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Week Ahead

The Week Ahead – 31 Jan 2022

We’re dissecting Jerome Powell’s latest announcement — what does that mean to markets this coming week? Will we see Powell’s inner Volcker this year? What are we expecting to happen in the energy markets considering the geopolitical risks in Russia and Ukraine? Has the White House and Treasury told the Fed to fight inflation as its top priority?

This is the fourth episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.

https://open.spotify.com/episode/1CgJgSFPcqQ5VMuopN9S2h?si=212cd6f83928481a
For those who prefer to listen to this episode, here’s the podcast version for you.

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Tracy: https://twitter.com/chigrl
Nick: https://twitter.com/nglinsman/
Albert: https://twitter.com/amlivemon

Show Notes

TN: Hi, everyone, and welcome to The Week Ahead. I’m Tony Nash. And I’m joined by Nick Glinsman, Albert Marko, and Tracy Shuchart. Before we get started, I’d like to ask you to subscribe to our YouTube channel. It helps us with visibility, helps you get reminded of our new episode. So please do that.

While you’re thinking about it, this week was all about the Fed. Of course, we expected Monday and Tuesday to be choppy. We told you that on our last Week Ahead, which they were. We talked about it last week. We talked about the said meeting last week. And as Wednesday got closer, it appeared that Powell would be more bearish. And that seems to be exactly what we got.

So today we’d love to focus on a few things. Nick, let’s start with you. What were your main takeaways from the Fed?

NG: Okay, I’ve got three takeaways, most of which came after the Fed. Okay. The statement was sort of bland, almost appalling in terms of, it felt like it was leaving the risk markets to determine the Fed’s policy. And then, boy, Powell come out hawkish. He refused to give any direct answers but never denied any of the points and the questions such as how many rates, how many it takes?

So what was interesting is today, we had the first Fed Speaker, Neil Kashkari, the Uberdam for the FOMC.

TN: That’s right.

NG: And he basically came out and said whatever it takes, we’ve got to get inflation. I mean, shocking. Now where Powell got confirmed in his hawkishness came today with the ECI data. The base figure was slightly less than expected. But lift the bedsheets up and you are seeing major wage pressures.

If you look at some of the increases in wages and salaries, four and a half percent for all civilian workers, 5% for private sector workers, up from 4.2 and 4.6% respectively. If you go deeper, hospitality, health care, you’re looking at 7% and 8% increases.

TN: Nurses in many cases are making as much as doctors now in a number of cases.

NG: Exactly. So that basically confirmed Powell’s words of a rapid pace of wage grip. Okay. And I think that was a very key piece of data, which in fact, a Bongi like me would have been waiting for. Right now.

TN: We don’t see them bonds today, did we?

NG: What’s that?

TN: We didn’t see the action in bonds today, did we?

NG: They were down initially and then after the day, they rallied a bit. But I think that was more to do with reversing a very successful week of your well positioned. And what’s interesting, though, this came after that hawkish press conference. So typically what you have is the yoke of mutually reinforces the relationship with the Fed’s monetary policy. So simplistically, when an economy is strong and in danger of overheating, you are going to see the yield curve steeper. Long end, higher rates relative to the short end.

Now that then reflects that the rates have to rise, that’s the historical perspective. What was interesting this time was the curve was bare flat, and it was headed towards an inversion, the consensus. That’s a really bad signal of an approaching recession.

What it’s basically suggesting at that point, historically, the bond market tends to suggest Fed’s tighten too much. We’re going to get a recession. It needs to stop. Reassess, perhaps even cut. So what’s startling about this whole move is you got yield curve flat, bear flattening, coming so soon before the Fed has even started raising rates.

TN: Right.

NG: So if you have a Swift move to inversion, it’s going to be slightly, somewhat harder for the Fed to carry out its hiking program over time. That tells me that you’re going to have it front loaded. It also suggests to me, which is what you got from Powell’s press conference, it may not be 25 basis points each hike. It may be 350s. Right. Especially with this inflation.

He was all about inflation risks to the upside and a very strong labor market.

TN: 350 basis point hikes. I just want to make sure we make sure that we know what you said.

NG: Yes. Basically the Yoker is suggesting that. But some of his comments were this is a labor market that’s rocketing. This is inflation that still has risk. The upside. We saw a bit of that today. He also said supply chains are not going to get resolved this year. We’re going to have to wait till next year.

TN: Okay. Let’s stop there, because I want to ask you something, and this may be an overly simplistic way of asking the question and Albert and Tracy jump in here.

But it seems to me that kind of what he’s saying indirectly is, hey, there are supply side inflation, okay. And we as the Fed can’t control the supply side, we can only control the demand side to some extent. And so what we’re going to do is we’re going to put a stopper on demand so that demand can come down to match up with the available supply. And that’s how we’re going to we don’t have the tools to put the kibosh on the supply side inflation. So we’re going to bring the demand down.

First of all, does that seem to be what he’s saying?

NG: I think that’s probably what he’s trying to say. I would add one other point. So we were all thinking that after the big rise in crude oil and energy prices last year, we would get some beneficial payback by the comparison, but we’re not oil still going up, so we’re not getting that.

And the most extreme version is, for example, Europe. These have all got to feed through from wholesale to retail.

AM: Yeah.

NG: I think it was 95% of surveyed American CEOs. I can’t remember the sort of survey, but I can dig it out. Are expecting to raise prices.

AM: Yeah. The problem with them trying to limit demand, though, is it’s going to start affecting jobs. Labor market’s certainly going to weaken if demand starts to fall off. Because wage inflation is going nowhere. I’ll tell you that right now. Wage inflation is here to stay politically is absolutely just not going to ever come back down. So that’s going to be sticky for quite a while.

NG: But I think Powell was implying that where he basically said the labor market is super strong. So I don’t disagree with it will dampen it. The question is whether it turns around.

Remember, we’re getting all these people retiring and dropping out. Yes, that was your data, Albert.

TS: He kept reiterating the labor market is super strong. But the labor market really, if you look under the hood of it, it’s not really super strong. We all know that.

TN: That’s true.

NG: Yeah. Agreed. But it’s perceptions. Remember, these guys are basing their work off their forecasts. One of their forecasts have ever been right. Okay. Even worse in Europe. So the point I’m making is they have their parameters. They have the data that they look at and monitor and whether we agree with that data or not. And I mean, I would always disagree with the way the Fed measures, the BLS measures CPI, but it was impacted by Arthur Burns of the Fed in 1970s. Right.

So the point to be made is they have their data sets that they watch, and according to those data sets, they may be wrong. I don’t disagree.

TN: So just yes or no, because you’re implying some things that two weeks ago we talked about or last week we talked about, yes or no. Will we see J. Powell’s innver Volcker this year?

NG: Yes.

TN: We will?

NG: In the short term.

TN: Albert, what do you think? Yes or no? Will we see J. Powell’s inner Volcker?

NG: Mini Volcker.

AM: Mini Volcker, I agree with. One and done Volcker, a one week Volcker, yes, I agree with.

NG: If he does the one and done, the bond market will riot. If you look at the Fed meeting. But look at the statement. That statement said, basically risk assets will determine the level of Fed funds, right?

AM: Yeah.

NG: Bond market’s sold off. Hold on. The bond market’s sold off, aggressively. Sold off all across the curve and particularly the long end. It didn’t start to flatten in a bare manner until that press conference.

TN: Sorry, guys, let me stop you both just for a second. Tracy, will J. Powell show his inner mini Volcker this year?

TS: I said this last week. I’m in the one and done camp, maybe two, but I’m cutting it out there. I know Bank of America came out today and said seven. They said the “seven” yes, today, which I think I don’t know what they’re smoking exactly. But I’ll go with max two on this one, even though I said one and done. I’ll stretch that out.

Maybe one more, but that’s where I stand on that one.

TN: Okay. So while we’re with you, Tracy, can you give us a quick view on what did markets get right and wrong this week from your perspective? What do you think is a little bit out of whack?

TS: Well, I mean, I think energy markets obviously remain elevated because of the Russia-Ukraine risk, right? Because Russia’s 10 million barrels per day, they produce a lot of gas. That’s here with us to say we have a northeastern so that kept a bid under at least the energy markets, right. I think last week we were talking about continued volatility all around in, say, the indices and obviously that trend is continued and probably likely will continue into next week.

Again, looking ahead to next week, I expect that probably we’ll still keep a bid under oil, but we did go kind of sideways this week. Even though we got new highs, I still think we’ll stay in that $82 to $87 range, probably for the next week or so, and then probably get a little bit. If nothing happens with Russian and Ukraine, we’ll get a little bit of pullback there. But still looking at the overall fundamentals of the market, they remain very strong. So I don’t think we’ll see any kind of material.

TN: Okay. This is on the commodity side. On the commodity side. Okay. What about the equity side?

TS: Well, it’s. Far as equities indices are concerned, I think that we’re again going to see continued volatility. What I think is very interesting. As long as the market is pricing in rate hikes, that’s going to put pressure on growth versus value. Right.

And so I think that trend will continue. I think we’re in for a rough note. Until that March meeting, until we actually hear an actual decision, we could be setting up for another volatile month in February.

TN: Okay. That’s fun. Right. Okay. So let’s take that and let’s swing over to geopolitics for a minute. And Albert, I want to ask you a couple of things about geopolitics. Tracy mentioned Kazakhstan, which we’ll get to in a minute. But has the White House told the Fed and treasury that inflation is a top priority? Is that what you’re hearing out of DC? Are they getting political pressure to make inflation their top priority?

AM: Oh, absolutely. Inflation is a nuclear bomb for politicians. I mean, gas prices rising, food prices rising. The job market is they can say it’s strong, but it’s not. I mean, realistically talking about 15%, 20% unemployment, so it’s not strong. So, yeah, inflation is absolutely priority number one for the next couple of months.

TN: Right. Okay. And then as we move into a little bit more on geopolitics, so we got a viewer question from at 77, Psycho Economics. He says, has Russia’s stabilization of Kazakhstan increased their influence over energy exports to Europe?

So give us a little bit of kind of overview of what you see happening in Kazakhstan. And then if you and Tracy can help us understand what’s happening with the energy exports to Europe, that would be really helpful.

AM: Yeah. Kazakhstan has been stuck between Russia and China for a couple of years now. But realistically, that’s Russia’s backyard. They control the area. Ever since the United States was booted out of Uzbekistan, they’ve lost a lot of sway in the region. So the energy sector from Kazakhstan all the way to Turkey and into the Mediterranean is pretty well dominated by the Russians right now.

TS: And I would agree with that. I would also like to mention just as an energy producer, I mean, Kazakhstan doesn’t produce all that much.

So if you’re looking at the commodity side, I would say Ukraine would have more of a dent because of how much they’re involved in the cereals markets. How much do they export in the cereals markets, how much they export in the uranium market. So that’s definitely more commodities heavy area that I would be concerned about then Kazakhstan, just from the energy standpoint.

AM: Yeah. And when you’re looking at Russia and talking about energy, it’s not necessarily you don’t single out just Russia’s energy production. They go out and they meddle everywhere they possibly can, whether it be Libya, Kazakhstan, Turkey, everywhere they can to sit there and depress those energy exports so they can pump out there. So that’s what I mean by Russian dominance in the sectors. Sure.

NG: Will Russia attack the Ukraine?

AM: You’re looking at maybe 1020 thousand conscripts that Russia probably hasn’t paid in a while to go and loot the countryside of Ukraine where it’s already Russian dominated speakers.

Biden comes out and talks about sacking Kiev as if it’s Hannibal on the gates of Rome. This is just absurdity. Russia has no military, nor does he want to go into Kiev and hold it. What’s the point of bombing the thing? Of course, they can go in and destroy Kia if they wanted to overnight, but that serves absolutely zero purpose. So are they going to invade? Yeah. I mean, I would give it a 60 70% chance, but would it be something some big kind of issue at. No, the market is looking at this issue as World War II. And it’s just nothing more than a little bit of a skirmish that’s kind of kinetic.

TN: But they’ve already invaded the economy. They’ve already invaded any investors who want to go into Ukraine, that nobody’s going to touch Ukraine for at least the next year. Right.

AM: Well, Tony, listen, I’ve been to that region, worked there for years in Georgia and Ukraine. I mean, Ukraine has corruption issues, of course, aside from the Russian problem. Right. They’ve got legal framework problems and corruption problems that it makes investing there quite difficult.

TN: Right. Okay, so you’re saying no, not going to happen. You’re saying maybe some looting in Eastern Ukraine.

AM: But they’ll reinvent the same areas that they did in 2014. They’ll make Biden and the west look inept, and that’s their goal. That’s it.

TN: Great. Okay. Sounds fun. As we look ahead, what milestones are you looking for? The week ahead, Nick, what are you expecting to see next week in markets?

NG: I’m fascinated to see the next bunch of Fed speakers come out. If we had the Uber Dove, very hawkish. That’s as hawkish as he’s ever spoken, Kashkari. I’m fascinated to see what the others are going to say.

What I can’t get a handle on is whether this is a genuine bear market inversion or flattening going on the bomb market. I still maintain the point that you’ve got to look at the market and watch what’s going on. Okay.

So I’ll be interested to see whether that continues. If it doesn’t continue, that tells me that it was actually a bit half partly people reversing bad positions on the Euro curve because really traditionally we should be having your curve deepening.

And then next week, well, we’ve got unemployment coming out on the Friday, so that’s going to be pretty fascinating. And then we’ll have the following week, all that inflation data starting to come through, and we won’t have the favorable comparisons from a year ago.

The banks have all jumped on like Tracy said, bank of America seven hikes. Goldman is four to five hikes. They are jumping on this. This did surprise the banking community, with maybe the exception of Goldman, who came out beforehand and said this is what I was thinking. So it’s a pull and push between what we’ve just been discussing. How many heights have we got a minivolk building up here in the Fed? If he’s got the support of the White House and treasury, then maybe we have. Right. I think he had to have that before he came out with that sort of speech.

So the question I mean, I looked at today’s equity market. To me that started off as a okay, let’s cover the shorts because we’ve had a good week and there’s no liquidity. So the market just carried on popping up be interesting to see what happens on Monday. And remember, we have holiday, new lunar year, holiday in the Far East. So the forest is shut, as it were, even less liquid.

TN: Right. So, Tracy, you’ve said for a long time that Yellen is a strong dollar Treasury Secretary. And so what Nick is saying about the Fed and the treasury and the White House being in sync, it seems to make sense if they’re tightening that that is certainly something that Yellen might want.

TS: Obviously, you’re going to see a strong dollar. The Feds raising rates, they’re taking liquidity out of the dollar market. Right. So in that environment, we are going to see a rising dollar. What we should be looking at, though, is emerging markets. Right that nobody’s really talking about. How does this affect emerging markets? Emerging market debt that’s denominated in USC as a dollar gets higher, that puts pressure on emerging markets, even though a lot of banks came out and said emerging markets should do better this year than DM markets, but in my opinion, not in an environment where we see a rising US dollar. So that’s something to look forward to.

TN: In the biggest emerging market. We saw the Euro really taken to the shorts this week. Right. So the Euro is really problematic and it’s probably the newest of the emerging markets, in my view. So they’ve got real problems. But yeah, I think watching emerging market currencies is something that we really need to do over the next probably month to see how dramatic will the shift that we saw this week, will that remain? Will that get even more dire? I think it will. Yeah.

And Albert, what are you watching for the next week?

AM: I have to reiterate what Tracy just said. Literally, it’s the US dollar in the first half of the week and then this bonds the second half of the week.

I think if the US dollar gets over 98, it’s a real problem for emerging markets.

TN: Yeah.

AM: Especially the Europeans. You’re talking about the Euro. But the Europeans like the Euro suppressed right here because it’s boosting the manufacturing sector. So it’s like it’s a give and take with them. But yes, the dollar gets over 98. Start looking at problems.

TN: Well, and my big question is when will the CNT break? When will they finally say uncle and I’ve been saying for a while it’ll happen after lunar new year. They just can’t keep this up. And with an appreciated dollar, it becomes even harder for them to keep that CNY at six point 35 or whatever it is right now.

NG: Did we see a few little twitches of weakness today and yesterday?

TN: We did, yes.

AM: Just remember, Tony, October is a big meeting for the party in China and they are going to stimulate that economy sometime this year. It’s just a matter of when it starts and when you’re talking about the currency. Yeah. That’s going to be a problem that we have to tackle pretty quickly.

TN: Well, it’s monetary policy. Q one, Q two and it’s a lot of spending in Q two. Q three, right?

AM: Absolutely.

TN: They’re going to play with the currency in Q one. Q two and play with the triple R and all this other stuff in Q one, Q two. And then spending is going to rip starting in June.

AM: Oh, yeah. Full disclosure. I’m building big position in China names as we go here.

TS: And commodities will benefit from that as well. They start spending right. And you’re going to see commodities rip as well, which also hurts the inflation picture.

NG: I was going to say that will be a negative for the bond market.

TN: Okay, guys. On that note, thank you very much. It’s been great and have a great weekend. Thank you.

TS: Thank you.

NG: Thank you, Bernie.

TN: Okay. Good one, guy.

NG: That was my feet.

TS: That was good. I liked.

Categories
Podcasts

Markets Pause As Wells, BOFA Miss And Stimulus Remain Distant

In this discussion with BFM 89.9, Tony Nash shares views on the recent bank earnings, update on Brexit and why it’s stalled, the future of Hong Kong and how vaccine news play for markets.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/markets-pause-as-wells-bofa-miss-and-stimulus-remain-distant on October 15, 2020.

 


BFM Description

 

The diminishing likelihood of stimulus and poor bank earnings have paused stock markets for now, as electioneering ramps up ahead of November polls, according to Tony Nash, CEO of Complete Intelligence, who discusses bank earnings, market expectations as well as Brexit.

 

Produced by: Mike Gong

 

Presented by: Khoo Hsu Chuang, Wong Shou Ning

 

Show Notes

 

KHC: On the line with us now is Tony of Complete Intelligence for some clarity on markets. Tony, thanks for talking to us. Now, obviously, the Wells Fargo, Bank of America, Goldman Sachs have all reported results so far. What is your take on the financial sector earnings thus far?

 

TN: Goldman obviously reported really well, Bank of America is down five percent. There was a huge disappointment there. Could get worse. A lot of that had to do with these penalties that were levied several weeks ago. But it looks like the investment banks are doing much better than the consumer banks. And until we get a next round of stimulus and we start to see money moving into the accounts of those guys who are unemployed, which is not a small number in the US, I think consumer banks will continue to suffer.

 

KHC: On that particular issue of the impasse in terms of a stimulus being introduced before elections, what is the biggest deterrent to consensus being reached on that front?

 

TN: One of the biggest issues is that you have a lot of states, all of them that are Democrat states that are heavily indebted. So what the House majority leader is pushing is a bailout program for those Democrat states like California, New York, Illinois, that have have billions of dollars in debt that have been racked up over the last 10 or 20 years. What are typically Republican states typically have balanced budgets. It would effectively be the Republican states bailing out the Democrat states. It’s a problem here in the US.

 

The other item is the House majority leader, Nancy Pelosi, wants to give stimulus checks to illegal immigrants in the US. She wants to give a few thousand dollars to people who are in the US illegally. And the Republicans are saying, no, why would we do that? So those are two of the things that are really holding things up in terms of the stimulus plan. And it’s electioneering. Democrats want to give money to the party faithful in their heavily indebted blue states. And they also want to try to get some votes from the illegal aliens who aren’t legally allowed to vote. But they want to get some loyalty from those illegal immigrants who are in the US.

 

WSN: Another thing that seems to be having an impact on markets is vaccine news. So every time we hear of a vaccine trial feeding, markets correct. Is it possible at all to quantify how much of this is in the markets really in terms of optimism?

 

TN: Remember, in 2019, every day, whenever we needed a bump in markets, Trump would tweet, a trade deal is near. And then we finally had the phase one deal in December. It seems like whenever there’s a tweet or some news about a vaccine, it’s because a bump in markets is needed. There’s a lot of cynicism among traders about vaccine. Until we see something actually proven and actually in a market, you’re not going to see a real firm belief in the difference it can make. So it’s going to be at least Q1 or so before we see things deployed.

 

We don’t necessarily expect the benefits to happen until 2021. But the problem, at least here in the US, is that nobody wants to be the guinea pig. At least half of Americans surveyed don’t want to be the first one. They’re going to have to see some high-level politicians go in, roll up their sleeves, get the job and and really face the consequences, if there are any negative consequences, because a lot of Americans just aren’t believers and they’re really worried about the effects of it.

 

KHC: OK, switching to the UK, if the UK fails to negotiate a Brexit deadline deal today, how should investors position themselves? And would you recommend shorting sterling assets?

 

TN: I think it’s a possibility. I don’t know if I’d necessarily recommend it, because I think the status quo is baked in to expectations. We haven’t necessarily had a positive outlook to negotiations for two or three years now. I think the expectation is that things will continue to muddle through and markets will fold that end. So I don’t know. Outside of a very positive agreement for the UK, I don’t necessarily think there’s huge upside anywhere.

 

And outside of a very negative concession given by the UK, I don’t think there’s huge downside anywhere because the EU is just intransigent there. They’ve been embarrassed by this whole process. They don’t want to negotiate and they’re not moving at all. So I think we’re in the range of where things will be outside of a major announcement somewhere.

 

WSN: Looking at China yesterday or a few days ago, his speech has outlined a comprehensive vision of for Shenzhen. What does this mean for Hong Kong’s economic future? Do you see a bright, a bleak one for the city street?

 

TN: Hong Kong’s fate was sealed in 2014 with the demonstrations. And I’ve been saying this since twenty fifteen. At that time, the MDC and the folks in the central government were planning on other options for the activities that were happening in Hong Kong. What we saw with the announcement in Shenzhen yesterday was simply cementing Shenzhen’s place, the central city at the end of the PRD, right at the end of the Pearl River Delta.

 

And so Hong Kong is no longer the central location. It is a place to get hard currency. But it’s no longer an industrial location. I believe we’ll start to see financial services move to other places over the next ten years. Not an overnight activity, but it’s something that certainly the central government wants to happen.

 

KHC: OK, Tony, thanks so much for your time. That was Tony Nash of Complete Intelligence.

 

His comments in terms of of China also resonate because we’ve got certain diplomats, a top ranking government officials coming to the Asian region for a charm offensive, but also his comments on banks, a tale of two halves, really, consumer banks that well said Bank of America really failed to meet expectations. They did beat expectations, but they felt some way of sort of you and your performance numbers. But then the investment banks like Goldman Sachs have done really well because of the trading desks and the stimulus checks that were written in the third quarter.

 

WSN: Yeah, actually, 2020 is the reverse of 2008 during the great financial crisis. If you remember then American banks itself, all the investment banks. Right, because of the derivative losses in the books exposed to the shuffle in equity markets. But this time around, actually, the volatility has really helped them. So for a change, they’ve seen incredible jumps in trading investment income. But it’s the main street banks which are feeling the pinch. So, yes, there’s an increase in deposits for these banks.

 

But for the consumer banks, for the main street banks, nobody or less people are taking out loans, is less credit cut usage as a result. So, you know, no such not such good times for the consumer banks. Better for the. And bad guys out there.

 

KHC: Now, of course, and Morgan Stanley reports tomorrow we saw net interest margin set wells and Bank of America really being crushed as well. And not many, not many companies reporting earnings are giving outlook statements.

Categories
QuickHit Visual (Videos)

QuickHit: “Perceived Recovery” and the Artificial Market

Political economic consultant Albert Marko joins us for this week’s QuickHit episode where he explained about this “perceived recovery” and how this artificial boost in markets help the economy. He also shares his views on the 2020 US Presidential Election and the chance of Trump winning or losing this year. What will happen if his scenario plays out, particularly to the Dollar, Euro, and others?

 

Albert Marko advises congressional members and some financial firms on how the machinations of what D.C. does and how money flows from the Fed, Treasury or Congress out to the real world. He is also the co-founder and COO of Favore Media Group.

 

This QuickHit episode was recorded on August 25, 2020.

 

Last week’s QuickHit was with independent trading expert Tracy Shuchart on the end of “buy everything” market and the unknowns and apprehensions.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: We’ve seen a lot of intervention in markets from the Fed and the Treasury. I’d really love to hear what you’ve seen and what your assessment is of that activity.

 

AM: First off, we have to understand that politics and economics are tied to the head. You can’t deviate from the two of them. I don’t like when people try to disassociate the two from that. The Fed and the Treasury had to work on financial stability of the markets. That is the ground game right now. The only way to do such a thing would be to congregate all the market makers and select certain equities and pump those equities until the market had a perceived recovery at that point.

 

TN: So perceived recovery, that’s an interesting, interesting word. When you say market makers or strategists got together and plan this, what concentrations have you seen in markets? Is it possible to focus on a specific number of companies and make sure that the rest of the market moves based on their coattails?

 

AM: Of course. This is not a new strategy. We’ve done this in 1907, and done this in nineteen eighty seven with Buffett and Goldman and we’re doing it now. It’s just the way it is.

 

The way the strategy works is you take a couple equities, say a dozen of them, maybe a little bit less. Tesla would be one. Nvidia, Adobe, all of these companies that don’t really have international peers to compare with and valuations that they can pump and the market takes over and comes up with all sorts of fancy ideas of why Tesla is at a $400 billion valuation.

 

But the fact of the matter is, if you look at the pricing and you look at all the call options that have happened over the last four months, it’s pretty clear that this was completely done artificially.

 

TN: It seems the US markets lead global equities. Is there some linking of this? And again, are there international coattails that follow on to US equities coattails or is that what you’ve seen in recent months?

 

AM: That is absolutely correct. There are a couple of markets that would support the US market specifically. That obviously would be the U.K. But the one I like to look at is the Swiss National Bank. They have their minions and their people intertwined within US hedge funds and working with the Fed and the Treasury for years. So if something is going on, they would probably be the next people to hear about it. And you can actually see this by looking at their portfolio buys in Q1 and Q2, as opposed to the 2018. You’ll see that those certain equities like Apple and Tesla had just gotten ridiculous amount of eyes.

 

TN: How successful is that been? As we look at the depths of the pullback in April? Crude oil was at negative $37 in April and it fell $99 from January through April. WTI did at least, right? Equities obviously had a lot of problems. So from your perspective, how has that been executed? How has it been pulled off? Is it okay? Is it good? Are we seeing, at least in equity markets, are we seeing a “V” and do you think that translates into the real economy whatever that is?

 

AM: I use the word “perceived recovery” before as this is artificial. It does support the markets. They’ve done exactly what the Fed was mandated for financial stability. Loretta Mester says that quite often in her speeches. In that respect, yes, they absolutely stabilize the market. Now comes the challenge of rotating out into value stocks and the actual financials or retail or something that’ll actually create jobs later on. They’re going to have to do that. But again, this is basically to stabilize not only the markets, but also the political class that’s supporting it.

 

TN: When you talk about the political class… We’re in the middle of an election cycle. This is my first election to be back in the US since the first Bush election. I was overseas for a long time. So I’m seeing things I haven’t had a front row seat to for a long, long time. How does all the things we’ve been talking about with supporting markets and and really having this kind of quasi recovery, how does that segue into the election? How do you see the election playing out?

 

AM: The people that are in charge now are appointed by the political class in charge at the moment. So those two are going to protect themselves at all costs. Trump appointing Mnuchin. Mnuchin doing what he has to do for financial stability. Now we’re looking at Trump ”losing in the polls” — highly questionable when you look at the methodology about those polls. Right now, I would have Trump winning — about a 60 percent chance at the moment.

 

TN: But the president isn’t the only office, right? So do you have an opinion on the Senate and the House as well? Do you think we’re going to see a flip in either of those places?

 

AM: No, I think the Republicans will actually take back anywhere between eight and 10 seats in the House and they’ll lose possibly two, maybe three seats in the Senate. So they’ll still control the Senate, although that’s when the political calculations come into work where one senator, two senators can block an entire policy of the president. Trump is going to have to do more executive orders going forward, which I personally don’t like, and nobody really should actually advocate for that. But this is the time that we live in.

 

TN: If your scenario plays out, how does that impact US foreign policy for the next four years? What do you see is the major… I would say trade was a big issue in the first four years of Trump, right? And bringing China to the four was one of the big issues. What would you say would be the big foreign policy issues under a second Trump administration if it comes to pass?

 

AM: The big one is China. China is quite intelligent. They hire former congressional members to go and talk politics so they understand how it works. They’re going to start hedging their bets. If they see that Trump is possibly going to win, Phase One Agriculture deals will be flying. They’ll make some concessions on intellectual property rights and whatnot. So you’ll see some of that happening from China.

 

The Europeans are absolutely in denial of what can actually happen if Trump gets elected. The only reason I see the Euro at these levels is because they’re on vacation and the US has just negative news pounding us day in and day out with the Dollar dropping to the low 90s. But I don’t see that sticking around. I think that as soon as Trump gets re-elected, I think the dollar’s back up north of 97.

 

TN: I think you’re right. I think that’s feasible.

 

Well, thank you so much for your time. I really appreciate this. Obviously you have a lot going on and you have a lot of information. This is hugely valuable for us. So I’d like to check in maybe before the election, maybe after the election so that we can do an assessment of how would the changes, whether it’s Biden or Trump, how does it impact markets and how does it impact geopolitics? That would be a fascinating discussion. So thanks for your time. Really appreciate it.

 

AM: Thank you. Thank you, Tony.