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?
Erik: Joining me next on the program is Charlie McElligott, the man who both called the Christmas massacre event and was very outspoken in telling people that his CTA model was expecting a dramatic increase in the pace of selling if certain levels were hit, which they were. And, then right afterwards, called for there to be a relief rally, which is exactly what’s happened.
So, Charlie, congratulations. You are knocking it out of the park with the calls you’ve been making lately.
I want to start with China, because that’s what’s on everybody’s mind with the trade talks and so forth. Give us an update.
And also, we do have a chart deck from you. Listeners, you’ll find the download link in your Research Roundup email – or next to Charlie’s picture on our home page if you’re not yet registered.
Why don’t we jump into your chart book and talk about China? What is driving the situation, and how China is going to play into market action as this whole trade talk thing gets resolved in the next several weeks or months?
Chris, thanks so much for joining us on the program. Listeners, I really want to encourage you to listen to Chris’s interview from January 2018 on the alchemy of risk because we’re going to be assuming your knowledge of the short-vol trade, both implicit and explicit, as was described in great detail in that interview. You’ll find the link to play that interview in your Research Roundup email or on our home page next to Chris’s picture at macrovoices.com.
Chris, welcome back. When we had you on before, you explained the short-vol trade and where the risks were in both the explicit and implicit short-vol trade. That was before the February event.
So why don’t we start with what happened in February? What broke and what didn’t break? And, perhaps, if it’s applicable, what is still left that might break in the future?