Louis 201211Please note: this was transcribed to best of the ability of the transcriber and may have minor errors. Please refer to the podcast itself to clarify anything.    

Erik:              Joining me next on the program is Louis Vincent Gave of course from a very famous institutional advisor firm Gavekal headquartered in Hong Kong. Louis thanks so much for joining us.

I want to start by talking about you being headquartered in Hong Kong there. This whole China reflation trade, a year ago, the buzz was, “hey 2016 is going to be the year where China is forced to devalue markedly and that will send a massive deflationary shockwave around the world.” Well it didn't happen in 2016, how do you see this, is that really a risk, is that the right story, what's going on with China?

Louis:            To be honest, you're absolutely right, that’s been one of the biggest surprises of 2016. I think if you look back at the past year most people – and you talk about the surprises – most people talk about Trump and they talk about Brexit because this is what makes newspaper headlines. But you're absolutely right that a year ago, everyone thought China was going to implode.

Instead of imploding the government obviously re-stimulated the economy. You saw big spending from state owned enterprises, you saw oil imports go up 24% year on year in the first quarter, iron ore imports, copper imports everything goes through the roof in the first half of 2016 and instead of imploding China turned out to be reflationary force for the rest of the world to the point where actually today everybody talks about the Trump-flation and how the U.S. election has triggered a big reflationary trade for the world, for me it's not as much Trump and what's happening in the U.S. really as what occurred in China we had another round of fiscal stimulus just like we had in 2009,2010 and this led to rebound in commodities, rebound in Baltic Dry Index, rebound in steel prices.

Now interestingly I think if you project yourself forward to this summer – China basically stopped stimulating around the summer of 2016 and in fact starting in November, they started to tighten monetary policy, started to raise interest rates, started to lean on the banks to lend less – so if you project yourself to this summer the big risk for me is that perhaps – now there's reasons to think that reflation trade will continue and we can maybe go into that – but one of the risk is that as Chinese growth rolls over as the year on year comparisons for China get tougher what you will see in China is weaker growth starting this summer and that might start to curtail the reflation trade you're seeing on the markets today.

DSC06699 2Please note this was transcribed to best of the ability of the transcriber and may have minor errors. Please refer to the podcast itself to clarify anything.    

Erik:                Jeffrey Snider from Alhambra Partners joins me now as this week's featured interview guest. Jeff put together a fantastic book of charts and graphs to support this interview and I strongly encourage you to download it so that you can refer to it while you're listening.

Registered users at macrovoices.com will find the download link in your research roundup email. If you're not yet registered Patrick told you earlier in the show how to get registered and get the download.

Jeff your last interview back in August was one of our most popular shows ever. But we also lost a few people because we dove straight into the intricacies of the Eurodollar futures market without stopping to first define what a Eurodollar is and why that's important.

So, to set the stage for this interview the term Eurodollar refers to time deposits at banks outside the United States which are denominated in U.S. dollars so in other words U.S. dollars on deposit outside of the United States. The term Eurodollar originally referred to bank deposits in Europe but in today's usage it really refers to any place in the world that U.S. dollars are on deposit in banks other than U.S. banks.

Now at first glance it might seem that the Eurodollar market would only be of interest to international corporations who need to hold dollar denominated deposits around the world. So, it's tempting to question why an investor located in the United States would even care about Eurodollars.

So, Jeff let's start by answering that question what signals can the Eurodollar market give us about the global economy. Why is it so important for an investor who seeks to understand the global economy to understand the Eurodollar market and the messages that it’s sending us?

Jeffrey:            Well first of all Erik I want to thank you for having me back here I really appreciate the opportunity. I think you guys do a fantastic job with your podcast and I'm a big fan of it too. To answer your question, the Eurodollar is as you describe it. It's an offshore currency market of various forms and as it evolved in the last half century or so it's taken on far more proportions than just deposit accounts or vanilla currency transactions. In fact, it's become sort of ubiquitous. What I mean by that is that there's Eurodollars pretty much behind every facet of global finance and economy.

If you look back at 2008 for example, the panic in 2008 was actually a Eurodollar panic not specifically one of Wall Street but one of Lombard Street and you were correct to point out that the main Eurodollar is sort of a misnomer because it denotes any offshore currency transactions that happen all over the world. It just so happened that the earliest markets of these offshore dollar areas happen to be in Europe, London, Zurich, Frankfurt but there was Eurodollar markets all over the world. Montreal was one, Tokyo was another big one.

So, there's a global system that is a currency system, a reserve currency system, that really isn't currency though and it functions in a lot of ways that are to our first brush, kind of strange and unusual and maybe a little bit too unfamiliar to allow comfortable interpretation.

Jim Rogers largePlease note this was transcribed to best of the ability of the transcriber and may have minor errors. Please refer to the podcast itself to clarify anything.

Erik: Joining me next is a man who needs no introduction, investing legend, Jim Rogers. Jim when you appeared on this program one year ago, Macro Voices was brand new. We had no name, no reputation and no following yet despite having no regular audience following at that time, that one interview remains our most popular show ever with more than half again as many listener downloads as our next most popular interview with fund manager Hugh Hendry much more recently.

So congratulations on your top billing status and I have no doubt that you'll set a new record today.

Jim: Eric I think I should hang up now, while I’m ahead, are you kidding. With a record like that and an introduction like that I want to stop while I'm ahead.

Erik: Well before we let you go let's start with equity markets then because when we spoke a year ago you and I were both very concerned about markets being overvalued. You went out of your way to say that you didn't know whether it would happen in 2016 or 2017or 2018 but you felt that significant downside was ahead for the markets eventually.

And if I look back just six months ago a lot of industry luminaries, whether we think about guys like Ray Dalio, Stan Druckenmiller, Carl Icahn, these guys were all casting bearish views for a lot of the same reasons that you and I were.

Then Donald Trump was elected president and suddenly all of these guys turned super bullish. Ray Dalio seems to be backing away from that enthusiasm in the last week or two but the fact remains that some super talented people all turned bullish, super bullish after the election. Forgive me Jim, I'm just not seeing the logic to this are you?

Jim: Well yes and no. Mr. Trump said he's going to do some wonderful things. He's going to cut taxes which is always great for any society, any country. He said he's going to rebuild the infrastructure which America desperately needs and is good for America. He says he's going to bring home the three trillion dollars, U.S. dollars which American companies have overseas.

All of these things are wonderful, wonderful things and if he can do it Eric, wow things are going to be great.

But Mr. Trump has also said he's going to have trade war with China, Mexico, Japan, Korea a few other people that he has named. He swore that on his first day in office he would impose 45% tariffs against China. He's been there three weeks, two or three weeks and he hasn't done it yet but he still got it in his head I'm sure or maybe he's just another politician like all the rest of them. He says one thing and he doesn't mean it at all but he does have at least three people in high levels in his group who are very, very keen to have trade wars with China and other people.

If he does that Eric, it's all over. I mean history is very clear that trade wars always lead to problems, often to disaster, sometimes even to real war, a shooting war. So I don't know, I'm not sure Mr. Trump knows. He said so many things and many of the things are contradictory. Now if he's not going to have trade wars with various people then chances are for a while happy days are here.

JSchwager Photo Barcelona FINALPlease note this was transcribed to best of the ability of the transcriber and may have minor errors. Please refer to the podcast itself to clarify anything.

Download the full transcript: pdf 2017-02-02 - Transcript of the Podcast Interview between Erik Townsend and Jack Schwager (749 KB)

Erik:            Joining me now as this week's special guest is renowned author Jack Schwager. Jack is probably best known as the author of the infamous Market Wizard series which is a compendium of long form interviews with the very most successful traders and investors on earth. Jack is also the guy who wrote the Bible for futures traders.

Now back in my day the Bible was a three-volume series known as Schwager on Futures. These days the old and new testaments have been merged together into a single seven hundred plus page volume and that new book is called A Complete Guide to the Futures Market.

Our institutional listeners already understand the role that futures play in the global financial system but for the benefit of our sophisticated retail audience I'm going to begin by setting the stage with a brief introduction.

Originally, commodity futures contracts were used to trade the things that we traditionally think of as commodities, wheat, corn, soybeans, cocoa, sugar, copper, crude oil and so on and so forth but about twenty years ago, the landscape changed.

As financial exchanges became more competitive, the commodity futures exchanges realized that they had a significant leg up over the stock exchanges because they had vastly expanded trading hours and also because commodity futures contracts allowed traders to employ much more leverage than regulations allow stock traders to use.

Suddenly futures contracts were being used to trade financial instruments and today everything from stock indexes to interest rate products to foreign currencies can be traded on futures markets and unlike the stock market which is only open for six and a half hours a day most futures markets trade at least 23 hours a day. This gives the professional futures trader a huge leg up over stock traders.

If there's an earthquake off the coast of Chile at two o'clock in the morning the futures trader can put on a long trade on copper futures anticipating that the earthquake may affect the copper mines in Chile and they can do that the instant that the news is received or if they're sitting in Chile they can do it the instant that their house starts shaking. The stock trader on the other hand would have to wait until the Stock Exchange opens the next morning.

Now this doesn't seem terribly important for most retail investors but for hedge funds and prop trading desks and investment banks and so forth it's very important to be able to trade at almost any hour of the day in order to have an advantage and basically beat the people that are in the other markets to the trade.

So, with that background in place, we're going to dive into futures market trading. But Jack I think we have a responsibility to first address something that a lot of people frankly don't talk about and that is that futures trading is not for everyone. There's a statistic out there about how a huge percentage of retail investors who open futures accounts wind up losing substantially all of their money within a year.

When people ask me about futures the first thing I tell them is a phrase that I've coined which is futures are like firearms nothing wrong with either one of them but they're not toys and you don't just start playing with them to try to figure out how they work. If you try to do it that way you're going to get hurt very badly, you need to invest in your education first and really learn how these markets work.

So, let's start with who should consider getting involved with futures trading and who should stay away from futures trading and why.

David Rosenberg headshot HRPlease note this was transcribed to best of the ability of the transcriber and may have minor errors. Please refer to the podcast itself to clarify anything.

Download the full transcript: pdf 2017-01-26 - Transcript of the Podcast Interview between Erik Townsend and David Rosenberg (532 KB)

Erik: Joining me next is Gluskin Sheff Chief Economist David Rosenberg and of course Dave is the author of “Breakfast with Dave” probably one of the best and well known newsletter that's produced every single day in the industry. So, Dave thanks so much for joining us. I wanna start with your outlook on equities and frankly I'm not sure if I need to talk to an economist or a psychiatrist to get my head around this equity market but you know let's go back 3 to 6 months, we had the smartest guys in the room, Ray Dalio, Stan Drunkenmiller, Carl Icahn, they were all saying, I thought for very good reason's this market's overdone, it's over bought, you know it's gone too far. And now Donald Trump gets elected, this guy's gonna have more headwinds in terms of political opposition than any president in recent history, yet it seems that everybody has just decided that it's trade up and away from here. Overnight last night S&P futures touched 2999.50 so if the cash index had been trading, it would have broken 2300. Is it just me? I mean everybody's talking about the analogy to Trump is the new Ronald Reagan and I can't help but think wait a minute, first 2 years of Reagan's presidency was a massive bear market and recession. Am I missing something here Dave?

Dave: Well, you know the other thing, I don't think you're missing anything, no. I mean the Reagan presidency is well you know, and it goes to show in those first 2 years after the honeymoon period when the market is down 25%, that really basis-point-for-basis-point, what matters you know for the market is the shift in the market multiple as oppose to earnings growth and the Fed certainly showed its hands. Volcker raised and we had the recession starting 6 months after Reagan got elected. People looked benevolently of course and the entire Reagan regime entire 8 years and a lot of that wasn't just his pro-business stance but also the fact that the FED continued to cut interest rates that reinforced the expansion of the market multiple. But I remember that the starting point in 1982 for the bull market was a multiple that was 8, you know, not the 17 on forward and almost 20 on trailing and that point the onset of the bull market occurred in 1982 after a huge recession. This time around, not only are valuations at 15-year highs but we're entering it into the eighth year of the expansion of the bull market. You have to respect where were you are in the market cycle in the business expansion and we're much more mature now than we were in that early stage of Reagan or you can argue the early stage of Bill Clinton or Barrack Obama. I mean the benefit of being elected at the bottom of the cycle, then you can just ride it up and just take credit for it. I think that the challenge for Donald Trump with all deference to the animal spirit rally they were seeing right now is that the multiples are really stretched and that maybe if were not even in the ninth inning of the game here, we're certainly somewhere in or around the seventh inning stretch. So, the answer is no. It's not like Ronald Reagan at all in that regard.

Erik: And in terms of where we are and what comes next obviously as much as you and I see a lot of reason for concern here, you can't fight the tape and clearly the trend has been upward. So, are we gonna see several months do you think of exuberance over this election before reality sets in? And it seems to me like a lot of people seem to think we're in a new inflationary boom. You wrote an excellent piece back in December saying wait a minute, there's a lot of good reasons to think that Trump would bring back the disinflation trade. So, do you still see it that way and give us a little bit of background on where that viewpoint comes from?

MACRO VOICES is presented for informational and entertainment purposes only. The information presented in MACRO VOICES should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed on MACRO VOICES are those of the participants. MACRO VOICES, its producers, and hosts Erik Townsend and Nathan Egger shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.

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