So, we’re getting in the phase where we’re going to have a very slow patch and there is no sign yet that it’s turning around, so it could accelerate lower. So, the recession is potentially on the cards, it’s certainly on the cards in Europe and we need to figure out what this even means. There is a massive liquidation going on as people struggle with their portfolios because, basically, whatever position you’ve got – it’s wrong and that’s the pain. Everyone’s gonna have to take it for a while.
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This is an ugly market. What I think is going on here is there are two factors for the market to digest, one is inflation and that created the market to set up in certain ways. Everyone’s crowded into certain themes then growth starts evaporating. You can see it all over the place, stuff like consumer discretionary stocks. You could sit in the forward-looking indicators and so the market has to deal with inflation plus growth. What that basically means is everyone hits the liquidate button. So, everything’s getting liquidated. This is the correlation of one-star markets that I was warning about and it hits everything from crypto to pretty much everything. The thing that stands above all ends up being the dollar because that is the kind of safe haven macro investor role, Paul. He explains in his latest interview why he believes that because of the macro environment alongside rising interest rates. No asset classes, safe for investors’ portfolios and there is more pain coming across the board – global recession – is something. Paul has been hinting at for months now but with the downturn looking ever more likely Paul gives an update on investing conditions. Namely, how he thinks cryptocurrencies Bitcoin and Ethereum react.
So. I think we’re at an inflection point and a lot of people don’t agree with me. So, I wanted to go. That’s why I did the campaign. It’s like listening. This is a really complicated macro environment, but it’s very macro right. We need to know and understand the best people in the world. What the hell is going on? Because my voice is just my voice. My personal view is that we are doing the transition from inflation to growth. The next shoot drop will be the inflation shoe. I think inflation and growth go lower and we either get, we both head into recession. Europe looks like it’s already in recession China has been essentially in recession for a while. Now, but maybe coming out the other side early and the US forward-looking indicators suggest a look. It’s not clear. It’s a recession but it’s clear that the ism is certainly headed to 50 or maybe just below which is the ism the institute supply management survey suggests that growth – is stalled anything below 47 usually gives a recession. We’re getting in the phase where we’re going to have a very slow patch.
There is no sign yet that that’s turning around. So, it could accelerate lower, so the recession is potentially on the cards. It’s certainly on the cards in Europe and we need to figure out what this even means. What does it mean? I think the big thing it means is bond yields. They are coming lower because of the inflation narrative. I think it is about to change in the content week two of the content campaign. We have interviewed, I`m so lucky to be in the position. I’m in to sit down with ask Pierre Andren. The world’s best oil trader, what’s going on in all markets and Dwight Anderson, is probably, the world’s most famous commodity trader. What’s going on in the commodity markets? You know, their view is that prices will lead to demand destruction and I think that’s what we’re seeing. We’re seeing commodities, crowding our growth and I’m also keeping an eye on crude oil to see how it trades. A lot of people have very bullish forecasts, but I’m worried that the demand situation is not quite as good. If crude oil does break this pattern to the downside and it’s far to be proven yet then the inflation narrative would disappear very quickly because inflation expectations are basically driven by the oil price, bizarrely.
As if that’s not the only thing that drives inflation, but that’s what drives inflation expectations that would change the narrative a lot and drive the panic into bonds. If you’ve got a falling equity market, falling growth, falling inflation. Well, that drives everybody into the dollar and bonds as people know I love the dollar and bonds generally as a trade – that’s the most macro trade of all. If oil breaks higher, it’s only going to increase the demand destruction and the squeeze from corporate balance sheets, and the squeeze on households. It’s not a good setup here either way, we’ve either done the damage already or we’re going to do some more damage. So, you know these are very important markets and this is a very macro environment and it’s very important to understand what it is now. If I’m right the inflation story is going to change and growth is going to go slower. Then we start shifting into a dynamic where we question. What the Central Bank’s going to be doing and if bond yields are going to come lower. That’s been really beaten up like the further end of the growth stocks. They should be more interested in that environment because they got killed by inflation. I think goals are pretty. Well, it’s interesting enough. Gold and growth stocks tend to do badly as real rates start tightening, but they got to zero and it looks like the world’s falling apart. Just as the Central Bank is trying to undertake quantitative tightening or at least no QE. If that’s the case then real rates are going negative again if I’m right and that’s usually good for gold, crypto long end of growth that kind of stuff and bad for everything that people have been in like commodity stocks.
The real economy seems to have slowed really fast so because what’s happened is everybody built inventories because of supply backlogs right. The right thing to do is supply backlog’s clear demand falls because of high commodity prices and inflation. Everyone’s stuck with a whole bunch of inventories that need to be liquidated. That’s not good. We’re seeing the supply backlogs clear because the port of long beach in the US is much clearer now. We’re seeing the same with freight traffic has gone negative year on year, suggesting that the economy may slow significantly forward. So, that cut those kinds of indicators restaurants were weak. The consumers offset some of this by credit so we’ve seen them drawing down their savings so the savings ratio has been collapsing but consumer credit has held up and that’s what traditionally happens in the US.
They balance off savings and credit but if people start losing jobs then all bets are off again. I don’t think there’s anything really severe on the horizon. But, let’s keep an eye on Europe’s different story here. Europe’s between a rock and a hard place because of the reliance on Russian commodities particularly on gas and Europe’s in the transition to ESG. That transition is going to take the best part of a decade before it really starts taking marginal demand away from fossil fuels. They’re steadfastly wanting to adhere to that and I think it’s the right thing to do, but they’re gonna have to take pain in the middle and the pain is the economy.
What’s happening is the outlet valve for that right now is the euro which has been going down fast. We’ve seen the outlet valve in Japan being the yen going down fast and we’re starting to see the outlet valve in China being the RMB going down now. That’s actually good. The rising dollar is bad in the short term because it creates funding problems. It can slow growth significantly, but if these economies see cheaper currencies over time. It’s going to create a larger deflationary wave because they’re all exporting nations, so there’s kind of the bad of the strong dollar and the good of the strong dollar all at play. But, that’s a phased thing. First the dollar goes up fast is a bad thing then a weak set of global currencies helps them get traction and recover. You don’t stop technology with a recession. What you do is you might stop consumer behavior. You might stop marginal dollars flowing into developing new projects.
But the technological adoption whether it’s robotics or ai or space or crypto or any of these genetics that’s not going away. So, even if they trade sideways, they become cheap over time because network adoption keeps growing. Now, recessions can slow these things somewhat. But, yes. And the star can get whacked in the interim, of course, as we said yes and you need to use logarithmic charts and understand that these are volatile things. You use logarithmic charts and I like the regression channels that I use and you look for things like monthly log charts where they get two standard deviations oversold. Things start to become interesting. Transition phases mean maximum uncertainty.
What markets hate uncertainty um so you know I think it just continues downside for a while I don’t think this is an end-of-the-world event here. I think it’s a recalibration and I’ve started to buy you know growth names. I’m starting to get very close to pulling the trigger in bonds as I think the narrative will change and looks like crypto as I said is going to get hit further. I’s going to come a bit lower down and I think it’s still within the broad range that we’ve been in since March and I think that’s because it looks like the networks are pretty stable. Network growth is stable: they’re not falling, they’re not growing. It is what, it is that narrative turns around. If the inflation narrative and growth narrative turn around, if not they’re just weak within this big sloppy range and I don’t see.
This article is a transcription of a video made by Jamiee Tree
Original video: https://youtu.be/ttj2I1HBM_E
