maa photoPlease 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 Martin Armstrong from Armstrong Economics and Martin thanks so much for coming on the program, I'm particularly interested to get your views on equities because we've had so many bearish guests, we've been looking for someone with a well-considered and intelligent bull view to counter that.

But before we go there why don't we start with the U.S. dollar because I think that some of the international capital interactions are going to play into your equity view. So, what do you see in the U.S. dollar? Some people are saying it's rolling over, the rally is done, other people are saying it's just taking a pause.

Martin:           Now it's just basically in a temporary pause right now because of the French elections, actually you have people that are just diehard pessimists and you have other people that are optimists and. In the case of the euro the optimists, it's more like-- I used to have an old professor who explained the difference between the two, he says they're on top of the World Trade Center and a good wind blows them off, he says pessimist immediately starts praying, the optimist says he’s passing the four fourth floors well so far so good.

DDB Headshot NewPlease 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 noted author Danielle DiMartino Booth who wrote of course the book Fed Up which has gotten a lot of attention recently. Danielle, I read your book cover to cover this weekend and I'm really glad that I did because frankly it's not about what I thought it was going to be about and I found it much more interesting than I expected. I want to come back to that later but I just want to share with you, reading the book just kept reminding me of this movie that I saw years and years ago it was a documentary about the space shuttle Challenger disaster and of course NASA’s party line was this was unforeseeable it was just a horrible unforeseeable terrible disaster.

As it turns out there was actually an engineer who at every turn was trying to warn people saying look there was badly scorched solid rocket boosters, there was blow by past the O-rings that clearly indicates that we have a flight risk problem, we need to do something, there was just one problem, this wasn't one of NASA’s Ph. D. scientists, this guy only had a master's degree he was a lowly engineer and they would not take him seriously.

Danielle, you are that guy, but twenty years later at the Fed and it's not O-rings things this time, its housing crisis and it's amazing it was amazing to me reading the book.

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.

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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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