The Macro Trading Floor transcript – 20 February 2025

Alf (00:00.738)

Hey guys, welcome back to The Macro Trading Floor. Alf here, my friend Brent. Sorry for being off for a month, but you know, a thing here, a thing there and we couldn’t record, but happy to be back. Brent, how are you doing?

Brent (00:12.265)

I’m great, it is good to be back. I actually miss doing this because I feel like it’s a good way to sort out my thoughts and I actually kind of enjoy it. So glad to be back. A lot has gone on in the time that we were off… And then again, nothing has really happened. It’s an interesting and strange kind of moment where we have this sort of narrative vacuum. Or some narratives humming, but a lot of sort of contrary risks and narratives humming in the background. So where do you want to start?

Alf (00:44.846)

Let’s talk about yields and the dollar because I think that you can easily make a case now for which yields should go higher, the dollar should be stronger, or yields should be lower and the dollar should be weaker right here. Maybe positioning is much much cleaner than it was earlier in the year and I think there are two stances that you can take. I am slightly in favor of one but I’m not gonna spoil it, I’m gonna ask you first. Gun to your head, you need to either buy or sell the dollar or buy and sell bonds. What would you do and why?

Brent (01:19.861)

So yeah, it’s interesting because I think there’s a time scale mismatch, like depending on what your view is. And I think that’s one of the big things that’s been confusing people is that I think the majority of people would agree that yields lower, dollar lower over the next 12 months is a much easier case to make. But lower over the next two months, very difficult to make.

Because first of all, like you said, positioning is very clean. So we have a positioning indicator here that puts together a few things like surveys and CTA, CFTC, risk reversals, all that stuff. So you get a pretty good idea of positioning. And going into 2025, it was record long dollars. And now it’s almost flat. Like there’s still some dollar longs, but it’s almost flat. But in that time, Euro dollar’s gone from 1.0350 to 1.0420.

So you had a massive rinse of positioning, which is partly just options expiring, but also people cutting. And so you had a massive change in positioning and really no change in price hardly. I mean, some currencies have moved, but overall you now have very clean positioning. So that’s not really a good dollar bearish argument in the short run.

And then the problem is still that you have the tariffs. So the tariffs have become this kind of super confusing thing. In case people don’t know the famous Steve Bannon quote, I think it’s really useful and important. So I’m just gonna read it. He said, “The opposition party is the media and the media can only, because they’re dumb and because they’re lazy, they can only focus on one thing at a time. All we have to do is flood the zone with shit. Every day we hit them with three things. They’ll bite on one and we’ll get all of our stuff done. Bang, bang, bang. These guys will never be able to recover, but we’ve got to start with muzzle velocity.”

And I think that quote applies perfectly to the markets too. Like not that they’re actually attempting to disorient the markets, but they’re flooding the zone with so much shit that the market doesn’t know what is real and what isn’t. And so therefore it makes it very difficult to trade.

But then you can’t just ignore everything either because some of it is real. So, you know, if reciprocal tariffs that are adjusted for VAT come into force in April, I mean, that’s a massive dollar bullish scenario, but will they? I mean, I don’t know. Will Canada tariffs be enacted? Like everyone thinks it’s a joke, but you can’t completely write it off because there’s no leadership in Canada right now. And Trump likes to beat on weaklings.

So I find the dollar bearish argument is easy to make in the long run, but in the short run, I think the risk actually is that the dollar goes higher for the next month or two as we still have to have the tariff premium priced in.

Alf (04:25.458)

So one would find it very hard to say, “this is a low probability set up, it’s highly priced in, I wanna fade that.” It’s not, it’s not. I mean, you have dollar Canada for reference below 1.42. I mean, this thing was 1.48 and the whole world, including myself, was calling for 1.50. And then you got an explosion which lasted literally one day, or actually I should say a few hours after Trump announced the 25 % tax on Canada, and that was your window to monetize. Not even fully your view, by the way.

So this game is really hard and now you’re back to 1.42 though. So which clearly means that the dollar positioning has been reduced. Hard to say if fully reduced, but it has been reduced. And Brent says, look, there is a risk reward that suggests you could go along the dollar the next month or two. Okay, now I will make the opposite case. You ready? Because I could sound as compelling as well.

And what I’m going to tell you now is a story by which Mr. Trump has enacted tariffs that are worth an impact roughly of 0.05% in core PCE in a year. So nothing, right now. That’s what’s been implemented. And that if you follow his pattern so far, it seems like it’s mostly about negotiating, right? It’s just threatening something and then pulling it back and getting something in exchange.

And so I’m gonna argue that this is roughly gonna continue and that tariffs are gonna account for maybe 0.1, 0.2. of core PCE in a year, which is not much if fully offset by shelter disinflation and fully offset by disinflation process continuing. And so then I could basically argue that at end of the year on a net-net basis, inflation is going to be down. It’s probably not going to be fully at 2% target, but it’s going to be in a friendly zone for the Federal Reserve.

I could argue that actually that a moderation in nominal growth is probably what the Trump administration wants, to make sure that yields are lower, to make sure that the refinancing can be done at lower yields, to make sure they’re preparing the ground for tax cuts in the second half of the year. I could tell you that the banking deregulation they’re trying to put through goes in the same direction, trying to find buyers for the long end so that things can normalize basically.

And then I will tell you that this is an environment in which US nominal growth moderates. Nothing is scary. Everything is predictable. The Fed cuts two, three, four times in a year, and therefore you should sell the dollar and buy everything you can. I could make this argument and you can’t tell me I’m stupid. I mean, yes, you can, of course you can, but in principle, it sounds as convincing, doesn’t it?

Brent (06:59.743)

Well, so the other thing too, just to add on to what you said is that a lot of these DOGE cuts in the jobs should start showing up in the jobs data probably as soon as March. So if that were to be the case, that’s another sort of quiver in the arrow for your argument. I think one thing that’s big on the other side that’s kind of interesting right now is the amount of commodity inflation that’s happening.

Normally when you have commodity inflation it’s led by oil and you know oil is a major part of all the commodity indices. So for a commodity index to go up usually you need oil to be going up. But what’s kind of crazy now (and I’ll put a chart in the YouTube version of the podcast) is if you look at where BCOM is so becomes an index of commodities that you know, it has a big weighting in oil… And it’s at its 252 day high. So it’s at the one year high, BCOM is. But oil is like not even close. I think it’s like 162 out of 252.

So oil is nowhere near the highs, but yet BCOM is ripping. So I think when you already had very sticky services inflation and supercore at 4% or something like that, and the savior was goods and shelter… If you throw out shelter and just say like it’s random from here because the delayed impact of falling rent prices is kind of in it now because the 12 month lag has fallen out, and then you get higher goods inflation, you know, that could be something that’s a bit scary. I think on yields, I’m more with you.

So Bessent is essentially targeting a lower 10 year yield, They said they don’t really care what the Fed does. They just want lower 10 year yields. And on a bigger picture time horizon, governments mostly get what they want in financial markets. if the ECB is targeting a lower euro, or the Fed is banning short selling, or China’s buying stocks, or Bessent wants a lower 10 year yield, usually you don’t want to fight those things.

But again, there’s a time scale mismatch because yeah, okay, sure. They’re probably going to get it somehow, some way, and SLR exemptions and banking deregulation is probably a good one to just find a huge new batch of treasury buyers. But in the short run, first of all, you still have the seasonality of the economic data is strong in January and February. So that’ll be strong CPI probably still in February. And then you have underlying commodity inflation is very strong.

So in the short run, I don’t really know if that’s going to work as a trade. And I mean, that’s the problem again. If you are long bonds with a one year time horizon, I think that’s going to work. But as like a PM at a hedge fund, there’s long bonds. I feel like that trade is just so much more difficult.

Alf (10:03.884)

Yeah, absolutely. Let me try to add something hopefully interesting to the conversation. Let’s talk about this deregulation effort. Maybe it gives some more context to people. So Michael Barr, which was the vice chair for supervision at the Federal Reserve, quit his job, basically resigned in January, and this opened the door for Trump to name someone else. And the vice chair for supervision basically is the person that drives the conversation at the Fed and with regulators about banking rules.

And now basically the choice is between Michelle Bauman and Michelle Bauman, I think she’s gonna be elected. No, there is someone else, but I think Waller as well as in the race. But Bauman is the person doing speeches on bank regulation lately. So you can guess that she’s in the front seat there. So there, the perspective they’re trying to apply is the following. Today, if you are an investor and you want to go long duration in the US, you can do two things.

You can buy treasuries or you can receive swaps. Those are the two things you can do. Those are the same economical trade, but very different in how they’re structured. Because to buy treasuries, especially the cash version of treasuries, you need to buy 100 million of treasuries, you need to, guess what, put up a bunch of cash. If you don’t want to put up a bunch of cash, you have to use repo, which means that you have to use your balance sheet, okay? One way or another, either you have to have the cash or you need to balloon your balance sheet basically tomorrow.

Brent (11:39.221)

Wait, can I just interrupt here because I’m not an expert on this stuff. Are you talking about from the perspective of a US commercial bank? I wasn’t sure if you meant hedge funds or banks.

Alf (11:45.932)

Yeah, imagine you are, let’s say, bank or insurance, it’s easier, okay? So if you’re a bank, you either have the cash sitting there, you take the cash and you buy 100 million of treasuries, okay? So it’s a very cash intensive exercise. In most cases, if you’re a bank, you’re not gonna do that. You’re actually gonna fund your purchase in the repo market. When you fund your purchase in the repo market, it means Brent, you’re making your balance sheet bigger. You’re adding a liability, which is your repo transaction, and through that liability, you’re adding an asset, which is the treasury that you’re buying, okay?

Now, the alternative you have, if you want duration, you’re a bank, right? Maybe you need to hedge some mortgages, you need to whatever, hedge some deposits, you need duration, okay, for some reason. What you’re gonna be doing is you’re gonna be receiving a swap. So economically, it’s the same. You receive fixed in the swap and you pay floating, which means you make money if rates go down. It’s economically the same trade.

But now you look at what’s necessary to deploy the trade and what’s necessary is not 100 million of cash. It’s not some ballooning of the balance sheet through repo. No, no, no. You just put some initial margin against your swap, a tiny bit of cash basically, and that’s it. Trade is done. So economically you have the same exposure, but you don’t have to tie up a bunch of cash and you don’t have to balloon your balance sheet.

Okay, now the supplementary leverage ratio is a regulation that basically penalizes banks for the amount of assets they own, let’s say for how big their balance sheet is to make it simple, vis-a-vis how much equity, how much capital do they have. The bigger their balance sheet, the more the penalty. So what’s happening is that regulators have thought very well not to exempt treasuries from this ratio, which means if commercial banks in the US go and want to buy treasuries funded in repo or using the cash, so basically enlarging their balance sheet, they will be at some point meeting the cap of this supplementary leverage ratio. They will be penalized, in other words.

So what’s happening is that you can see that treasury yields in the long end are trading at a large discount to swap rates. So the third year swap rate in the US is around 4%. 30-year treasury yields are 4.75. So banks are basically saying, dude, because regulation is punitive, if you want me to buy this stuff, I need a reward for it, okay? I need a large spread that favors, that basically skews my decision towards buying treasuries because I’m getting paid a spread vis-a-vis the swap, okay?

Brent (14:28.395)

And what’s the argument against eliminating the cap? Like, what’s the bad part about that?

Alf (14:33.27)

None. I mean, in principle, I can’t see any negative side. The negative side can be that banks’ balance sheets will expand more because you’re going to be incentivizing banks to go in repo and fund the purchases until their balance sheets are going to become bigger.

Brent (14:46.315)

Okay. Right. So in a fiscal crisis, you’d have a huge problem because their balance sheets would have ballooned and they would have like a lot of theoretical duration risk, but no one’s going to care as long as the government keeps yields low.

Alf (15:00.27)

Interestingly, Brent, banks don’t, when they decide to buy treasuries, they mostly hedge their interest rate risk. So they would buy the treasury, they would pay the swap. So they’re just trying to pocket that spread basically, okay? You remember the SVB story where SVB actually didn’t hedge their interest rate risk on their bonds and they ended up blowing up, right?

But it’s mostly about regulators don’t want banks to have these enormous, gigantic balance sheets, okay? And if you give them an incentive to do so, basically by exempting treasuries from SLR, they will go there, they will use the repo market, they will lever up and they will buy the treasuries, they will hedge the interest rate and they will pocket the difference, which is the 75 basis points right now. They will compress the difference, which will bring down interest rates, okay? So 30-year treasury yields will move down from 4.75 closer to the swap rate, which will be 4.

So, what is the new change? Well, the new change, guess what, is to try and exempt treasuries from the supplementary leverage ratio so that every time the government issues, there will be a bunch of US banks that say, well, here, you can give it to me. I’m very happy to use the repo market and get paid more than the swap rate to actually buy the treasuries.

And so this will bring yields down maybe 20, 30, 40 basis point at the long end, not by a ton. But try to bring yields down by 30, 40 basis point because of economic reasons. You need inflation down,. It’s not small, right? So that’s a little bit of the banking regulation effort going on, which I think speaks a lot about Bessent’s willingness to bring yields down, long end yields down, right? That’s the direction of travel.

Brent (16:42.985)

And the challenging thing with something like that is it’s similar to the idea that Gillian Tett was writing about this, but a lot of people have been writing about the idea of revaluing the gold in order to free up some part of the treasury as well, or to like “reduce the deficit” in air quotes. And these bigger picture things obviously are all bearish dollar and bearish free yields or bullish for bonds. And there are all these things that are kind of hanging over the market as possibilities.

And I think that’s part of why I feel like they have so many tools to achieve what they want to achieve that eventually they will achieve it. But then, I mean, that’s great. But then, okay, how do you actually make money trading it? And I’m not sure being long bonds right now is, the way to do that. It’s similar to the Stephen Moran essay, which I’m sure a lot of people have read… and the sequencing is essentially you do the tariffs, tariffs drive the dollar up, and then you do a bunch of things to drive the dollar back down.

And so a lot of people are focused on those longer term things, which are dollar down, but then in the short run, it’s tough. So maybe just turning to the dollar and I mean, there’s kind of like a combined thing because actually, like I said, we had that rinse in positioning, but actually the dollar hasn’t moved that much. So we’re a little bit themeless in FX right now, but the theme should be the big rotation into the rest of the world.

Because European equities, I mean, if you do a ranking of like the top 30 equity indices, actually I can put it in the YouTube, you see that the US is like way, way down. People are worried that Mag-7 earnings are peaking, that the CapEx is cyclical and they’re going wild spending so much money on CapEx. And then you have a valuation story that’s attractive in Europe. Well, I don’t know if it is anymore, but it was.

And then you have in 2021, China’s common prosperity idea was to move towards more Marxism and more communism and less billionaires. And then on Monday, you had Jack Ma coming back, meeting with Xi Jinping and other people from major Chinese tech companies. And so that’s kind of triggered this… For two years or so, I guess it’s three years, China has been getting tagged as an uninvestable because of the communist sort of movements away from capitalism. And so this meeting now is like opening the floodgates for people to want to buy China again.

So usually when you have the rest of the world doing well, then you have a dollar sell-off. But there’s kind of a unique aspect to this. It’s that the rest of the world is doing well in terms of securities prices, but the actual economies aren’t really doing that great. Yeah, Chinese yields have bounced a little bit and there’s a little bit of optimism on maybe the debt break in Germany. But really, you’re not actually seeing like green shoots in China or Europe. What you’re just seeing is financial price, financial securities are ripping in those countries. So because that’s not like a real economy story, it hasn’t really flowed through to the dollar yet.

Alf (20:04.718)

Yeah, it feels a bit to me like what we’re seeing in international equities is your dollar smile story, but brought to international equities. So I did a study which looked at the past periods in which you had conditions, which in the US were very predictable and friendly. So you had like inflation between, I don’t know, 1.8 and 2.3%. You had growth around 2, job creation 150-200,000, you know, some very predictable growth.

And then if you actually look at that, you will see that the asset classes that do the best in this environment are, as you can imagine, stocks and bonds. But frankly, you will see that a lot of international stocks tend to do equally, if not even better, than the S&P 500 or the NASDAQ. And actually makes me think, once you have some sort of moderation view in the US, right? So the prevailing view is that tariffs are not gonna be this disastrous thing and that, you know, at the end of the day inflation is 2.5, 2.6 year on year, core PCE, nothing scary. You basically go in the middle of the smile in your theory, right?

You go into the point where it’s not too hot, it’s not too cold. It’s just very nice basically for the rest of the world. And especially Brent when up until a couple of months ago, if you looked at the Bank of America fund survey, you would see that the pessimism around Europe and China was massive. They were gonna die and nobody owned them.

I think there was in December, it was ridiculous. It was like the highest percentile of overall allocation to US equities vis-a-vis European equities ever recorded in 30 years of this global manager survey. I mean, basically nobody owned Europe relative to the US, pretty much. And then it takes a tiny bit to change the picture. You just moderate your US view. Tariffs aren’t going to be too bad. Growth is moderating. These guys won’t lower 10-year yields… and Europe isn’t dying. Amd even Germany might do some fiscal. My God, what is going on here?

And then you go and have a look and it’s like, the Euro stock 600 is sitting at 10 PE. Wow, nobody owns it. And so at the end of the day, people just go in and buy it. wouldn’t, I think people attach way too much weight to the economic stories behind securities. Or in other words, the stock market is not the economy, right? And this is a clear example, I would say. Chinese stocks are going up every day, but not much is happening in the Chinese economy, right? And the same goes for Europe.

Brent (22:33.451)

And that’s a big difference from 2017 when you had synchronized global growth. And I think you had like 30 countries out of the top 40 all growing above trend or something like that. So if you went to January 1st and you described everything that you just said about what asset prices did, you would think that euro would be at like 1.08 or 1.09, and it’s at 1.04 because none of this financial market stuff really flows through to FX as much.

So I think in the short run, if I was short dollars, I’d be very concerned now because each day that you get closer to April 2nd, hedgers are going to have to hedge. And you had the positioning cleaned out and now you’ve got kind of like the middle of the dollar smile and the dollar’s not selling off. And it’s similar to the situation where if Chinese equities go up 10%, people try to buy Australian dollars, but it never works. Because what you need is Chinese purchases of iron ore up 10%. That’s what will drive Aussie higher, because that’s real economy stuff.

So the only thing is though, at some point, like you said, the stock market’s not the economy, but sometimes the stock market leads the economy. And then at some point, this could be a signal that Germany’s actually bottoming, the debt break’s gonna come off, China’s gonna do a little bit better. And then the economic side will hit the middle of the dollar smile and the dollar will get smoked. But you need some evidence of that from the economic data first.

Alf (24:09.716)

Yeah, I think if I need to prioritize how to implement the view for, let’s say, the Great Moderation type of thing where US nominal growth is going to be contained, you know, and the vol is going to come down and no big tariffs, et cetera, it’s not selling the dollar. I think it’s not the best risk reward play anyway. It’s probably buying international assets. That’s probably the best way to do it. You buy some yields maybe, but even there, you’re not going to make the most money. It’s mostly about buying international assets.

You don’t need the Chinese economy to go to the roof. You need people that don’t own China to say, oh, but things are not so bad from a macro vol perspective. What are the assets that benefit the most from low macro vol? Well, the assets that are relatively liquid and large markets, which are very underpriced. It simply is just a rebalancing and re-rating story. You don’t need the Chinese growth to have Chinese equities rally. Welcome to the world of financial markets. Unfortunate.

Brent (25:09.619)

Right. I mean, you see reratings like that all the time. Like, like Tesla got rerated after Musk became part of the government, for example, or Oracle rallied when they got chosen for Stargate. And so you’re seeing that in China. Obviously, Europe’s a completely different thing. It’s more like the defense stocks and all that.

And just speaking of defense stocks: So Russia, Ukraine, there seems to be this theme going on where I guess Trump is hanging Zelensky out to dry. So that puts Zelensky in a position where he probably feels compelled to sign some kind of deal, I guess. And then the market’s trying to game, what does that mean? Like a five hundred billion dollar rebuild that could benefit Polish construction stocks, terms of trade improvement, I guess, for Europe, maybe some stability for Europe.

But then on the bad side, the U.S. pulling out of Europe and leaving, well, and basically pumping up Russia and blaming Ukraine for the war is not really great for Europe in like a geopolitical way, but maybe in an economic way. I don’t know. What do you think about all this?

Alf (26:22.062)

Well, the most obvious trade here for the end of the war, quote unquote, is to go after Eastern European countries that would benefit the most, both from reconstruction, they have a higher beta to European growth, they have most energy demands that are met easily. I’m talking about Hungary, Poland, these type of guys, right? It’s been a…

Brent (26:40.435)

And just one thing, sorry to interrupt. As US investors, there’s an ETF, is CEE, which is heavily invested in Poland, just if you want an easy way to like, I’m not an expert on this, so not investment advice, but that’s what I look at as like the proxy for, the US tradable proxy for Poland.

Alf (27:01.986)

I think there is also an MSCI Poland ETF directly. It’s not very liquid, EPOL, E-P-O-L, but it’s very small. In general, you can find ETFs to get this expression, of course, we’re not breaking new ground right here. This is like headline, page two of the newspaper. So, be careful, of course, because the trend can continue, but it’s not anything groundbreaking or out of consensus we’re discussing here.

In general, think, Brent, what is a little bit underappreciated in potential magnitude is the elections in Germany that are happening this weekend, by the way. So I live in the Netherlands for some part of the year, which is a bordering country to Germany. So I have a little bit of an inside view. Look, the story is pretty simple. You have an electoral law in Germany that has a threshold at 5%. So as a party, if you don’t score 5%, you’re out of the Bundestag, of the parliament in Germany. You don’t get in.

And why am I mentioning this is, the electoral system is fully proportional. So there is no majority premium stuff like that. And right now, if you look at the polls, are basically like three main parties. There is the conservative right, the party that used to be Merkel’s party, basically. There is the Socialist Party, the left-wing party, and there is the AfD, the very famous or uprising, Musk-backed, let’s call them very right party, okay, just not to use more political terminology here. Those three parties are polling close to each other, okay, anywhere around 25 % more or less.

And then there is a bunch of smaller parties that are very old, very close to the 5% threshold. Now, why am I mentioning this? It seems that neither the left party nor the conservatives want to make a government with the AfD. They’re trying to basically ostracize or exclude the far-right party. But the real deal is the constitutional reform that is necessary to change the debt break. Because if that happens, then Germany all of a sudden is free from constitutional boundaries to actually do some freaking spending, which by the way, frankly, their economy would need if you’re very honest.

Okay, so you need 66% in the parliament to be able to change the constitution. So even if you ostracize the AfD, the far right party, as long as the AfD plus some smaller parties reach the 33% blocking minority, if they do reach that, you can have a government of friendly parties like the left and the conservatives together, but it’s not gonna be enough to change the debt break. It’s not gonna happen. So you’re gonna have a basically a nothing burger. You’re to have a friendly government for markets, but no change in the constitutional debt break, no major fiscal in Germany.

And if you look at the odds of having a constitutional blocking minority or not having it, the odds right now are 50-50, literally 50-50. If you look at the odds. So when you wake up on Monday morning, you have a pretty binary event that might decide whether Germany can do fiscal, not saying they will, but whether they can reform the constitution to do so… or they can’t and you go back to square one where Germany is just a fiscally conservative country. I don’t think that vol is appreciated enough.

Brent (30:27.689)

Right. And I mean, you always have to consider the fact that AfD might just massively outperform because those populist things like Brexit and Trump and everything, you know, populist things just generally have massively outperformed the polls. So that’s always a possibility. And, you know, I don’t think there’s any chance of AfD majority or anything like that. But AfD outperforming is still going to be of interest for sure in terms of German politics.

Alf (30:56.6)

And if they do, actually, that increases the odds of a blocking minority because let’s say they score 30% proper outperformance, then to block the constitutional reform, they just need one tiny party to be above 5 and to join them in blocking the constitutional reform. So really, it’s right now on the betting sites as well, it’s roughly at 50-50 to have this constitutional blocking minority. So it’s a very binary event that could decide a lot about the future of Europe.

Of course, when you talk about defense spending, which is something you were talking about Brent, Europe has all the rules, but also a lot of ways to get around the rules basically. And they’re already talking about defense spending being an off-budget item. So basically you can issue bonds, you can spend for defense. That’s not going to have a high multiplier for GDP growth, by the way, because you’re literally just spending for tanks and jet fighters, but that’s not gonna increase GDP by a lot, the multiplier is pretty low… but it is gonna increase supply of bonds.

You have to issue bonds anyway to fund this stuff, right? It’s not gonna get funded by itself. And so I think that also changes a little the bond picture in Europe where people have to get used to the idea at least, that even if you call it off budget spending, you still have to issue bonds to fund this spending at the end of the day.

Brent (32:17.097)

And the other place you see it is in the defense stocks like Ryan Mattel and all those. They’re basically trading like Nasdaq bubble looking… like I’m not talking about the valuations, but just the price action. If you want some fun stocks to day trade, look at the German defense stocks. Well, I think we’re kind of running out of time here. So I don’t know if there’s anything you want to touch on before we pack up.

Alf (32:42.702)

I would say that if we try to summarize our view, we do not agree on what will be the path of list resistance going forward. If I have to choose gun to my head, I would lean towards an environment where you have a great moderation of nominal growth in the US. So you then just buy international stocks and a little bit of risk parity approach. You buy some bonds, not a lot, and then you buy some stocks and you basically go into the risk parity mode and vol comes down and you know that’s I think the path of least resistance. Correct me if I’m wrong, you don’t think that is the path of least resistance.

Brent (33:20.489)

Right. So I think by the end of this year, I would agree. But I think in the next month or two, I think it’s basically the exact opposite. Because I think inflation will be a little bit sticky, the DOGE cuts won’t come through that fast, seasonality is bad for stocks and for gold, and also, I think like the first six weeks have seen a lot of new money being put to use in in all these trades like the global equity trade, for example.

And I think generally a lot of times about six weeks into the year is when you see the like exciting new trades of the year start to fizzle. So if the global equity trade in Europe and China fizzles a bit, the dollar is going to rip because it couldn’t sell off in the other direction.

Alf (34:05.518)

So, choose your fighter and actually if you wanna hear a bit more behind the thesis for Brent or get to know his shit everyday which you can, you should do what Brent?

Brent (34:17.354)

Go to spectramarkets.com and sign up for am/FX.

Alf (34:22.06)

Yes, you can also ping him on Bloomberg, he doesn’t bite. And the same for me, if you want to know my rationale, can just reach out to me on any means you want, Twitter, LinkedIn, Bloomberg, doesn’t matter, and just ping me and we can chat. Thanks guys for listening, very happy to be back and I promise we’re not going to disappear again for a month.

Brent (34:40.523)

All right, thanks everybody. Thanks, Elf. Ciao.

Alf (34:42.83)

Ciao guys.