Luke prepared a slide deck for today’s conversation. I strongly encourage everyone to download it. You’ll find the download link in your Research Roundup email or if you’re not yet registered just look for the red button labeled Looking for the Downloads next to Luke’s picture on our home page at macrovoices.com.
Luke, it’s been too long. Thanks for coming back on the program. You’ve had some very, very outspoken views. And when you first started writing about this stuff years ago, everybody thought you were completely crazy. Now what I’m hearing from a lot of people is maybe they think you’re early, but they don’t think you’re crazy anymore.
For people who aren’t familiar with your views, why don’t we just go ahead and dive into your slide deck? Tell us why you see the whole situation around the US dollar, US Treasury market, and so forth a little differently than the mainstream that you hear about on CNBC and Bloomberg.
Erik: Joining me next on the program is Francesco Filia from Fasanara Capital. Francesco, thank you so much for coming back on the program. Before we get into your slide deck, which listeners can find the download link for in the Research Roundup email, or on the home page you can look next to Francesco’s picture. If you’re not yet registered, look for the button that says Looking for the Downloads.
We do have a great slide deck coming up. But before we even get into that, I want to just remind our listeners that the first time that we interviewed Francesco on this program, his prediction was a blowup in the VIX complex. Now, we tend to give a lot of credit to Chris Cole for making that call. Really, Chris is the guy who made that call the week before it happened, on this program, and it just felt so timely.
But if you go back and listen to Francesco’s interview from several months earlier, he really predicted the same thing. So, Francesco, congratulations, you got the call right on the volatility complex blowing up as it did back in February of 2018.
Now, as I begin to look at your slide deck, as I get into Slide 3 here, you’re really looking for what sounds like not just maybe things are going to weaken, but you’re really looking for significant downside. A crash or a serious bear market.
First of all, am I correct to characterize that that is what you’re saying here? And, if so, why do you see that coming?
I’m so excited, Alex, to have you back on the program. It has been so long. You are an interest rates guy from way back. And, boy, interest rates – Treasury yields in particular – have everybody’s head spinning.
Before we go into rates, though, why don’t we start with the bigger picture of the business cycle. Is it finally over? For so long, a lot of sceptics were saying it’s overdue for this business cycle to be ending, credit cycle to be ending. But we kept getting proven wrong, and it had a little bit more left to it.
Is it finally done?
Alex: Well, first, I’m glad to be back as well. And, second, yes, it is done. And irrevocably. I called for the end of the business cycle, actually, exactly a year ago. I pinned my tweet that we were transitioning into the late-cycle dynamics, and I feel the last 12 months were following step-by-step exactly the playbook of the ending of the last two cycles. And I think where people have disagreements and feel certain things as being the signs of economic strength, those exact things actually historically indicated the end of the cycle.
I do want to let our listeners know that we are recording a week early in order to accommodate travel schedules, so our discussion about the markets will be about a week old. So we were not aware of anything that’s happened at the end of the last week or so.
Grant, I want to start with the big picture of markets, which doesn’t really have to be timely, which is okay.
Look, a lot of people, myself included, have said over and over again, this bull market is long in the tooth, it’s the longest one in history, it’s due to end. And we were proven wrong several times over and surprised by yet another round of all-time highs.
Have we finally gotten there? Is the top in for this cycle? Are we into at least a cyclical bear market? Or do you think maybe there’s a chance that one more time I’ll be proven wrong and we’ll be pushed to new highs?
Russell, thanks so much for joining us again on the program. Last time we had you on was back in May of last year. At that time, you told us that it was likely that there would be continued weakness in the Treasury bond market because, for the first time in many, many years, private savers had to finance what had become a situation of central banks being net sellers of Treasuries.
And, needless to see, we did see a big move up in Treasury yields since then, all the way up to 3.25%. Now it’s started to turn around. And I remember you also cautioned us – you said a lot of people really were convinced of an inflation prognosis. You said you thought that was not going to last.
So, as I see bond yields turning around, does that mean that the market is catching up with your expectation that deflation rather than inflation would rule the day? And where do you see Treasury yields going from here?