tariffs, and then China currently 125%. Yeah, I mean, there's no question that they will detract from growth, but you've seen a response now, certainly courtesy of the fact that

the US defense umbrella has been removed from Europe pretty clearly, that the Europeans are going to kick up defense spending. So you get this rotation out of exporters into more domestically orientated economies. I think as the money comes out of US equity markets and starts to go into European equity markets,

to take advantage of that. That will help to underpin European consumer confidence. But don't get me wrong, Jack. If we go into a deep recession, and it's not my base case yet, but I think the risks are quite high of a recession. It's not that Europe will avoid it. They will definitely catch a cold. It's just that the money's here, right? And the money's still here. So the money...

won't stay here. It mechanically can't. And China, look, I think China has significant, significant obstacles they've got to go up. They've got a very unbalanced economy. We know that's the case. The big thing that they have is they have huge amounts of domestic savings. So they can redeploy those.

God forbid for the rest of the world if they do, because they make up basically 28% of global savings. So if we wake up one day and China said, oh, we're going to do a national health service. Oh, we're going to give everyone pensions to retire. And we're going to spend all our savings to do that. The rest of the world's bond markets get eviscerated. So I think, don't get me wrong, we are...

Other countries will suffer, but because the money is here and because essentially US exceptionism has been bankrolled by the rest of the world, my concern is we're making these assumptions about our inherent strength of the US consumer and the US economy, not understanding that we're basically at the same time chucking rocks at our foreign banker.

And I think we, you know, I've used the analogy, we may wake up and realize that we live in the biggest glass house on the block and we have a big mortgage to the rest of the world. And Julian, just to connect this idea of the capital account surplus the U.S. has and the current account deficit it has, the Trump administration and in particular, Treasury Secretary Besson makes the argument that because the U.S. is a,

a deficit country for trade and for its current account, that actually it can hurt China more economically. It can hurt Europe more economically, not financially, economically, because imports are a drag on GDP and exports are a boom to GDP. And if the US has way more imports than exports, and then by getting rid of trade, it actually could be GDP positive or be not as GDP negative as it would be for Germany or China.

So, number one, do you find that argument convincing economically? And number two, what about the case that, okay, maybe sure, China is going to hurt more economically, Europe is going to hurt more economically than the United States, but China and Europe are the United States' bankers, as you said, and that if they pull money, the financial account, the U.S. will have a much greater tightening in the U.S. financial markets than in the Chinese or European markets.

And Julian, guess what? The financial tightening happens really quickly, whereas the economic stuff takes months, if not years. Your thoughts? The first thing to note, Jack, is we import 50% of our goods, right? So here in the US. So whacking on whatever the tariff comes down to be ends up being...

I mean, a big drag on US consumers, right? I mean, Germany doesn't export 50% of its products to the US, right? So in that sense, I don't agree. I mean, look, it's possible over time that GDP will rise more a year. We will take factories from other parts of the world. They will lose out and all these sorts of things, Jack. So I think the jury's out on that one. We've got to see, we've got to create the certainty. We've got to create the environment.

And for that money to come back, I think we've created hyper uncertainty, I would say, with the nature of these tariffs. If you were a garment producer and you were like, oh, my God, I have to get out of Vietnam. Now you've just gone, well, I can leave another six months. Right. You know, 90 days. Let me let me kind of see. Right. So, sure.

So I think I just think this process takes a lot longer than people realize. And what I worry about here in the U.S. is this sort of hyper financialized economy that we are incredibly sensitive, Jack, for our consumption and our employment based upon the equity market.

This is what companies do. Companies don't solve for profit. Companies don't solve for earnings. They solve for their stock price. I mean, a few years ago, you remember this, we were rewarding companies that didn't make a profit because we didn't want to profit because yields were zero. We just wanted revenue, right? Revenue. Oh, we've discovered this new formula. Well, we discovered it in the dot-com bubble.

It didn't work well then, and it hasn't worked well for a lot of these SPAC companies or those sorts of equivalents. So I am rather worried that if we're looking at a world where, let's say a relatively benign world, where the US equity market kind of just goes nowhere, we've had a big run over many, many years, as we discussed, and sure, domestics pick up some of the spending.

So buying of the stocks and foreigners to sell it, maybe we get away with that. I don't know whether I believe that. Because you're asking Americans to, to your point earlier, Jack, if the capital account surplus is down and more of it has to go to FDI, foreign direct investment, building factories, and by the way, funding the government, right? Because that money, they're not managing to shrink their need, right? Even less and less goes to equities, which means that if Americans want to keep

that equity market rising, they have to drop consumption and raise their savings rate, which wouldn't be good either for the economy. I mean, structurally long-term, yes, but short-term, no. I just worry that if we go into, as I said, even a benign scenario where stocks just go sideways,

We've seen this sort of game in the past. I mean, CEOs will just go, well, my earnings aren't rising and my stock price isn't going up. So I better cut some costs. And they smash the glass and they reach into that box and they grab that act, that fire axe, and they just go capex and unemployment. And I think, you know, this is the issue here. I think it's

Long term, maybe the good things will happen. But I don't need to be focused on that from a market perspective right here, right now, Jack. I hope that that's the case. I hope we pull it off. But I truly, knowing some members of the Trump administration, and particularly some key officials,

I know going into this that they thought that these imbalances had to be addressed. They thought that the US had gone past the point where the good, easy choices were over, Jack, right? Where the painless options had gone and that we're essentially at a sort of devil or the deep blue sea kind of moment that if we'd carried on on the trajectory that we were,

You know, we would have been a faded empire. The dollar would be worth nothing. Treasuries would have been worth nothing. You know, the analogy is always you're clipping the corner off the gold coin like the Romans did kind of thing, like monetary debasement. So now that's the devil. The deep blue sea, I mean, it's the logical choice. It doesn't mean you survive and it doesn't mean it's a painless process, right? And I think just listen to what these guys are saying.

Wall Street's had it really good. You've done fine. You've had your time. Main Street hasn't. We need to rebalance this, right? Think about what they're saying. Think about, you can argue, well, they won't be able to do it. They might not be able to do it. But if they do it, guys, it means a weaker dollar. It means lower capital account surplus. It means at a bare minimum, US stocks

underperform the rest of the world and other assets outperform. And that's really all you've got to think about, right? And stop listening to these talking heads, cheerleaders on CNBC because it's always about the flow of money and it's always about the dollar.

And Julian, that quote you said of Wall Street's done well, it's time for Main Street to do well. That is a quote from Treasury Secretary Scott Besson, who is viewed as one of the most moderate voices in the Trump administration when it comes to tariffs. Julian, when you came on Monetary Matters one to two months ago, you said that you were confident in the outperformance of foreign stock markets over the United States stock market.

And you said there were two ways that that could go. Number one is the U.S. assets kind of float sideways to down and European and Asian markets actually are flat to up. So it's pretty steady. Number two is Asian and European stock markets are down and the U.S. stock market absolutely falls out of bed. Which option is looking more likely right now?

Well, obviously what we've had is basically the latter. We've had European stocks and Asian stocks up until very, very recently when I think what we had was just sort of what's referred to in the market as a VAR event. So you had this sort of degracing of leverage books as leverage investors were forced to sort of cut all sorts of positions, including their winners. But up until very, very recent, Jack, we've had this absolute outperformance of leverage

Europe and Asia as the US has gone down. It's quite unusual. That's quite unusual to have the US go down as other things really go up. I think, as I said, our initial target on the S&P was 5,000. I want to see how we trade in this bounce. But I really, as I said, I worry, Jack, that we have not flushed

really investors out. We had a spike involved. We've got down all the sort of technical players look like an extreme kind of move. So things have to just sort of settle a little bit here. The dust has to settle. But the underlying flows, I don't think, have changed. And I think depending on how the economy goes, Jack, if we go into recession, in other words, and I think that will dictate the next leg. So if we go into recession,

I would expect a down move on the S&P, you know, which takes us probably down about 30%. So you're looking in the force and that would be definitely that sort of latter ugly kind of outcome.

And so are the foreign stock markets flat to down, just not down as much as U.S. stock markets? We call it the nice nasty phase, right? So the nice... How do you rotate? Look at it over agents, right? Between European stocks down here, U.S. stocks down here. How do you...

narrow that divergence one or two ways. You can have it nice, so European stocks just rise, US stocks go sideways, or you can have it nasty, where these drop really hard and European stocks go down a bit. And this is what we've obviously seen because this was the one that was owned. US stocks were owned. European stocks were not as heavily owned, right? So you sell what you own. So I still think that there is a significant risk of a nasty downturn.

And I think that's historically what we do. I think, you know, you go back to the 70s, you go back to the 30s, you go back to the dot-com bubble. I think that risk is still there, but it will depend on whether we go into a recession or not. If we don't go to a recession, we just avoid it, but we get there.

sort of Plaza 2.0 kind of accord or Mar-a-Lago accord and we come in and we're intervening to push the dollar thing, then maybe just US stocks just underperform. Americans stop going off to Europe. Scott said the other day that we had the largest number of Americans ever go to Europe versus the largest number of Americans who had to access a food supply.

health, right? I mean, those are just horrible things. So just this kind of reset, I think, is necessary, as I said. I think defines it, Jack, will be, do we go into recession or not? And it's, as I said to you, I think the risks are there. The setup is there. This weakening labor market with an equity correction is very dangerous dynamic, but we need...

to see it in the hard data. We need to see those layoffs. That's ultimately what will trigger that next move. And Julian, what about bonds? When stock markets knell off, bonds are supposed to rally, right? But we've seen the opposite. And maybe it was bonds also that triggered President Trump to soften his tariff views. I think definitively the case, Jack. I think it absolutely was bonds. So I, as I said, I've been into this business too many years and I will

I date myself by saying that when I was at Lehman Brothers, which in the late '80s, we used to have this expression called a sell the US moment. So a sell the US moment was you sold dollars, you sold US stocks, and you sold US bonds. And I've probably seen them five times in my career.

They generally don't last, Jack, because they demand a response from policymakers. It's like an untenable, you know, the Armageddon out of here kind of Armageddon type move. They demand a response. So I think that's definitively what we saw. And the bottom of it is just too big.

to allow that thing to happen. Now, I think it was handy that we got a great 10-year auction where the indirect bidders hit a historic high. You know, did they have a phone call? But everyone's got letters to play, and I think it would be stupid to assume that they don't use these things. But I do worry that in a world where the dollar is less attractive,

where we are not dealing with the fiscal deficit, despite the spin from Doge, it's not happening. Where if we go into recession, our needs for funding will rise because the deficit will increase as automatic stabilizers, welfare payments, as something unemployment kicks in and tax revenues decline. And where I think, you know, frankly, Treasury's

are an instrument of confiscation, as indeed they are for most developed bond markets around the world. And I think we also should understand that Europe is spending an awful lot of money. They're issuing debt. China is issuing a lot of debt to offset its spending. And we're in a world where one of our structural themes, Jack, is that we're in a world of shrinking global savings.

And that just means that the general trend for bond yields is up and to the right for the next 20 years. Sure, in a recession, we go to 3% in your treasury yields. But I, you know, and as specifically for last week, I mean,

We had some leverage degrossing. There were these basis trades, trade between futures and cash bonds that came down. We had a VAR event. So hedge funds who were long treasuries, which was quite a popular trade, had to kind of kick those into touch. But did we see some real money sovereign selling? And I think the answer is yes, Jack, because that's

when you look at the bond spread and what the bond spread did, say between bunds and 10-year treasuries, it blew out in a way that suggested that far from being up, the Euro should have been down against the dollar. And that suggests to me that that was real money going, I'm out of my treasuries, I'm switching into bunds, and I'm doing the FX conversion. And so I do think

that it goes back once again to we've been living on the kindness of foreigners and we've just given them the bird at best, at best, right? We are kind of acting, I mean, to be brutally honest, like the Sopranos, right? We're just demanding protection money. And the biggest global saver in the world, we've actually launched a true economic war, right?

on. 100% tariff is an economic war. At the same time, we're tightening restrictions on the export of the technology and all this sort of stuff. This is an economic war. And as I said, we have our vulnerabilities too. So long-term, you said 20 years, you are a secular bear on US treasuries, yields going up, prices going down. Unless we're going to print the money and buy them ourselves, that has other consequences.

Yes. But on a more shorter term, six-month, one-year view, do you have a view? So I think the bond market is probably, from a directional perspective, is one of the harder markets to call because of this

you know, which way do we go? Do we slip in? Do we skirt a recession? Do we go into recession? I do think the inflation pulse is coming. So don't really like the long end bond market. I don't mind being invested if you've got cash in, you know, in the shorter end of the bond market. And if you're trading the bond market, I'm in favor of steepener. So yields relative long-term yields versus short-term yields. We've looked at five thirties.

We think those continue to rise. But the steepener works from, it's a kind of odd trade, Jack. It's probably a bit esoteric for some of the viewers, but it works in both a recessionary kind of environment and a potentially bond problem, deficit blowout kind of environment. So that's what we like. You like the steepeners. And Julian, what about gold, which is on an absolute tear? Yeah, it is.

So structurally very, very bullish. Secularly very, very bullish on gold. Very bullish on silver too. I do warn people that some of the technical targets, you know, like some of the technical guys that I really like could be talking 125, 150 on say silver, you know, like 1200 bucks on gold.

I worry that, and you get some of the enthusiasts like, whoa, and I'm like, just temper that enthusiasm because you may not like the world that is necessary to create $12,000 for gold. But we are bullish, Jack. I do worry that if we're going to get another wave of this weakness, inequities in the US and more of this risk off,

But it's owned now. And so I'm kind of running close stops on my personal positions and looking. And if I get taken out gray and then I'll look to buy a dip because I think we possibly could get one to like twenty six hundred, twenty eight hundred again. And then I think at that point you back up the truck. But yeah, it's had a very, very good run. I mean, we bought it at the end of last year and so we had a very good run.

on that for our retail clients. Yeah, that's a great call by you. It's now at $3,200. And so you think that it is short-term overdone and it could be- It's getting overdone, Jack. I mean, look, it's very extended. I think that it's become-

We do believe that this is sort of strong hand, weak hands transfer going in, but there's a lot of weaker hands that have recently. So sort of selling from retail into central banks last year, that was kind of the theme and that's why we were bullish. But those weak hands, that sort of retail and trader money has come into the trade now and is long.

And if we get a shakeout in stocks, if we do eventually break and go lower down to that 4,000 level, I think it's unrealistic to assume that those weak hands won't have to puke the trade out. And so, you know, that's when if you're a long-term investor, you go, thank you very much.

So, Julian, what are you seeing when you're watching the tape that's revealing about who is the buyer or seller of all the assets that we've talked about? You hinted at it earlier. You think you're seeing some selling out of sovereigns because the spread between German blooms and the U.S. Treasury yields.

are going in a certain way while the dollar is weakening, when actually most of the time you'd expect the dollar to strengthen. Okay. Give us more market color like that. And can you also talk about the

the stock market? Is a lot of the selling, the money leaving the United States to go to Europe or Asia, is that from US domestic investors who are overweight the US and are now reallocating? Or is it from those foreign investors who were also overweight and now are bringing the money back home? Will Barron: Yeah. So I think we've suggested to clients that you look at the price action of the S&P 500

in the overnight session. So the cash session runs from 9.30 to 4.15 or whatever it is. US trading hours, basically. And that's where most of the domestic execution gets done and a lot of foreign stuff. But there is this sort of overnight session. S&Ps trade all 24 hours a day.

And that price action can be quite an interesting tell in that overnight session. So if you run into a period where, which is what we've been seeing, that you open up and the market is weak, and the dollar, let's say, is soft at the same time in that overnight session, and then domestics come in and go, ooh, it's cheap, I'm going to buy a bit more. And then they sort of rally it up in the trading session. Then the following day,

It's just down again on the earth and down again on the earth. And that's to me, that's real money, foreign selling, you know, selling. And I would caution any U.S. domestic investors to stand heavily against that. I think that's a very dangerous price action for the long term health and relative outperformance of the U.S. equity market.

The currency is very important. It's very, very important, Jack. I mean, we've taken out multi, multi-year trend lines in the euro, dollar Swiss, dollar yen, dollar stocky, etc.

blown through these trend lines. So could we go back and test them? I'd love that. I'd love to get that sort of opportunity. But those trends look like they have truly, truly broken. And yeah, I mean, those are the sort of things that I'm watching very, very closely. It's that to see if, because it's quite hard to kind of figure out. And the other thing finally that I want to see is, as I said earlier, I'm looking at some of these

ETFs. There's a great one called Mags. So Mags is the Magnificent Seven ETF. I'm not sure on Bloomberg, obviously a lot of the listeners will not have Bloomberg. You might be able to get shares outstanding. You probably can on some of these other platforms. I just don't use them. Keep an eye on that shares outstanding. As I said, it's risen.

It hasn't declined. It's sitting at its absolute high, even though that has dropped. And to me, that's an indication of this sort of commitment. And we saw it in some of the market data. So B of A has that fantastic flow show survey where they show retail investors like the most active ever two or three months ago. And these guys have just kept growing.

Kept the faith, right? But this is US retail money and they own these shares. Okay, great. I mean, if foreigners were going to buy and they have someone to offload them to as the market rose, but I think foreigners are going to sell. And all right, we technically hit exactly the target that I was looking for on the mags.

thing, we're bouncing. But what if we break through that low? At what point do you see that capitulation trade? And those are sort of... When you look at market dynamics like this, Jack, and it's very important, it isn't just on things like RSI, because RSI can remain oversold and fat or overbought. That's when you get typically your most explosive moves, right? Just think about, if you're a US investor, just think about...

what the rest of the world is doing, because it's the rest of the world that's driven the PE multiplication that we've had in the S&P, right?

the money goes home, the P/Es could go down to 15. Don't listen to the analysts on CNBC who are just these US-centric wealth managers because they never consider the dollar. They don't understand the dollar. They don't think it makes a half-pence worth of difference. It's all about the fundamentals. No, the dollar drives absolutely everything

And if the dollar is declining, that is going to have unbelievably profound implications, which is why, as I've said at the beginning, Jack Huckle, this is macro's time. And Julian, your view on bonds, your bearish view on U.S. stocks and stocks in general, and your bearish view on the U.S. dollar...

Tell us how you think those views interact with the Trump administration's put or lack thereof on those asset classes. Because with regards to the dollar, it's possible the Trump administration may be actually at your back because they may have a policy of welcoming implicitly or otherwise investors.

a weakening of the US dollar, but they certainly don't want bond yields higher. They certainly don't want stocks to crash. Maybe they're fine with stock markets going down a little bit. Tell us the roughly levels of pain you think in those three assets, bond stocks and the dollar, that the Trump administration would be willing to accept

before they do a capitulation or a somewhat reversal where, oh, actually, the retaliatory tariffs that in 90 days. Not this week. Yeah, yeah, yeah. They'll be actually in 90 more days or 10%. What's the level of pain? So look, I think as we discussed earlier, Jack, I think we saw the wobble, right? And I think it was a combination of all that, the sell-off inequities getting down to that sort of 5,000 levels, 20% correction, you know,

pretty decent size corrections that we'd sort of seen. And, sorry, not 20%, but we were down quite a sizable amount of the lows, not quite 20%. So then we saw the bond market weakness, and I think that's the one that really freaked these guys out.

The speed of the moves were just, I mean, Jack, these were insane, right? They did 70 basis points on the 30-year treasury in like three days. Bloody unbelievable, right? So I don't think they care about the dollar, I think, except for the fact that I think what they're trying to do is they want to maintain the dollar as the reserve currency, which they absolutely should, but

There's a difference between having a strong, a high dollar and a low dollar, let me say that, and an implicitly strong dollar where the economic fundamentals support the dollar and one that, you know, where the dollar is inherently weak and the economic fundamentals don't support that. So to your point, I think that's a given. Now, where's the put? Look, we obviously found the put in the equity market, the short-term put, but if this thing bounces and goes back down,

There are not many options that they can achieve. I mean, how do they, they don't get, I mean, they can roll back the tariffs, right? But this is a, that would mean abandoning their whole agenda, Jack. And I think that's just not good, right? So I think the speed move on level per se, you know, I think in an ideal world, they'd have the US equity market just sit here and go nowhere for the next five years, right?

But we will see. I mean, you know, as I said, I'm not overly surprised if we go into recession that we could see 30% top to bottom in the Euro Secretary market. I think that would be a relatively standard scenario. But at that point, then the Fed put comes into place and then the Fed is cutting rates and, you know, we get a standard recovery. To the bond market, they have nothing they can do on the bond market, really. I mean, they can...

They can shift more issuance to the front end. This is government, right? Treasury. You can shift more issuance to the front end. They can kind of ask some favors around the world. You know, Japan will use Sharper the Auction, but you can't do that many times. They don't get to control the deficit per se. It looks like they're already, they're running into problems in Congress, you know, and getting those spending cuts through and Doge's expectations of being scaled back. So you're really down to the Fed, right?

So if you got a situation where what the professional market calls that Liz Truss moment, where the bond market turns around to you and says, no, no, you are not running any more deficit. You are not increasing the deficit. We are not interested in buying your paper.

And I think we're frighteningly close to those sorts of things, Jack. We wrote about this position where you become essentially, you get what is referred to as fiscal dominance. So fiscal dominance is very simple. Central bank, typically inflation employment, certainly the Fed, most other central banks just focus on inflation. But there comes a point

If you get to a point where the bond market is disorderly and they are not willing to buy your paper and it's beginning to threaten to some sort of doom loop solvency situation where your banks are under pressure because they own a lot of, you know, we saw this in Italy, right, in the debt crisis in the early 2000s.

2010s, where the banks are under pressure because they own a lot of the US treasuries, where there's no bid for the long end because they don't think the US is either good or the dollar's too weak or whatever. So what does then happen is you can get to a point where the central bank is forced to cross a Rubicon.

where it goes from prioritizing employment and inflation to going to prioritize, as my good friend Mike Taylor talks about, the solvency of their boss, which is government. And at that point, you get QE and...

The problem is, is that has other consequences, right? Then the currency, unless other countries are doing it at the same time, gets annihilated. That's when gold goes parabolic. That's when silver goes parabolic. That's even when potentially, even though I'm not a huge fan, Bitcoin goes parabolic. But it isn't a world that any of us really want, right? You know, you're playing with the sort of foothills of the sort of

Weimar Republic kind banana Republic kind of thing and it's it would be an appalling place to end up in right but you

You could get there, Jack. You could. It's not impossible to imagine if we do go into recession, for example, that the deficit is increasing anyway. And then the Trump administration is desperate, heading into the midterms to try and boost that economy. So it says, okay, we're pushing, we're rolling over the TCJA. We're pushing through all those other tax cuts that we wanted. And we're not offsetting any of them. And then the bond market goes, right? You know, so I...

This is this is it's possible. It's possible. Julian, we're almost done. I just want to remind our listeners that people can check out your product, Macro Capture, and get a 10% discount if you're a Monetary Matters listener. We've got annual and quarterly subscriptions. So the coupon code is MM10 for an annual subscription and for quarterly, it is MM1010.

So click the link in the description, which is mi2partners.com slash macrocapture dash landing dash page slash. That will be, of course, in the description. And then make the decision annual MM10 quarterly MM10Q. Julian, I want to close by asking you about a trade that you put on for, you recommended to clients before Liberation Day, which was a put on HYG. 78 put and the,

75 put, so a put spread. That clearly worked out. Tell us about what motivated you to have that trade as well as now that it's worked out and then credit has since rebounded alongside the stocks. What is your view on credit now and how are you viewing the risk reward of, for example, shorting stocks via puts versus shorting credit via puts or if you're institutional, obviously, credit default swaps? So we've used

HYG in the past because it's actually a really nice trading vehicle because it tends to track sideways for long extended periods of time. That tends to lead to vol getting quite suppressed jack. So if you catch it right, and we've got some metrics that we use that have historically worked out quite well.

And I will say, actually, we jumped the gun a little bit because we thought it was going to go and it was the right thing to do. But we still don't technically have our sell signal yet. So I think this trade is still embryonic. But what tends to happen is you get these explosive moves.

So this is a classic kind of sits here, sits here, sits here kind of trade and then wham, right? Or likewise up off the lows. But after extended periods where you've gone sort of sideways to up for a long period of time, as I said, vols come in and you can create some very nice risk reward option structures. And that's exactly what we did.

So where do we stand from here? So we dropped all the way down. I'm sort of looking at it now. We got all the way down to like 75. We bounced back to the 77 and a third or something like that. So I would love it if we could get back to 78 and a half.

I would sell more. I would enter the trade. I don't think, unfortunately, you're going to get such good vol entry again. But, you know, at this point, you're trading your delta explosion. You have to on these things on the back of this. And I think the ultimate target is probably around. Well, when I say ultimate, I would say my next target is really like 73 and a half, which is.

you know, is just a trend line kind of off 2020 lows. It's a decent one. Now, if that breaks, then we could have something pretty ugly. You could go all the way to 70. But that's not, you know, this is a way of, we found it as a good way for people to protect their portfolio. It's a cheap protection. The time decay is not bad. You know, it's just a great little trick and trade that we've used.

Yeah, I think you also did that in 2022. And there, I think it worked out because credit spread widened and the risk-free rate went up as well. Julian, if high-yield spreads go up a bunch and blow out, what do you think is going to happen to the edifice of private credit and structured credit broadly, which is something that most investors don't really see, but is very important to how deals are done on Wall Street? So I...

You know, it's a very difficult sector to get any sense of, to your point, of what's going on. The opacity is very low when you look at that space. But I tweeted out the other day, and I'm deeply suspicious about this.

um this desire to get 401k money to be able to buy private equity um i'm not the only one the ocd came out with a report the other day where they talked about how higher interest rates have tracked a lot of private deals uh i'm very worried as well by some of the steps um

in the Trump administration around college endowment funds. These guys are big users of private equity. And, you know, there was this comment about taxing Harvard. I'm not saying that's the wrong thing. I actually think kind of they should be taxed. I've got friends who've gone there and they said they've just run out of things to concrete over and they just knock down buildings and rebuild them again. So don't get me wrong. I think there's some justification in that, just as I think there's some justification for Apple to pay some taxes.

But all of this stuff has consequences. So I'm actually quite worried by the private equity space if we are moving into an environment where they just can't offload these deals. I think people forget that private equity in a way is the gift that can keep taking. So every year you can get a call from your private equity guy and saying, we need another

hundred grand against your deal. Well, obviously not if you're Harvard, it's many. So then you have to sell what you can and what you do. And once again, it's emblematic of this assumption, which was never our assumption back in 2014 and '15 and '16, that negative interest rates were here to stay and we could just finance stuff forever. And we were just saying,

the cycle, we're at the lows, this is it, right? If it hadn't been for COVID, I don't think the low in bond yields would have been in 2016, Jack. So in a way, we kind of, lucky, I mean, that's the wrong way to put it, but you've got that next down pulse only simply because of COVID. And I think the trend in global interest rates is, as I said, is up and to the right. And the consequences of that

I don't think people have got their heads around. I still think there are people, you know, Raoul still believes that we're somehow going to get, you know, back to those sort of lower levels and, and, you know,

that we're following some Japanese model. And I think it's fundamentally wrong. I think, you know, we could get back there, as I said, but it'll be because central banks will have to come and cap yields and that will have other consequences. Julian, it's been an absolute pleasure getting you back here on Monetary Matters. People want to find out about how they can get that 10% off to macro capture. Click the link in the description and remember, use the codes MM10 for annual and MM10

10Q for quarterly. Julian, just what do people, when they get macrocapture, tell us what they get, like the reports, how long they are and how often they come out. So it's a sort of, there's typically a report a week. You know, we'll do flash updates as to when we think something is important. You know, we put one of those out.

Just to remind people when we got down towards that sort of 5,000 level that this is where we thought it was going initially. And, you know, it's a combination of our sort of structural views of the world. So to give you that framework so you can think and start to develop your own knowledge and some of those trading kind of views and some of the views that we are looking at. You know, we're not offering a portfolio. We're not giving you the portfolio

perfect sort of portfolio, you know, in terms of specifically, you know, how you have your asset allocation, we don't run into 60-40 sort of stuff. But, you know, we really want to emphasize and teach people how at these true inflection points, Jack, which come about every, you know, five, 10 years, just now is the time to

to be doing this um and uh yeah and we have chats we have videos you know i we tend to keep it internal i think there's a lot of people like yourself who are getting lots of people uh on and and you know we'll be trading we'll surely be as i said the big thing is is beyond this education process it's and and showing you the charts and the things we're watching at is

actionable trades, which I can't give away on things like your show because that are monetary matters. I can talk about the framework, but there's a big difference there in actually making the money. Definitely. But we could do the HYG thing that you already did. You can. I'll give you that one for free. All right. We appreciate that. Julian, thanks so much for coming on Monetary Matters. Thank you, everyone, for listening. In addition to, of course, checking out

macro capture and the associated deal for monetary matters listeners remember to check out the show on youtube please subscribe if you don't already as well as on apple podcast spotify wherever else you find your podcast and also please leave a rating and review it really helps the show thanks again julian until next time thanks jack very very excited thank you just close this door