lance robertsPlease 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 Lance Roberts CIO and Clarity Financial and executive editor of Lance I really appreciate your coming on the program, I've been looking forward to this one and I just want to acknowledge for our listeners something I really respect about your style is I talk to a lot of our guests about this phenomenon that as far as I'm concerned, this whole bull market that we've seen since 2009 has really been driven by Fed liquidity and I get lots of head nods and mm-hmms and so forth. Your case you just go straight to let's put together a chart book and talk about hard data look at the charts and graphs.

So, I strongly recommend that our listeners download the book of charts that you sent us and why don't we jump right into it and talk about this because I think you share my view that this whole bull market has really been driven by liquidity but why don’t we start with page three of the download, talk us through this, what are we seeing here and is there any reason to think anything other than central bank liquidity is what's been driving this bull market.

Lance: Well you know the answer to your question is yes, a big driver has been central bank liquidity and of course from that there's been some other inputs in that which has certainly been beneficial to the extension of the bull market but if we extract out the liquidity that was being brought in by the central banks and of course the QE program specifically what you'll see is that the S&P would be trading probably closer to 15 or 1600 rather than 24 or 2500 and that's the extent to which the Federal Reserve interventions have done by injecting liquidity through the system.

But it's not been just the QE programs, there's also been a variety of other bailouts that have occurred along the way that have also helped fuel growth in terms of earnings and again there's a big differentiator between what's happened in the economy, really since 2009, if we take a look at earnings growth which is what happens at the bottom line of a balance sheet, that's grown by over about 230% during that nine-year period that's in total right.

So, if we go back to 2009 and look at earnings growth in total since that period of time, earnings growth at the bottom line has grown by about 230% but revenue what happens at the top line has only grown by about 23 to 25% so what's happening inside of balance sheets is because of the repeal of the FASB rule 157 which by the way is still repealed and allows banks to mark assets to fantasy values rather than having to mark them to fair market value, this has boosted earnings, this has created a lot of growth, of course, the wage cuts and cost reductions and productivity increases by corporations by tax write offs etc. have all gone down to the bottom line and created a push in earnings that really is not as a real as it sounds when you consider the slow growth in revenue that you've had at the top line.

Juliette DeclercqPlease 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 now is Juliette Declercq founder of JDI Research a boutique institutional advisory service that advises some of today's most successful portfolio managers.

Juliet we originally had you scheduled for an interview a couple of weeks ago, in advance of that you sent us a sample research note in which you expressed a bearish view on the U.S. dollar index, a bullish view on U.S. 10-year treasuries which at the time were yielding two spot sixty and a rather outspoken opinion that the upcoming FOMC meeting – which of course had not happened yet at that point – would not produce a hawkish surprise as a lot of people were thinking.

Now quite frankly Juliette I was long dollar index futures on the day that I received that note and I honestly, I looked at one on two spot eighty something and rising rapidly when I received your note and I thought, what the heck is this lady talking about.

Well of course you nailed all three of those calls perfectly. I wound up being stomped out of that trade at a ninety-eight handle. So, I wish I had followed your advice a bit sooner. But you actually, instead of coming into that interview gloating. You asked us to reschedule the interview because at that point after the FOMC meeting happened, you felt like, OK, it's no longer actionable. You wanted to give our listeners something actionable.

So, we shuffled the schedule a little bit and we've brought you back now when you were able to give us a new research note. So, I'd love to hear a little bit about how you got all those calls right.

But let's move on to your more recent work obviously out of respect for your paying subscribers we can't share fresh research with our audience but you were kind enough to share with us a research note from about ten days ago titled Red String of Fate Ties U.S. to China which you penned back on March 27th and which our listeners can find a link to in their research roundup email, if you're not registered yet just look for instructions on how to get registered next to Juliette's picture on our website.

You recommended adding to the 10-year long that you opened at two spot sixty at that point the 10-year was down to two spots forty-five, today it's around two spot thirty-three.

So, you're just mailing all of these calls. Why don't we start with the additional charts that you sent us which we've packaged in a separate PDF that download link is also in the research roundup email and then get into this research notes, so take it away.

julian brigden headshotPlease 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 Julian Brigden founder of Macro Intelligence 2 Partners. Julian of course has been one of our most favorite guests and you absolutely want the chart deck that accompanies this interview. We told you earlier in the program where you can find the download.

Julian why don’t we go ahead and jump right into the book of charts that you sent us, this first one is talking about the U.S. dollar and the effect, the knock-on effect on the shale bubble. So, let's talk about that connection.

Julian:  Right absolutely, so thanks very much for having me back on the show Erik first off and let's sort of do a little bit of background before we kick off. So, last time I was on in December we discussed how this sort of pause that we had in the dollar starting in 2016 unleashed this very powerful cyclical effect.

Obviously, we've all seen it in energy prices and how oil prices are percolating through into inflation. But I think what's also not quite as well understood is how that also manifest itself via that same sort of essentially base effect into the economic data, the growth data.

That is very simply because when we typically look – and this is something we talked about in December – when we typically look at growth data we very rarely look at the level of growth. What we typically discuss is the speed or the acceleration of growth and by that, I mean, month on month, quarter on quarter, year on year.

So, if you look at the first light in the pack and what we've done is we've taken wholesale sales for a whole bunch of various different components in the economy and you can see how the activity in the shale space influence some of these series.

Now we think that to a large extent you can explain some of the enormous growth divergences that we had between Europe and the United States in particular in sort of 2012, 13 and 14 via this build out of what was essentially a brand-new industry for the U.S.

So, then the dollar rally comes along starting in 2012 and accelerates obviously as we know in 2014 and the Fed busts their own bubble. The rig count absolutely collapses and implodes and you see it drags down the rate of change of a number of those key wholesale industries.

What's interesting though is that we've seen a bounce now. Now in absolute terms the rig count has risen reasonably substantial about 25, 26% but when you look at the rate of change of that rig count you can it’s up 80% and the same applies to petrochemicals and you're seeing some of the other stuff in some of these other metals and some of these other industries.

That's the point of this base effect and the same thing manifests itself if you look at the next chart to a large extent when you look at something like PMIs. PMIs are also a measurement at the end of the day of rate of change and not of the level.

Now I know a lot of people, I’m sure you're very familiar with Erik will say oh you know much below 48 and we’re moving into recession and generally that's sort of true but the rate of change element you can see here in stark contrast because you look at what happened in 2009, remember this is the depths of the GFC, the first half of the year growth was imploding, second half of the year recovered somewhat but essentially over the whole year we got zero growth and yet ISM went from the very low 30's up all the way to 60's why because essentially we were seeing the negative effect of 2008 dropout. We had this very powerful base effect.

So, to a large extent what we've seen is that in terms of some of these PMI data and that's what we were playing all of last year and what we said in December, we will come to a point where this thing will just naturally run its course. It just doesn't get any faster.

J ChristianPlease 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:       CPM Group founder Jeffrey Christian is back with us this week as our featured interview guest. Jeff, you are best known as a precious metals expert but I want to start today with the U.S. dollar because obviously, everything is priced in U.S. dollars.

Last time you were on this show most of our guests were just wildly bullish the U.S. dollar index, you had a different view you said you were biased to the upside but you thought more sideways was likely as opposed to a really big move up and you're definitely been proven right on that. So, where do you see it going from here?

Jeffrey: I guess I’m the comfortable slippers in the in the currency markets. I’m never exciting, sometimes I’m exciting but the last year or so we haven't really changed our view.

I still think that there is a little bit of upside on the dollar. It's interesting because a lot of people are talking about the dollar coming off and I don't see the dollar falling sharply because for the dollar to fall sharply you really have to have faith in Europe and faith in Europe is hard to come by.

Now it's all relative so with the Dutch election behind us, it's possible that you'll see a little bit more faith in Europe which could help bolster the euro a little bit more faith in the U.K. which seems unlikely because probably the Brexit talks are going to be extremely hostile and sloppy and they're not going to impress anybody with the intellectual quality of the conversation going on, on either side.

So, I think that that is actually supportive of the dollar so I don't necessarily see the dollar falling but by the flipside I don't necessarily see the dollar rising much more. So, we're still looking for it to move sideways with a slight upward bias but less dynamic than it was in 2015 or so. We sort of see the dollar relatively fairly valued about where it is right now.

Jonathan TepperPlease 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 2017-03-16 - Transcript of the Podcast Interview between Erik Townsend and Jonathan Tepper (543 KB)

Erik:                Joining me next on the program is Jonathan Tepper founder of Variant Perception. Jonathan for years now my thinking has been that this massive rally we've seen since 2009 is attributable primarily to excess liquidity that's generated by central bank policy.

You've done a huge amount of work on this subject and your conclusion has been that that excess liquidity may soon dry up and of course that would present a serious headwind for markets. So, please give us the whole back story here, where has all this liquidity been coming from for the last few years, why is it there and why do you think that that picture is about to change?

Jonathan:       Sure, thank you, so basically, we've done quite a lot of work at Variant Perception. We build traditional leading economic indicators but we spend an enormous amount of time focusing on global liquidity indicators and economic indicators tend to lead things like industrial production for example and retail sales, whereas liquidity interestingly tends to lead acid prices a lot more than it leads the overall economy.

You were just mentioning excess liquidity which we would distinguish from a straightforward liquidity so for example if you think about liquidity a lot of that can drive the real economy so if money is growing you could end up with more industrial activity, retail sales and then you can end up with inflation and an increase in the C.P.I. level.

If you're pumping in more money than the economy actually needs or that in fact inflation is generated then all that excess liquidity sort of above and beyond needs of the economy tends to go into financial assets and that could be commodities, stocks and real estate.

So, one of the things that we do at Variant Perception to help our clients who are primarily hedge funds, family offices and endowments is to track these ups and downs of not only excess liquidity we look at the global shape of the yield curve.

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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 Patrick Ceresna shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.

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