Transcripts
Erik: Joining me now is John Greenwood, Chief Economist at Invesco.
And, listeners, John put together a fantastic chart book for us with some really excellent graphs and charts. I strongly encourage you to download the chart book. You’ll find the download link in your Research Roundup email. If you’re not yet registered, just go to our home page at macrovoices.com and look for the red button that says Looking for the Downloads next to John’s picture on our home page.
John, thanks so much for joining us. You know, we’ve had so many guests tell us that we are at the end of the business cycle, late cycle. And one of the reasons that Patrick, my producer, sought you out is because you are obviously a very credible voice – but one who does not think that we’re necessarily at the end of the business cycle.
So please tell us, where are we in the business cycle? And what should we expect?
John: Well, my view is that, broadly, we are at mid-cycle, not late cycle. I know the cycle has been going on for ten years almost. In fact, in June will be the 10th anniversary of the trough of the last business cycle. So we’ve been expanding for 10 years. And in July this current business cycle expansion will become the longest in recorded US financial history.
But, nevertheless, I believe that it has several years to run. And, basically, I think there are three reasons for that.
First, money growth has been low and stable.
Second, private sector leverage in the US remains low, despite some concerns about the non-financial corporate sector.
And, thirdly, inflation is not a threat, nor do we face a major financial accident. Those are the two main causes why previous business cycles have come to a premature end.
In my view, if we take a historical analogy, we’re at something like 1995 in the cycle that went from 1991 to 2001, which was the previous longest expansion cycle. So I think we have several years to go because the central bank, the Fed, doesn’t have to take any drastic action at this point. And I don’t believe that there are serious problems in the private sector that will cause a premature end to the expansion.
Erik: Joining me next on the program is Variant Perception’s managing director, Simon White. Simon’s got a fantastic slide deck for us, as Variant Perception always does. You can find the download link in your Research Roundup email. If you’re not registered yet, just go to our home page at MacroVoices.com and look for the red button that says Looking for the Downloads.
Simon, before we dive into the equity market, I know you guys at Variant Perception have a slightly different way of approaching markets. So let’s start by doing just a quick summary of the process that you use at Variant Perception to approach and analyze markets.
Simon: Thanks, Erik. And thanks for having me on the show again. So, as you say, I think what we’re trying to emphasize is it’s not so much what you think it’s how you think is very important. The slide deck you mentioned, there’s a very quick diagram there that I think really covers it.
We really try to focus on leading economic indicators because they tell us where things are going, not where things have been. And we use these to forecast turning points. And through these turning points, we basically look at markets.
But we look at markets through the prism of valuation, sentiment, and momentum. And then we try and look at the biggest mispricings to try and find the best trade ideas. So that’s the really succinct version. The aim is to really come up with actionable ideas and using leading economic data to try and find those ideas.
Erik: Joining me now is Charlie McElligott who heads up the global cross-asset macro strategy group for Nomura and is extremely well known for the CTA model which predicts when algorithmic traders will change their positioning.
Charlie put together a fantastic slide deck in support of today’s interview. Registered listeners can find the download link in your Research Roundup email. If you’re not yet registered, just go to our home page at macrovoices.com and look for the red button that says Looking for the Downloads? next to Charlie’s picture.
Charlie, it’s really great to have you back on the program, especially this week. There is so much to talk about that’s going on tactically, with moves in the market and fears about what might or might not happen with this trade deal and so forth.
But why don’t we start at a high level and begin with the big picture?
Last time we had you on the program, you told us to watch carefully as to what the market did in March. You said around the beginning or middle of March there was a risk that we might see a big selloff if we hit certain trigger levels. We started to see that start to come true.
But you also told us if we managed to get through the end of March and we still hadn’t gotten closing prints below those trigger levels, that it was a setup for a melt-up. And, of course, that’s exactly what has happened.
So, in terms of the big picture, late-cycle dynamics, and so forth, why don’t you give us an update on big picture macro landscape? And from there we can start to go deeper into this week’s tactical issues.
Erik: Joining me next on the program is Dr. Lacy Hunt, chief economist at Hoisington Investment Management.
Dr. Hunt, before we get started I just want to credit you and make sure our audience is aware, the last time that you were on the program, everybody and his brother was screaming at the top of their lungs, okay, look, that’s it. It’s clear, the bond bull market is clearly over. We’re headed to much higher yields.
The big number that everybody was watching was 3.10% on the 10-year yield. And so many people said, boy, if we get past that there’s no turning back, it’s the end of the world, the sky is falling, that’s it for the bond market.
And just as that was happening, we had you on the program. I believe it was the same week that we first broke 3.10%. And you were very confident and very assured and just saying, look, it’s lonely sometimes. But I’m sticking to my story. My fundamental view has not changed. It is very much opposite consensus and this is a buying opportunity for bonds, not a reason to panic.
That was so out of consensus at the time and, needless to say, you have been proven spot-on correct ever since then.
And I also want to just make our listeners aware this is not the first time that you’ve been out of consensus and correct. You’ve caught all of the major bull and bear markets in the bond market since the late 1970s. So congratulations for the excellent track record. And thanks so much for joining us again on the program.
Erik: Joining me now is Alhambra Investments Chief Investment Officer, Jeff Snider.
Jeff, thanks so much for joining us on the program, it’s great to have you back.
Jeff: Thanks, Erik, always a pleasure to be back with you.
Erik: Listeners, we’ve got a real treat for you. As many of you know, Jeff and I did a series called Eurodollar University, which was a chronological introduction to the Eurodollar system. We got from our most astute listeners who really dug into the material a lot of really positive feedback that it was some of the best content that we’d ever done. But we also got a bit of feedback from people who just said, look, I can tell that Jeff is a really smart guy, but this is a little over my head and I’m not really sure what the heck he’s talking about.
So what we’ve been trying to do – Jeff approached me about this in Vancouver, and we’ve been working together to try to recraft Eurodollar university, not from a chronological standpoint but more from a topological organization perspective.
So, Jeff, I want to start with what I think are some of your biggest and most bold contentions and ask you to address them in today’s interview.
We’ve been taught that the way the international monetary system works is the US dollar is the center of the whole thing. It’s the world’s reserve currency. And that means the US dollar is used for international trade settlement, and central bank reserve assets are denominated primarily in US dollars. And that puts the dollar at the center of the whole system.
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