What Could Reverse This Market Meltdown? Tariffs Madness & Recession Panic! | Macro Monday ft. Mikkel Rosenvold and Andreas Steno Larsen
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Hi everyone, I'm Raoul Pal, the CEO and co-founder of Real Vision. Here at Real Vision, we're committed to give you the best knowledge, tools, and network to help you succeed in your financial future. If you're enjoying this podcast, please take a moment to give it a five-star rating. It truly helps us continue to bring top-tier content. Thank you so much. Hello out there and welcome to another edition of Macro Mondays. And what a Monday this has been, Andreas.

Obviously, the day is far from over for all the Americans just getting in and opening their terminals. But quite the day, Andreas. How's yours been? Well, you know, I decided to stay up Sunday night with the futures opening late Sunday European hours, right? And, you know, it felt like a zombie apocalypse when I saw the first couple of prints on the screen. Copper was down like 10% on the first trade.

NASDAQ traded, I think, 6%, 7% down. And at some point, it clearly was the worst three-day time span ever in history for both US but also equities in the rest of the world. I think China is down 11%, 12%, something like that today. So it's just outright bizarre what's going on. And I'm still struggling with the whole –

negotiation picture around tariffs and whether we should expect conciliatory news to come out of those anytime soon. I had kind of hoped for some sort of path ahead for these reciprocal tariffs.

But Peter Navarro, the trade advisor of Donald Trump, just keeps stating that it's about the trade deficits. And unless they close those deficits, we're not going to negotiate with anyone. That's not something you do overnight. It's going to take quarters or maybe even years to get there.

So, yeah, I kind of struggle to see any like conciliatory news out of those trade negotiations right now. So we need something else to back the market up. Yeah, we'll get to that, Andreas. Perhaps this being the new normal, we'll look into that. Hi, Raoul here.

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hugely tumultuous days. I think we've had some incredible months, but this probably tops it all. So obviously, just to get all that out of the way, my name is Mikkel Rosenvold. I'm joined by Andreas Denner. This is Macro Mondays. We're already getting ahead of ourselves here. So this is a sneak peek into the macro research that we do at Stenner Research, which we also publish on Real Vision.

this is the first in a double whammer of updates. Raul is doing a flash update with Julian Biddle here in a little bit. But first, us and Andreas. And last week, Andreas, we talked about

people were running out of safe havens, perhaps except fixed income. That wasn't the worst positioning if people have taken that. But I suspect a lot of people still got their fingers burned in equity space. So perhaps, Andreas, that's a good reminder to play our usual little cat phrase here that sometimes, yeah, let's just... Sometimes it may be good, sometimes it may be shit.

yeah yeah so um so andreas you you wanted me to show this uh this this quote um as an opening uh let me just get it up here just a second yeah it's there investing is the only business where things go on sale everyone runs out of the store and that's exactly what is happening right now um so i actually have a few remarks to that quote michael because

It happens often in financial markets that people get scared when there's a negative sentiment, when you see no positive news out of geopolitics and all of that. And often it's actually a pretty good idea to accumulate stuff when there's panic in markets, as we see right now. So I just wanted to stress that. On top of that,

And it's actually pretty interesting. The guy that we deal with in our hedge fund told me that the accumulative data from China overnight shows that

China actually bought quite a few commodities, so copper, silver, oil, stuff like that overnight. And it's actually very typical to see China taking advantage of situations like this because they have a strategic reserve that they can utilize in a situation like this. They can buy everything related to industrial metals and energy.

Pretty cheap right now. I think Scott Besson was quoted for saying over the weekend that we need to remember that everything just got extremely cheap last week, which is not unfair. I mean, it's a decent observation. We know that if we look three, six months ahead, stuff like copper, oil –

bond deals, mortgage yields, you typically use those to forecast what's going to happen ahead, right? And everything related to financial conditions have eased quite substantially during this panic. So let's see where we end up in a quarter or two. I'm not in camp structural panic here. I'm in camp liquidity squeeze.

And I'm curious to see whether we get the Federal Reserve involved at some point soon. We got a headline earlier today, Mikkel, that they've called for like a closed board meeting today for once that headline was actually true. So they're obviously discussing what to do. And I wouldn't rule out that they get involved already ahead of that meeting in May. There's a long time until May if we continue like this.

Okay, let's get back to that. Let's just roll out a little bit of the logic here. So obviously we got the liberation day, much, much heavier tariffs than what we anticipated. I think it's fair to say. And much less reciprocal, even if it's said so on the top of his charts there. It seems like, maybe you can confirm this to me, Andreas, that the algorithm or the formula behind these tariffs

these tariffs were simply to count the trade deficit of countries versus the US as a percentage and then take half of that. Was it really that simple, you think?

Yeah, it was. The funny thing is that if you ask a large language model such as ChatGPT to write a formula with a 10% lower barrier for trade and then go figure out how to add reciprocal tariffs on the rest of the world in a simple formula, it gives you this exact formula. But to some extent, I actually like the simplicity of it, Mikko. But the issue is

that if you're Vietnam or another emerging market country with manufacturing ops, the only way that you can solve this issue is to seize the local factories, basically. And I mean, it's not like...

will overnight see Nike withdrawing their manufacturing capacity from Vietnam, right? It will take quarters of years if they'll ever do it. And I think Dave Chappelle said this brilliantly. And I mean, I want to wear Nike. I don't want to make Nike, right? And that's the big schism here. Is it even feasible for Nike to bring

manufacturing back. Let me just bring up this meme from today. I don't know if you saw it, Andreas. A live photo from our own trading floor, almost. The boys practicing in the Patagonia vests and assembling iPhones. So this is perhaps the future now. I mean, Andreas, obviously, I think...

There's a lot of nonsense out there. I think one of the things we just need to pinpoint is that when you put, say, a 40% tariff on, say, China or more in Vietnam, it's not like that tariff is going to be planted directly on the consumer price of an iPhone, for instance. Some of it is going to be absorbed by the producer, the manufacturer, because at the end of the day, if the consumer has the same amount of money as yesterday, they're not going to be able to buy as many iPhones at heavily increased prices. But

So, Andreas, the initial reaction of many was obviously to expect this to cause a huge inflationary spike. That's not really what you're expecting. Could you just explain that logic? I know we've been into it before, but I think it's really crucial here. Yeah, so, and I still think this is one of the big battlegrounds for financial markets participants out there. We've seen bonds selling off into this recording.

Basically, due to fears of tariffs spiking input prices and leaving high consumer prices ahead. I mean, everything that we can monitor in real time points in the other direction.

Prices are falling apart. So price inflation is not going up. So I actually agree with Donald Trump there. Is that 4D chess? Of course, if you nuke the business cycle, prices will go down. I mean, it's not like it's a fantastic recipe, but it is the consequence of everything that's ongoing. Inflation will go down globally, at least for now. And

Look at trade statistics from the first quarter of the year. Everything was imported to the US ahead of this deadline. We all knew it was coming. And now we have inventories loaded with

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cheap stuff ahead of the tariffs deadline, right? And you have a demand side that is not really playing ball. So ultimately, this is not the environment where you increase your list prices, right? Or your shelf prices. That's not going to happen right now. So I think the inflation report that we'll get on Thursday for March will look incredibly soft. I've been saying that for a while. And I think that is ultimately going to be received as good news because

If you listen to Jay Powell on Friday, and I think we'll ultimately end up lamenting his message from Friday because he essentially said, we're in no rush. We have patience because we need to assess the outcome of inflation. I think the inflation report on Thursday will alleviate some of the fears within the Federal Reserve System that we actually have a massive inflation spike just ahead.

So is this the case, Andreas, because I'm wondering about the logics here. So we have a weak growth picture of people expecting almost a recession. I think it was Goldman Sachs that raised the probability of a recession just south of 50%. We have a benign inflation picture that should be cutting territory. But then at the same time, we have this nuclear bomb or this hand grenade that

that the Fed needs to assess the effects of. They need hard data for this. All the while, everyone is screaming for some help for equity markets. So what's this three, four-party cross-pressure that the Fed finds themselves in? What's most important for them, you think?

So I don't think the Fed will get involved until they can use the excuse that financial stability is threatened. That's typically what we see in times of market turmoil as the current one, that they wait until it is so crystal clear to everyone that they have to step in. And we've had three, four days in a row of extreme market conditions where

Without tariffs, they would certainly have already stepped in to some extent, either rhetorically or via some sort of liquidity interventions. Now they're waiting a little bit. So what's the playbook here? You can read my Sunday editorial in the Pro Macro tier if you want to figure out how to exactly assess this playbook. But

What we need to see before they step in is some sort of dash for cash. And what do I mean by that? Well, if gold sells off,

It's a clear sign that hedge funds and family offices, et cetera, they scramble for cash because they're asked for collateral by counterparts and so on and so forth. If the dollar turns bid, so if the dollar increases in price despite the risk-off scenario in the US, that's a bad sign. And if that happens alongside inflation expectations dropping in markets, then you have the cocktail where they need to step in.

And I don't think we're too far off it. What we saw just before going on air here was treasury selling off, gold starting to sell off, dollar turning bid against quite a few counterparts, and inflation expectations are not going up. This is the stuff that a liquidity squeeze is made of.

okay so so so what what's aside from the solo do you need to look at the yield curve to to understand when when when these financial conditions are are extreme enough or what what do you need to to to to keep a handle on here um so to be as specific as possible here uh i would watch the five year five year inflation swap uh you know powell mentioned inflation expectations two three four times on friday saying this

The overwhelming task of the Fed Reserve here is to ensure that long-term inflation expectations do not spiral out of control. They could not care less about that one-off spike in input prices from tariffs if, and I stress if, expectations remain low for future inflation, right? And if you look at some of the surveys, for example, the one from the University of Michigan, we see inflation expectations at decade highs, right?

And if you look beneath the hood in these surveys, it's very clear that the surveys is currently skewed because of the responses from Democrats. It was the other way around when Biden was in office, by the way.

So, you know, Democrats expect inflation to be 10 percent, while Republicans expect inflation to be negative or less or zero. So, you know, I'm not sure we can trust these surveys right now. I don't.

I put trust in live observations from Truflation, our own price scraping from the inflation market on Bloomberg, right? So the five-year inflation swap is basically what you need to watch. And if you don't have access to that, look at Truflation, for example. Their webpage is updated daily with some price prints. I think that's a decent gauge. Or else you could obviously watch the yield curve because I think you're absolutely right, Mikkel, that –

But ultimately, the market will force the Federal Reserve into action here. So when we're starting to see the yield curve pricing in rate cuts in May already, they're doing that now, June, et cetera, it will be very difficult for the Federal Reserve to say, hey, no, no, no, we're not going to do anything because then they will send the market even lower, right?

Yeah. So, Andreas, just a couple of listener questions here. Thank you to everyone asking them. We'll get around to as many as possible and please keep them coming. We have a couple of shows in the coming days where we can catch some of them as well. One from Aaron here also with the US 10-year going up again, doesn't that spell big trouble on the horizon? Do you see some of the big holders like Japan and China dumping their treasuries right now?

So it's actually funny that we get this question because the guy that I talked about dealing commodities showed me that China bought a lot of commodities overnight. And that makes a ton of sense for them to do since commodities are basically on fire sale right now.

But the next question I asked him was, do you think they're dumping their treasuries at the same time? Because the worst thing that could happen to Donald Trump right now would be to see a spike in oil prices alongside higher bond yields in the US. He's basically promising the exact opposite outcome of all of this, lower energy prices and lower bond yields. And

And the grand plan from Scott Besant, to the extent that he's involved in the decision-making, he didn't look like a guy involved in tariff decision-making, to be honest, when he was interviewed after the liberation day. But the grand plan from Scott Besant is certainly to try and ease financial conditions via energy prices, bond yields, and so on and so forth, right? To ensure that the economy gets this boost from lower inflation and lower bond yields.

which has been very, very needed after a couple of years of high bond yields and high inflation. So I don't have any evidence, but the price action is telling. And as I said last week, I think the risk reward is pretty okay in being long fixed income. But from a strategic standpoint,

I actually prefer to be long fixed income outside of the US because I don't really see a big risk of China dumping their German bunds right now because they're not fighting each other. While the US and China, they're fighting it. They're at war. This is within the realm of realistic outcomes that they start selling their treasuries. The reason why I don't consider it a base case that they sell their treasuries is that they

What they need is a weaker dollar, not a stronger dollar. And if they sell their treasuries, they get a stronger dollar. So it's the last thing they need for their local economy. But in times of war, just take the example of the Ukraine war, politicians can, to some extent, accept not picking the most rational economic outcomes.

Because if they want a long-term good economic outcome, it could be a good idea to put some pressure on the USD on the way, right? Very fair point addressed. Okay, I just want to spend a couple of minutes on the political picture here because it's

So many people seem to think they know what's going on. And to be completely frank, none of us really know what's going on inside this administration. Never mind inside Trump's head. We had one listener, Sarah, asking, do you think Trump finally decided to take his own advice and drink bleach? Is that what happened? Is he following the Mar-a-Lago Accord? So, Andreas, I think you already touched on some of the motives behind this. The way I see it is that...

The calculation behind these tariffs and the way it was set up signals to me that this is not about bringing tariffs down on a global level. This is not about starting a race to the bottom. This is not about reciprocity. This is about generating revenue. And if that's the case, then what's there to negotiate about? I mean, Trump mentioned that, OK, we can negotiate with Europe if they pay this –

a huge amount of money each year. So do you buy that? Do you think there's, there's even an opening for negotiations? So what you just stated there is exactly what Pete Navarro spent all weekend telling us. Yeah. Every time he had a microphone ahead of him, he said, there are no negotiations. And, you know,

As soon as you see the inflow of billions of dollars, and Trump is right that we'll see billions of dollars coming in as revenue, it's very difficult to just scrap that revenue source. It is. Just see how difficult it is to get tax cuts done elsewhere. So this is essentially a tax hike. We always discuss who's paying for it, but this is a tax hike. And

I'm not sure anymore. My initial reaction function kind of hinted that reciprocal tears would lead to a race to the bottom because it would be easy for counterparts to

to understand the reaction function of the trump administration you can do x to get z outcome right now you don't have that reaction function it's not clear how to get tariffs down again um and ultimately i think you're absolutely right trump will tell japan for example they've uh just uh you know told the press that they're negotiating with japan that okay we're getting

this revenue out of the tariffs from you, you'll have to pay us that exact amount of dollars elsewhere. Otherwise, we're not bringing them down. And that's a very, very different process than reciprocal tariffs.

And as you alluded to in the beginning of the show, Andres, it's very, very difficult for some of these countries to actually do something about this. It's an extreme example, but Madagascar, I think they were one of the countries to hit the very hardest because they happen to be producing a lot of vanilla, which the US needs for ice cream, for vanilla cokes, what have you. And they're so dirt poor, they're not buying anything American because they can't afford jeans. They can't afford... They don't have Netflix subscriptions. They don't buy B2B SaaS products. They just...

attention to the vanilla plantations, what on earth are they going to do? Are they going to burn all the vanilla? Are they going to stop selling it to the US to balance the trade budget with the US or the trade books? I mean, it's very, very hard to get the handle off. And then, as you mentioned, Pete Navarro, I think at the other end of the spectrum within the government, you have

I just want to show this tweet from Elon Musk today. Okay, Andreas, we shouldn't go too deep into this because is this the beginning of a break from Elon? I can't imagine Elon being a supporter of this. No, I mean...

I remember back in the early days, it feels like a couple of years ago, it's only a month ago or so, back in the early days of this administration, Elon kept tweeting about the progress made by Javier Mille down in Argentina based on cutting tariffs and cutting barriers and cutting government expenses and all of that, and cutting taxes, by the way. So I don't think Elon is ideologically aligned with this tariffs approach.

And the big news here is that he's starting to sort of sneak out some tweets that could be interpreted as some sort of revolt against the party stance here. But it's not crystal clear, right? He's just tweeting a video with Milton Friedman here telling us why global trade is good. Yeah.

I don't know, really. I'm guessing here, but it's kind of odd just to leave it hanging there, in a sense. And we obviously got that story from last week where Trump allegedly told some of his close allies that Elon would leave soon. But I guess that was kind of planned already since he's like an

external consultant for this storage product? I don't know. So, Mikkel, maybe we should discuss a few things around where do we go from here? Because I think it's kind of the base case now from all of the investment banks that will see a recession. And I'm not sure. I'm really not sure. I think it's blown out of proportion. Because look at it this way, Mikkel. The US economy is actually not particularly dependent on trade.

That's true.

But the US economy outside of the niche products such as vanilla and so on and so forth can actually survive for quite a while without a lot of imports, in my opinion. And we know that imports were extreme during the first quarter. So we've seen a lot of these supply chains being loaded up with imports ahead of the tariffs deadline. And we're actually seeing some pretty bullish signals out of the very domestic markets.

So I just want to show you a few examples of that. We have the truck market demand index, which is one of the better gauges of local demand. And this is basically an index of trucks driving from A to B in the U.S.,

truck miles, right? It's through the roof. But, you know, some of this is probably linked to, you know, stuff...

having to be moved from A to B ahead of the deadline last week. So, you know, you can see the spike through March. But still, you know, there was a lot of domestic activity ahead of that deadline. And maybe we'll see a headache during the second quarter. I'm not ruling that out. Then on the next chart, Michael, we have the local consumption, the retail sales. The Chicago Fed basically conducts

some sort of sample every week of the ultimate monthly number, one that we track very closely. And it actually looks pretty solid for March. So this complete landslide in activity that currently seems to be the base case is not really showing up anywhere in the hard data domestically, but it's showing up in one particular sector.

And that is everything related to foreigners. So I just wanted to show that as the last shot. I'm sorry to say this to all of the Americans watching this show. You're not going to see any tourists this year. And, you know, I'm not trying to pick a side in this conflict. I'm just merely stating a fact that bookings of flights and hotels and so on and so forth into the U.S.,

It's down the drain. And let me stress that it's down the drain, like 60%, 70% down if you look at it in forward bookings for this solder. So Trump has managed to piss off everyone on Earth, including the penguins. And that's just very visible in service sector data. And I think this is one of the exact reasons why we're seeing inflation coming down.

that the price of flights, the price of hotels, the price of restaurant visits and all of that is coming down because of a lack of demand. Uh, but the domestic economy is doing fine. Uh, we'll probably see an increase in manufacturing jobs in the U S everything that Trump is trying to orchestrate here, but it comes at a cost. And this cost is, I don't know whether this is transitory. Uh,

I personally wouldn't have anything against visiting the US, and I sincerely mean that when I say it. But everyone I talk to in Europe, they're like, no, it's not going to happen right now. Before we round off the show, you have a couple of minutes, two questions. When does this turn? When do we bottom in this? And until we bottom in this, what do you do? So,

The bottom is in when you get an official confirmation that the Federal Reserve gets involved or if you get a complete U-turn on tariffs. Those are the two things I watch. None of them are currently true. So I don't think the bottom is in, even though I've tried to say so a few weeks back. Sometimes maybe shit. But what do you do now? I think...

I think the best risk reward is to bet on commodity prices coming down because commodity prices are very linked to these discretionary spending decisions, such as flights, shipping data, all of that.

And we've seen copper coming down a lot. I think food commodities are bound for a substantial correction lower, coffee, cocoa, stuff like that. So I think that's the best advice I can give right now. And then unless China starts selling bonds right, left and center, and I don't consider that a base case, I think bond yields will come a lot lower as well. So fixed income is also good.

You can have a look at our long-ordered portfolio in the pro macro tier if you were interested in some of the more niche cases in equity space. I've actually managed to find a small handful of equities doing very well amidst this, which is almost a miracle. So go in there and have a look.

That's great stuff, Andreas. Well, thank you very much for joining, Andreas, in what's been a really, really busy day. It's sure to be a very, very busy week. We'll be back next Monday. Until then, remember to watch Raoul's show right after this. I believe you have a show with Raoul again tomorrow, is it, Andreas?

Yeah, I'm not sure whether it's going live already tomorrow, but we'll keep you posted on a running basis day in and day out. We know that you need updates daily here, so we'll do that. Absolutely. Stay tuned out there. Safe travels. We'll be back next week. If you like this episode, I'd love for you to head over to realvision.com forward slash join for a free membership. Start your journey today to unfuck your future. Just one click away.

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