Transcripts

Erik:     Joining me now is Eurodollar University founder Jeff Snider. Regular listeners already know Jeff is famous for his slide decks. New listeners, you're not going to want to miss it. So be sure to download the slide deck, you'll find the download link in your research roundup email. If you don't have a research roundup email, just go to our homepage macrovoices.com. Look for the red button above Jeff's picture that says looking for the downloads. Jeff, before we dive into the slide deck, which is largely about inflation, I want to come back to one of our previous conversations where you told us that prices were going up and they were going to continue to go up and there was going to be no inflation. And that, of course confused a lot of people. There's a few folks in our audience who know exactly what you're talking about. It's this distinction between consumer price inflation and monetary inflation. What's the difference but more importantly, why should we care about anything other than the price inflation, which is what affects the you know, how much money you got left in your wallet?

Jeff:   Yeah, I mean, that's a great question to start with because the last part first, consumer price inflation as we define it as a supply shock, which we'll get into here in a minute, versus the monetary variety, which is really legitimate inflation, they look very different. Yes, the end result is the same in the short run. But how they work out in the long run could not be different. That's what we'll talk about today that when you have a supply shock situation, what mostly happens through historical examples is what you see is consumer prices will surge, the skyrocket right out of the gate, and they'll go way up there, which is you know, most people don't care. They understand they're becoming poor by the day but they'll surge really quickly and they'll stick around high rates of consumer price increases for you know, quite some time usually it's multiple months, maybe even a couple of years. But then, regardless of what happens in monetary policy, the Federal Reserve or Central Bank's, consumer prices will begin to slowly decelerate, and decelerate and decelerate, so that over time, and this is usually a multi-year process, all on their own consumer prices will reach a new equilibrium, they won't go back to where they were before the supply shock, but the consumer price increases will stop so that at least we reach a different stable equilibrium as far as prices go.

Whereas monetary inflation, which is real inflation works very differently. And that's where you get into sustained increases and sustained advances in consumer prices that go on year after year after year after year, like we saw in the 1960s and 1970s. The distinction we need to make here is that the supply shock version is not because of money printing or bank credit or anything of that kind of nature. It's instead, as the name implies, a shock to the economy that causes some imbalance between supply and demand, like we saw in 2020, where the only way to adjust and reconcile those imbalances is through prices. Where is the other type real genuine inflation is from a sustained increase in either money supply or credit supply to the economy. So in the modern economy, that's the banking system like we saw in the 1960s and 1970s. So it's a difference in where it comes from. And ultimately, it's a difference in how it ends and how it gets resolved.

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Erik:     Joining me now is Lyn Alden Investment Strategy founder, Lyn Alden. Lyn prepared a slide deck to accompany this week's interview. You'll find the download link in your research roundup email. If you don't have a research roundup email, just go to our homepage macrovoices.com. Click the red button that says looking for the downloads above Lyn's picture. Lyn, it's been way too long. It's great to get you back on the show. I want to start just by looking at your slide deck. You're talking about valuations. Boy, it seems to me like something's going on that with breath that seems unusual. And I haven't looked at it closely enough, but it just seems, particularly AI stocks and some of these things are just to the moon. Well it's creating, I think an illusion that everybody thinks that the market is off to the races. It's not the whole market, is it?

Lyn:   Yeah and first of all, thanks for having me back Erik. Always happy to be here. And yeah, we're definitely seeing some big divergences in the equity market, both in terms of risk on and risk off, but also in terms of growth and value. And so for example, on the first deck there, I show Apple versus CVS. And these are just kind of two examples of large cap stocks out there. The funny thing is that analysts consensus forward earnings estimates are actually not that different between the two companies. They both had like a period of kind of two year earnings stagnation here, they both have kind of slow forward growth. Basically, they're both at the end of the day kind of value stocks, that they're not exactly fast growers. But we see Apple trading at well over 30 times earnings and has surged much higher this year. And all of it was valuation based. Whereas we look at a lot of the, you know, kind of either the cyclical value or even the defensive value. A lot of these companies are just trading at like high single digit price-to-earnings ratios. Kind of completely left for dead, totally kind of uninterested by the market. And, we can kind of go through sector by sector and see that some of them do have headwinds. For example, healthcare has been facing some regulatory headwinds, for example, but a lot of that is just, basically, there's so much risk-on condition focused in the tech sector, that a lot of other areas, especially defensive value like healthcare has just been completely left for dead.

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Erik:     Joining me now is Dr. Anas Alhajji, managing partner at Energy Outlook Advisors and noted keynote speaker on energy markets. Anas, it's great to get you back on the show. I'm really excited to get an update for you on your outlook on energy markets. For the benefit of any new listeners who may have missed our prior interview. Anas basically has nailed this market saying to us look, don't get too excited even though I think Anas and I agree very much in the longer term, about a bullish outlook. Anas said don't get too excited in the first half of 2023, it's not time yet. If we're gonna have a big bull run and crude oil, it's not coming until the second half. So far, that's definitely proven right. So Anas, I'm just can't wait to get you back on for an update. You nailed that call, what comes next? Is it time for this market to finally turn up? Why didn't Chinese reopening recreate demand as everyone expected it to and what should we expect next?

Anas:   Thank you very much Erik. it's always a pleasure to be on MacroVoices. It was clear from the beginning. If we look at how countries open after locked down that we are going to have an increase a sharp increase simply because of the transportation sector. But for the rest of the economy to pick up, it takes time. So aside from all the ills of the Chinese economy, it is just the fact that these things take time. So the idea that we open up tomorrow, and everything is back to normal, it's not what happened. So we expected that we have increase in consumption because of the transportation sector. And then the economy will kind of improve little by little over time. So we're not that excited about China. But the issue that some analysts basically fell into the trap of the Chinese government did after reopening. As you know, because of the long period of the lockdown many students and of course, they are in the10s of millions got locked away from their families. And the same for soldiers and policemen and others. So they stayed away from their families for a very long time. When the government opened up, they literally chartered 1000s of planes and buses, etc., to move those people so they can visit their families. Some people look at that as look, this is back to normal. And this is what the trend is, but it was a one time thing. And then we'll go back to normal on the transportation sector. But for the rest of the economy, it's not that much. And we ended up with a situation now. And now since you mentioned that we nailed it on 2023. Today, we published the report on a first look at 2024. And we pointed out two issues that we overlooked in our outlook for 2023. And I think the both lessons that we learned from this are lessons for everyone. So we were really bullish on the fourth quarter of 2023. That's our view. We are still bullish, but not as bullish as before. Why? Because we never expected the Chinese to build their inventories the way they did in the last three months. Which is very dangerous because we've seen them doing this before. And we've seen them releasing this as oil prices go up.

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Erik:    Joining me now is 42 Macro founder Darius Dale. As always, Darius has prepared a terrific slide deck to accompany today's interview, I strongly encourage everyone to download it. Registered users will find the download link in your research roundup email. If you don't have research roundup email, it means you're not yet registered at macrovoices.com. Just go to our homepage macrovoices.com, click on the red button above Darius his picture on the homepage that says looking for the downloads. You will notice that some of the pages are blurred in this slide deck. The reason is that out of respect for Darius' paying customers we normally use the previous month's deck for these interviews. This month Darius wanted to use this month's deck because he's got some slides he wants to show you that have current up-to-date information. In order to respect for paying customers, we had to blur out at least some of the slides of the deck. So the ones that we're not talking to in this interview, please don't be alarmed if they're blurred out when you get the download. Darius, it's great to have you back. What I want to do is set the Way-back Machine to January of 2022. That's 18 months ago. You came on everybody else is saying okay, $4,800 on the S&P just about to hit 5000. We're headed much higher. Everybody's buying the dip and you're saying no. 2022 Could be a crash year were your words. I'm going to say you got that 99/100% right. The only nitpicky thing I might say is it wasn't actually a crash. It was actually fairly orderly the way that the market sold off, but you totally called that bear market. When we brought you back January of this year, everybody was convinced that the US was about to fall into imminent recession. You said no, I think that's coming, but not till the second half. And then you went on to emphasize we've had the growth event, but we haven't had the credit event yet. It's not till we get the credit event that the rest of this story unfolds. Well, Darius, I was thinking about you as I watched the news come out about first Silicon Valley Bank, First Republic, Credit Suisse. And I thought that must mean the market is about to crash. But wait a minute, the market didn't crash. But we got the credit event, or at least I think we did. What's going on?

Darius:     Hey, Erik, thanks again for having me back. I'm very grateful to be a regular contributor to this program. Wonderful program. So I'll start by answering your question directly. No, we do not think the Silicon Valley Bank incident and the First Republic bank incidents was the credit event. Recall that we were sort of calling for a phase two credit cycle downturn, which is what happens to the markets when the economy is trying to price in the non-linearity of a recession. That process is still very much ahead of us. But we do not believe that process is imminent. And we still believe that there's right tail risk left to price in the equity market and credit markets.

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Erik:     Joining me now is JDI Research founder, Juliette Declercq. Juliette prepared a slide deck for today's interview. Registered users will find the download link in your research roundup email. If you don't have a research roundup email, just go to our homepage macrovoices.com. Click the red button above Juliette's picture that says looking for the downloads. Juliette, it's great to have you back on the show. This is our first interview of the year. And I know that you've had some really terrific calls this year. So, let's start by going through some of your recent analysis and recommendations.

Juliette:   Yes sure. Thank you very much for inviting me back, Erik. Well here we are – midway through 2023. And do you know what I see? Headline inflation vanishing in a puff of smoke, and no hard landing. The rise and fall of this pandemic-induced price rollercoaster was a perfect response to the Keynesian AD-AS (Aggregate Demand - Aggregate Supply) model. And that is the very reason I could call for “immaculate” disinflation all the way back in September 2022. See those hours siting on a bench at uni learning about macro models did pay in the end.  Here is how it works (see chart 1 in the chart package). The supply curve is convex; firms need increasingly higher prices to increase output when spare capacity is exhausted. In contrast, the demand curve is concave for products with “inelastic” demand. If you struggle to find alternatives, you will pay more; think of European energy in 2022. In 2021, Keynes’ prophesy cooked up a perfect storm: the negative supply shock combined with a positive demand shock to force prices into a new equilibrium on the steep (inelastic) parts of both curves.

Spare capacity was limited, and demand was relatively “inelastic” (sure, we had a load of cash, but what services could we blow it on?). So, while global output only edged up (Qo to Q1), it sent inflation through the roof (Po to P1).  What happened next was about what you would expect. Everyone on the supply side suffered a massive bout of FOMO and started stockpiling like crazy. Inventories of raw materials, finished products and workers hit record levels. And that, as I argued back then, turned the pandemic famine into a feast.  The problem was nobody wanted to eat anymore, they wanted to dance. So, I argued, the initial negative supply AND positive demand shocks would reverse, leading to “immaculate” disinflation: a resumption of the initial burst of inflation with no macro drama – price pressures to subside eventually with output and employment practically untouched. And that's pretty much what happened. So looking on to chart two, you can see that the record inventory build up, pull the U turn. You can see on charts, three that extreme geopolitical tensions peaked pretty much in September last year, and that collapsed the premium the geopolitical premium on commodities back to fair value. And in the end, you can see on top for that a supply demand imbalance, mirroring the COVID shock turned tremendous manufacturing inflation into actually manufacturing deflation according to the last PMI numbers. So here we are, goods price pressures have largely evaporated. If we consider last week PCE reports, we can see that the feds preferred inflation gauge, which is the PCE deflator dropped to 3.8% year on year in May, from 4.3% in April. And if you look at the three months, on a three month basis, we're actually at 2.45% annualized which is actually approaching the 2%. Target.

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