The Macro Trading Floor transcript – 26 February 2025

Alf (00:00.76)

Buongiorno everyone. Welcome back to The Macro Trading Floor. Alf here and my good buddy Brent. How are you doing mate?

Brent (00:07.295)

Alfonso Peccatiello, I’m good. I think we passed the worst part of winter. Baseball spring training has started. It’s 38 degrees or something here, so we made it.

Alf (00:18.69)

You know that if you say 38 degrees to an Italian, it means you’re melting, but that’s not the case in Fahrenheit.

Brent (00:26.081)

Sorry, I was speaking American instead of Canadian there.

Alf (00:28.782)

Correct, correct, or you can speak broken English like me, as long as we understand each other, it’s all good. All right, so one thing that we need to understand together for this week is what is going on? What is this, a growth scare, a momentum unwind? What are we talking about? All of a sudden, people can’t stop buying bonds. They’re gonna dump everything that smells like risk, mostly equities, I have to say, especially the more heavily owned names.

The narrative changes so fast. And the funny part for me, Brent, is that if you look at the data that should “justify” the change of narrative, I have to really now concentrate to think about, what was it… So a monthly retail sales print and then some sort of consumer confidence data. I don’t even remember. That tells you something, right? I just need to try and attach some soft data or tier two data to a narrative, which really tells me something about, what is this? I mean, first I’m going to ask you the question. What are we looking at here?

Brent (01:32.449)

Well, yeah, think part of it is toggling from a very high baseline. Like post-election, you know, there’s a lot of confidence that tax cuts and deregulation and that would be an optimistic scenario for the U.S. economy. But then the reality is that all the bad stuff is going to happen first. So like immigration and government cuts and all that stuff are going to happen first. And then tax reform and deregulation benefits will come later.

So I think partly it’s just like a fear factor around the DOGE cuts and then what’s the multiplier from those. So if you cut 2 or 300,000 jobs in DC, what’s the multiplier to the consultants and the lobbyists and all that. And then you did get some pretty weak consumer and also the S&P PMI. Like it kind of looks like we’re rotating away from services into manufacturing, which isn’t great for the US.

But yeah, mean, is it real? I mean, the survey data has been the worst possible forecasting tool over the last three years. Like anyone that followed the survey data lost a lot of money. So I think you have to wait for the hard data. But then the tricky thing is, you know, the DOGE cuts, the reference period for payrolls is the 12th. I don’t think really that’s gonna show up in this payroll report.

So it’s going to be a while, yeah, definitely anyways in the U.S. there’s definitely this sort of re-rating of U.S. growth. And then pile on top of that you have Bessent and Musk both saying they want lower 10-year yields. So why not?

Alf (03:08.526)

Okay, so I would say that if I have to think about how significant is the S&P PMI or consumer confidence, I would say generally speaking pretty low. Although a small note there is that the soft data has been pretty bad at predicting actual growth for the last two and a half years, also because of the permanent scars that the pandemic had left on some side of the economy. For example, manufacturing was completely depressed the whole time.

But if you look at the work of a good portfolio manager, which you should look at, he’s on Twitter, his name is EfficientMarketHype. He had done some work on the economic dissonance, so basically figuring out when soft service would start having some sense again, because effectively we had healed from the pandemic scars. And in his opinion, at least, now it looks a little bit like a better predictor of where hard growth will go. It doesn’t mean it has to predict perfectly, but at least you cannot fully ignore it anymore. Just go have a look at this work.

Brent (04:10.847)

That’s interesting. I got to read that because the other thing that economists miss, and I mean, the reason that the private sector surveys didn’t really matter was that the government was spending so much, health care and government were leading the economy. So if there’s government cuts, and I know his work is good as well… So if he thinks that surveys might matter, then I guess we should probably think surveys might matter too.

Alf (04:35.598)

So in general, Brent, last time we discussed where we could go next, right? And we said, well, I can make a narrative for which Trump policies are bad for nominal growth in the first half and tariffs are not going to happen. And so you have to buy bonds and sell the dollar, or you could make the opposite argument, right? And I still believe that in the medium term, H1 policies from Trump and Musk and Bessent, I should say, are bad for nominal growth. That remains the case.

I mean, we had an interview from Bessent, which was quite impressive at Axios, just I think today or yesterday. He released the interview where he literally said that if you look at private job creation, so you exclude government and healthcare, it has looked pretty bad, which is actually correct, but the point in his opinion is that that’s because of government spending. So he basically seems to subscribe to the old – and frankly wrong, from a monetary perspective – idea that fiscal spending crowds out the private sector.

So basically because the government is pumping money, then the private sector can’t grow, which is actually, like it’s accounting wise, incorrect. It’s the opposite because the government is pumping money, then the private sector grows. But if they subscribe to the old Republican theories, let’s say… I shouldn’t say Republican, to the old theories, where if the government spends too much, it’s crowding out the private sector Brent and then they want to spend less in order to, as Bessent literally says, make the government smaller and make the private sector larger, well I have news for them. By spending less you’re gonna make the government smaller and the private sector smaller, both of them, because you will be detracting money from the real economy.

This for sure helps to have lower yields, 100%, but it will also slow down economic activity together with DOGE cuts. So I think there is a good theory behind the idea and the first half policies from Trump and administration will be negative for nominal growth. But I don’t think the reaction we’ve seen in market actually reflects that. I think it’s more about momentum maybe. But what’s your opinion? I mean, did you see any signs as well in FX or in single name equities that we’re looking at momentum unwind more than a growth scare?

Brent (06:50.913)

Well, that’s the thing is that like yesterday, think S&P, I can’t remember, I think S&P closed up or flat, Dow was up, European equities were up. I mean, that doesn’t really tell you that that’s a growth scare. It was more of a momentum thing. So I think it’s the thing is it’s just a mix, right? Like all these things are hitting at the same time.

And to your point about the government, there’s a very simple explanation for why government has been increasing job growth is that the Great Resignation that happened after COVID was mostly teachers and healthcare workers. So those industries saw massive outflows of people and then those people slowly came back or got replaced. So I think that’s a better explanation than saying that the government spent and then crowded everyone out. And there’s a lot of data that supports that.

But anyways, so now you’ve got to figure out, okay, is this actually a growth scare? I mean, I think the baseline of growth was pretty high. And then you add a lot of policy uncertainty. So you look at just like, okay, I’m a, whatever, I’m a multinational and there could be tariffs in Europe or there might not be and that tax is probably gonna change, but it might not. And then they’re talking about like changing tax policy in terms of how global flows work.

And you think, okay, well, maybe we shouldn’t be like pedal to the metal on investment right now, let’s just wait and see what happens for a few months and figure out what the policy is. And then multiply that by times 10 if you’re in Europe or in Canada. And those countries affect US growth as well. So to me, like a little growth scare makes sense. Not necessarily like something huge, but I do think like H1, probably the hard data will actually be not very good as well.

Alf (08:42.946)

Yeah, I think that I subscribe to the same thesis. The question now, I mean, if you look at this from rates markets, it’s pretty clear, especially the Federal Reserve doesn’t seem in a rush to cut rates. They also seem to be waiting. And if this is not the major growth scare, Brent, I would say that the Fed still, baseline, they want to wait. You know, they want to wait for June and have a bunch of data and assess whether inflation is going to where they want it to go.

And so what happens is that most of the rally tends to happen in the 5, 10 and 30 year part of the curve, right? Because the Fed isn’t really helping the front end to rally a lot. They’re just waiting and so, you know, the weakness shows up more in the long end than it shows in the front end. When you look at the equity markets, that’s interesting because normally speaking, in a normal world, if you have lower long end rates, then equity valuations should get a boost. But if you get a growth scare, then earnings estimates as well move down.

So the question for me in equity markets in the US – in the US – is basically a question of how bad of a growth scare are we gonna have? I mean, are we gonna have GDP to one and a half percent, which frankly is not a growth scare, it’s just like normal decent growth, or are we gonna have a proper growth scare?

Brent (09:56.631)

Well, so then the other thing that people have stopped talking about because there’s only so many themes that we can juggle in the market at once. I mean, usually there’s just one theme, but right now there’s like four. But a fifth theme that you could add on is that there’s still an inflation problem in the U.S. Like if you look at prices paid in all the regional surveys, they’re pointing to quite a bit higher inflation in the U.S. again.

And I think given the inflationary psychology of the 2021-2022 period, when you walk into the grocery store and you see eggs are $9 or you see there’s no eggs on the shelves, you have a little bit of PTSD to COVID. And I think that’s impacting inflationary psychology. And you see it in the surveys. I mean, inflation expectations are going up. So I think there’s also that humming in the background. It’s just, that’s kind of fallen by the wayside.

And that’s why I think in bonds, it’s like selling puts makes more sense than actually thinking bonds are gonna skyrocket. Because I think there’s still this lingering inflation problem, kind of means to me that yields will be more in a range. And you could probably clip coupons by selling put spreads and selling call spreads on bonds.

Alf (11:07.342)

I would say that on average it depends from the extent of the growth scare. So that’s what we’re discussing here because Brent, if we get one and a half GDP and two and a half inflation, then frankly there is no money to be made in selling equities, there is no money to be made in buying bonds, there is no money to be made in anything frankly. You just go back to this environment where it’s relatively boring.

So you get, you know, bonds pay you their coupons and you don’t get much capital appreciation, equities make a little bit of money, but relatively boring. You really don’t go anywhere in that case. But if the growth scare becomes more, becomes stronger, then it’s a different story. Personally speaking, I’m in the camp of growth moderation. I wouldn’t even use the word scare for the time being. I think you are at real GDP at 3% and people got used to it and they think that’s the baseline, but that’s not. The US doesn’t grow at 3%, especially if the government stops spending that aggressively.

And so you’re probably gonna have GDP in the one and a half to two area. I am personally a bit more on the disinflationary camp. So all in all, I think you go back to some sort of Goldilocks environment. That’s what I would expect where in summer, you’re looking at one and a half GDP, two something inflation, the Fed is preparing to cut a little bit more… you made some money in bonds, made some money in equities, nothing spectacular. And I know I’m sounding pretty boring, but I guess that’s my baseline.

Brent (12:38.487)

Okay, how about this? This is more exciting. 0.8% GDP. And when you’re saying two whatever inflation, are you talking about core PCE?

Alf (12:47.244)

Yes, yes, always, yes, that’s what the Fed looks at.

Brent (13:06.145)

So say CPI is 3.3 right now. So say headline CPI is 3.8 and growth is 0.8. How about that scenario? Put that in your pipe and smoke it. Anyways, let’s move on to…to Europe, I guess, and we’ll talk about the election and fiscal and all that.

Alf (13:07.894)

Yeah, yeah, yeah, let’s do that. Okay, we have German elections out. The two largest parties, the conservatives on the right and the socialists, have the majority in parliament. That’s good news in the sense that they don’t need a third party. They don’t need a kingmaker. They can just have a grand coalition agreement and it’s only two parties. It’s easier to govern. A reminder, the previous government fell because the kingmaker party, the FTP, actually didn’t want to spend money. And so the treasury was fired and the government fell.

Okay, so now you don’t have that risk anymore. Okay, it’s only two parties. That looks better. The market is fixated about the reform of the constitutional debt break. So in Germany, you cannot spend more than 0.35% of GDP in fiscal spending per year. It’s just not allowed. Unless there are exceptional circumstances like a war or something like that. Otherwise, it’s pretty stuck. So now there are rumors by which parties want to change this debt break to allow for much, much more fiscal spending, mostly on defense, but not only on defense.

Problem is that to change the constitution in Germany, you need more than 66% of the votes in parliament. And the IFD, the far-right party, and the Linke, which in Germany means the left, which would be the far-left party, just to make sure, we’re talking about extreme left and extreme right… both of them, if they put their forces together, can block the reform of the constitution which stops that break. So they have 34% of seats in parliament, just a little bit more than the 33 necessary to stop the whole game.

So the initial market reaction Brent was, okay, you know, it’s a friendly market government. They can do some fiscal, but not a lot. So you know, not a lot going on, but I think they’re wrong. They’re wrong because there are a couple of ways by which this can still happen to a large scale. And I’m happy to talk about why.

Brent (15:13.953)

So I just have to ask a question that’s unrelated to markets here. When you’re saying IFD, which is AfD, what language are you speaking, Italian or German there?

Alf (15:19.618)

Hmm. Yeah. German or Dutch. Yes. Yeah, sorry.

Brent (15:26.411)

German or Dutch, okay, just checking. Yeah, so with the Euro, there’s so many crosswinds right now because I think essentially there’s this sort of cohort now of people that think the dollar’s gonna go down because that’s kind of like the policy direction and the government wants a weaker dollar and they’re gonna engineer that somehow and lower yields, lower dollar. And that’s this sort of structural story, that’s the Stephen Moran thing and we’ve talked about that before.

But then, in the foreground, you still have the tariff risk, which is bullish dollar. And then you have like a Fed on hold, which isn’t really all that bearish dollar. And you have some inflationary stuff in the US, which isn’t really helping the short dollar trade either. So we’ve gone from January 1st, the market was max long dollars, like the most that our measurement can go. And now it’s basically flat. So the market has removed the long dollar trade, but now the market’s flat.

And I would say like 70% of people I talk to are bearish dollars, but they’re flat. Because it’s just, I think it’s smart though, because there’s a distinction to be made between structural views and cyclical views. And so people have this structural view that’s gaining some hold that the dollar’s gonna go down, but trading structural views generally, like unless you’re buying equities and holding them is not the way to make money. You need a structural view and a catalyst.

So people are definitely fired up about Europe, I would say. I think the equity performance in Europe is making people think that maybe equities are gonna lead the economy. And then you have all these kickers, like 200 billion of defense spending by Germany. And then when we were talking before I hit record, you made the point, which I hadn’t thought of, which is Germany was always the voice of fiscal restraint, right?

And now, if they show less restraint, then what does that mean for countries that love spending, like Italy and whatever other countries? Maybe they will also open the purse strings, because then they’re like, you know what, you’re spending, we’re spending too, let’s go.

Alf (17:41.486)

Yes. So the second round effects of fiscal spending are important. To finish my small story on German fiscal risks, there are two ways by which proper fiscal spend, three ways, sorry, by which proper fiscal spending can still be done.

The first is that the defense spending, the 200 billion, 200 billion is a gigantic number. European defense is a very small sector of the economy and now all of a sudden we’re gonna pump a ton of money in it. Well, okay. So. 200 billion there can be done through an SPV. So basically off balance sheet spending a special purpose vehicle, I think SPV. I only know the acronym, that’s the problem of finance. It’s like an off balance sheet item where you say, look, I mean, we are forced to do this because otherwise our NATO blah, blah, blah. So we need to do it 200 billion, we place it there.

The second way this can be done, with this, I mean, fiscal spending defense and the rest… It’s a very sneaky maneuver that Merz, the potential new chancellor from the CDU is, or the CDU, if you want, English version. Sorry, my German mind. Small caveat, I lived in Germany for two years. So that’s unfortunate and fortunate. I can speak some German and I can also speak some German, which is good and bad. So then effectively they… Merz is trying to maneuver something which is quite interesting. He will try to, probably try to pass the reform of the constitutional debt break in the current sitting parliament.

So until the 25th of March, the old parliament in Germany doesn’t get dissolved. So there is this very interesting window in which he can try to push through a reform of the debt break without having the blocking minority, the potential blocking minority of the far right and the far left. Because not sure if you’re following me, the parliament hasn’t been reshuffled yet. It’s still the old parliament. This will be a very dodge maneuver. I don’t think he will actually go for it, but he chose the extent of their willingness to make this happen.

And the third one, which I think is the most relevant one, is that I’m not sure that the far left party will be very happy to stop fiscal spending. I mean, try to think about it. Far left stops fiscal spending. It doesn’t sound very, very likely. So actually there it’s a negotiation, right? You go to talk to the far left party, they could be a blocking minority, you have to give concessions to them in order for them not to block the reform. And so what could these concessions be?

Well, if I’m a far left party, I would like some fiscal spending to go to the lower income people, right? So something about social and safety net. So it could actually end up, Brent, that fiscal spending gets done mostly in defense, but because of the negotiations done with the far left to reform the constitutional debt break, maybe some fiscal spending gets done in infrastructure, in tax cuts for lower income, and that’s actually a much higher multiplier.

Brent (20:43.199)

And you know what’s interesting is in 2016-17, you had the big dollar rally when Trump was elected, and then the dollar sort of was slowly selling off. And then in April, Macron won, beating Le Pen, and that’s when the euro really took off. And like, obviously this is a little bit different, but it’s actually more similar than it is different. And so you could make the argument that that sort of ripple effect, like I don’t think like a one-off thing in defense is as exciting, but if there’s this ripple effect through other European economies and they just start spending money, then that’s kind of exciting.

And then, you know, you’ve already got the equity outperformance theme and sort of like some end of US exceptionalism vibes going. So, but the problem is now, today’s what? February 26^th, and on March 4th, the tariff deadline hits for Canada and Mexico and so people don’t want to be like too mega long euros into that just because it probably sends a signal with regard to the April deadline for the European tariffs.

Alf (21:48.066)

Yeah, for sure. Never underestimate the Trump wing risk. So I have a couple of PMs I talk to every day and they’re like, what do you think of Trump? Well, everybody says, I don’t know what to think anymore, so I’m just gonna run wing hedges effectively. Like in this case, it’s like, nobody’s afraid of tariffs anymore… Well, let me buy some Dollar Canada upside and park it in the book. And you never know, right?

So I will be running the rest of the book as if Trump doesn’t really matter that much, but you never know. He actually does matter with some erratic behavior and then you need to have some edges in it’s impossible not to, basically.

Brent (22:24.747)

Yeah, CAD gamma is cheap now. Going into the first deadline, was mega, mega expensive, now it’s super cheap. One thing we didn’t talk about is another one of these themes that’s kind of lurking or that that’s been building is whether we’re at peak CapEx for AI. Because I think everyone, you know, remembers dot com and it was optical fiber was the CapEx and then the commodity super cycle. was a lot of different things, like oil sands and iron ore extraction and all that stuff. And CapEx is pretty much by definition cyclical. Like it just can’t go forever. Cause once you build the stuff, you got the stuff and then you don’t need to build it anymore.

So people are trying to predict the top of the, of the AI CapEx cycle. And DeepSeek was a potential like, okay… That’s a bit of a bell ringer. And then Microsoft was canceling some contracts in, in for data centers, which is another piece of the puzzle that makes people think maybe, just maybe that this… you know, when it’s a flex to say how much money you’re spending on CapEx, I think that generally is kind of an alarming situation. Like when you’re trying to outdo your competitors by spending more on capital expenditure, that’s usually a bad sign. I mean, I don’t know enough about the industry to say I have a strong view that this is the peak.

What I do is more like monitor whether that narrative is taking hold or whether it’s not. And Nvidia earnings will be tonight. And the thing is though that there’s a lag. So even if everyone stopped spending on CapEx now, the earnings aren’t going to show up for a while. So people have to get ahead of it by trying to read the tea leaves.

And I mean, in some ways you can definitely read the tea leaves and say that that CapEx is peaking. Then again, if DeepSeek is a success, then maybe you just get a whole bunch more cheap chips being bought and maybe people don’t buy the super expensive ones, but they buy 10 times as many cheap ones. So I don’t know. I think the jury’s out, but it’s a narrative that we have to monitor.

Alf (24:35.778)

Yes. I also would like to add the following on tech capex: I don’t know. That’s what I’m gonna add. No, I mean, this is funny because I get questions a lot and also, you know, people in the fund industry and investors in my fund, they’re like, okay Alf so what do you think? Did Microsoft really cancel the capex? Dude, I have no clue. Like, I know that we do macro Brent, so we’re supposed to know everything, right? That’s basically what people think. If you do macro you’re supposed to know everything to the detail.

Well, not really. I have no clue about tech capex. If somebody listening to this knows, please let us know. Ping us on Bloomberg and teach us, because I don’t know, and Brent probably neither.

 

Brent (25:16.651)

But you know what, for me, is that you don’t have to actually know the truth. You just have to know what everyone else thinks is the truth. And so by consuming the expert commentary and then consuming Wall Street bets and Twitter and all that stuff, you can aggregate, okay, these are the narratives from the different, not sectors, but different cohorts in the market. And the pros are saying one thing and retail saying this.

And then you start aggregating, okay, people are legitimately worried about this. So when new evidence of peak AI capex comes out, you know all the stocks are gonna get crushed. There’s not a lot of people buying the dip like in 2023, 2024 because the narrative feels stale. So to me, it’s always more about not like being a vaccine expert during COVID, but just knowing what people are worried about and what the asymmetry is and which way people are more scared or more greedy.

Alf (26:14.85)

Yes, which actually brings me to the trading part of the podcast. We have skipped this for a couple of times and that’s not allowed because apparently it’s a fan favorite when you and I talk about how not to, outright not to lose money in markets. It’s the most important thing. So one that we really like is you don’t need to be terminally right on stuff. You just need to catch people off guard.

So then the key thing is how do you measure consensus? Short term and long term. These seem to be two different topics. So, and at the am/FX, I think you do it on a weekly basis, Brent, where you have this monitor that tries to estimate the positioning and the flow that is going through various FX, right? So you try to get an idea of the consensus positioning in effects.

So can you talk for a second about how do you do that on the short run? Because then we need to talk about the long-term consensus, which is a much harder game, I think.

Brent (27:11.831)

Sure, so yeah, the question I think first of all, is how relevant is positioning? And I would say most of the time it’s just not relevant. Like either the macro theme is bigger than the positions or the positions aren’t big enough to matter. So I feel like in general, it’s an area that’s like oversubscribed and it really just matters when it matters, which is a skill to identify those moments.

If you look at CFTC positioning, for example, in a lot of currencies, what you want to do is if it’s max long, you want to be long. So it’s not contrarian even, it’s just trend following. So what we try to do is aggregate a few different sources. So like retail sentiment, which is fast moving, and then options market sentiment, which is like in the middle, it’s relatively fast moving, but not as fast as retail. And then CFTC and like model positioning, which is very slow. And then we aggregate those.

But then on top of all that, I’m always just adding in my own interpretation of like the emotional vibration or like the emotional energy of the market. If people are excited about a trade and you send out something like, say everyone’s bullish euro and I send out something bearish and I get a lot of hate mail, that would reveal more to me than like CFTC data. So that makes it obviously more discretionary and less systematic, but you can spend a lot of time back testing different things against CFTC data and you will find some stuff like five day moving average crossover when positioning is at an extreme, like that can work in some currencies.

But I would say generally you need a more holistic look at positioning and just like saying, CFTC is mega long, I’m going to be short… it’s just a losing strategy. And then I guess the ideal situation is that you make some determination of like, okay, there’s a big long in the market. People are emotional about it. And XYZ is about to happen, which could break that. And then, you know, that’s the perfect setup.

Like Palantir was like, everyone was mega bullish, most overvalued mega cap stock in the history of stock markets. And then there’s a headline that they’re gonna cut defense spending. And so in that case, you could go with it for a bit because if you had the correct view on positioning, then you got a negative catalyst and then the thing shits the bed. So that’s the sort of the dream scenario.

And then in general, you can sort of bring together your sort of discretionary view and the data. Because the one good thing about the data is that it just keeps you on course and eliminates your bias because if you tend to be bear stocks, you can always find something on Twitter that makes you think, everyone’s bearish, but they’re probably not.

Alf (30:09.548)

Yeah. So on the short-term positioning, for example, trying to track CTAs, which are, for people who don’t know this, let’s say trend following hedge fund strategies, will tell you a lot about how people are positioned for the short run. But as Brent says, in most cases, it’s actually good to go with the CTA because guess what? If the trend is going, then there will be more CTAs that join the trend. It’s only when it becomes really ludicrously, let’s say, momentum-driven, and if you fall on like an RSI strategy, we’re talking about like very, very high type of relative strength indicators, then maybe you can try for a counter. But that’s really, really hard. It’s actually easier to go with the trend.

For me, Brent, the most interesting discussion here is more about long-term macro ownership. At least for me, as you know, like we have a bit of divergent time horizons, like you trade on a much shorter timeframe than I do. In the fund, for example, the average holding period of our position is three to six months. So you might fall asleep if you’re trying to watch me trade. I mean, it’s macro. It takes some time for stuff to unravel in my book, at least.

So when I look at that, for me, the most important thing is how do I know if this particular asset cluster view is owned from real money, not from fast money, CTA, retail, from real money? I mean, is the guy who’s running some sort of RIA in America or a pension fund in Canada, are they long this thing or not? Or are they still watching it and they’re not in yet?

So I’m gonna finish after I ask you a question with a very funny anecdote, which is very empirical, but I think it’s very interesting. But let me ask you, do you have a way to understand if a narrative is owned from a real money macro perspective? I mean, are pension funds invested in this thing or not?

Brent (32:03.755)

Honestly, no. So when I worked at banks, yes, because you talked to all the pension funds, but here I just talk to hedge funds and banks. So honestly, generally I don’t have any idea. One thing, one just really quick thing that I forgot to mention is that the one important thing to know about your product when you’re thinking about positioning is if it’s trending or mean reverting. Because the simple thing is like Canada tends to mean revert like dollar CAD and dollar yen tends to trend. And you see that in the CFTC.

Like if you go with the CFTC on yen, you make money. But if you go with them on CAD, you don’t because dollar CAD’s mean reverting. So knowing the type of currency or product that you’re trading, whether it’s regime, tends to be mean reverting or trending is an important thing when looking at positioning.

Alf (32:50.69)

Yeah, absolutely yes. So now with the funny anecdote. So caveat, I didn’t make it a secret that I like international stocks this year more than I like US stocks. Okay, fine. So to test the ground, sometimes I have chats with my institutional clients at the research side. And there is this asset manager in Boca Raton.

We are having a chat and then he says, by the way, I’ve read a couple of pieces. I think I should subscribe to this view on Europe. Specifically, I think European banks are something I would like to own. I was like okay, that’s interesting. What’s the ticker? I said, what do you mean, yeah, this is the ticker? Yeah, you know, I’m asking because I’m just, you know, I start monitoring this thing, but I’ve never really invested in European banks. I mean, at the end of the day, quote unquote, European banks are basically the guardian of the open air museum, that it’s Europe.

I was like, okay, well, this is the ticker and take a look and it’s very liquid and you can invest in these banks have names like, you know, Societe Generale, ING, Barclays, they have names, these banks, you know. And he was like, yeah, yeah, just making fun, but I really didn’t know the ticker, et cetera. And I was like, what? So like this thing has gone up in a straight line. There is a narrative behind, at least for me, I think the risk reward is okay in this type of assets.

And then you have international asset managers that are starting to look into it, but to the point they’ve never done it before. Like it was never an asset, European banks. I mean, go away, what is that? And now they need to learn what the ticker is, which really tells me that, probably, this is not very owned as a trade by international real money at least.

Brent (34:43.401)

Right, yeah, my first instinct when I heard that is that I would be alarmed, but then you’re right, that means the flow hasn’t happened necessarily yet and there’s still lot of money that could be still coming in in the next year or whatever.

Alf (34:54.242)

I made a joke with my partner at the fund Brent, that we’re gonna unwind our international stock positions when The Economist is gonna make a cover – and you are the teacher there – they’re gonna make a cover and they’re gonna say “The Revenge of Europe,” something like that. And then we’re gonna tell.

Brent (35:09.751)

You know what, actually, I was going to mention that before when you talked about, I know we’re out of time here, but when you talked about the defense spending is that is the worst trade ever for the magazine cover indicator is short run Mattel on… there was a cover about European defense, something or other. And that stock has gone absolutely apeshit. It’s like a tech. It’s think it’s doubled or something since then.

Alf (35:32.93)

But why didn’t you post anything about it? I I love that stuff. You did? Man, I missed it. I should read your stuff every single day and never miss one. So what are the magazines that actually are contrarian indicators? It’s The Economist and Time, I think, right, in your study.

Brent (35:46.527)

Yeah, yeah, that’s right. It’s because those are less financial publications, like things like Barron’s in Business Week and stuff. They’re just talking about stuff all the time, so they’re more coincident. But it takes a long time for a financial market story to hit the cover of Time or of The Economist.

Alf (36:03.212)

Yeah, so when European banks are going to be up 50% in June, then The Economist is going to make a story about them and then you can sell them back. Just daydreaming. Daydreaming, that’s the plan.

Well, guys, thanks again for listening. I made a mistake not reading Brent on the coverage of the economy, on the cover of The Economist and I lost money on Ryan Metal. No, just joking. It’s an invite for you to read this stuff every day. Okay, go am/FX, buy that thing, it’s very cheap for the value or just ping, Brent is a nice guy, he will explain.

Brent (36:35.223)

All right, thanks a lot, and Alf’s on Bloomberg too, if you want to talk to him. All right, ciao. Thanks.

Alf (36:38.798)

Ciao guys, talk to you again next week.