Alfonso Peccatiello (MacroAlf) & Andreas Steno Larsen - Global Macro Series - June 8th, 2022

[00:00:07] Andreas

I think that there is a risk that as soon as decision makers enter the office from my generation, they will have a very different view on how to tackle a topic like inflation. And I can guarantee you that in my forecast, as soon as all decision makers are millennials, as I am, I can guarantee you at that point when the tipping point is there, then we will tax the shit out of the boomers. I’m not one second to doubt about that.

[00:00:35] Intro

Imagine spending an hour with the world’s greatest traders. Imagine learning from their experiences, their successes and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world so you can take your manager due diligence or investment career to the next level.

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Here’s your host, veteran hedge fund manager, Niels Kaastrup-Larsen.

[00:01:31] Niels

A New World Order is emerging. And in our global macro series, I along with my co-host, Cem Karsan, want to dig deep into the minds of some of the most prominent experts to help us better understand what this new global macro driven world may look like. We want to explore their perspectives on a host of game changing issues, and hopefully dig out nuances in their work through meaningful conversations. Our guests today are two of the most generous macro thinkers when it comes to sharing their insights and opinions on social media and on their own platforms. They are opinionated, and they don’t always agree on the big macro picture, which makes the conversation so much more fun and engaging. So please enjoy our conversation with Andreas Steno Lawson and Alfonso Peccatiello.

Andreas and Alfonso welcome. And thank you so much for joining Cem and I today for what I’m sure will be a fun, passionate and perhaps unpredictable conversation as part of our global macro series. How’re you guys doing? How are things where you are today?

[00:02:33] Alfonso

Here in the Netherlands, it’s cloudy like hell. I am a guy from the south of Italy living in the north of Europe for most of the time. So, it’s cloudy and it’s not good. No just joking. All good Niels and you? Cem, how are you doing?

[00:02:46] Cem

Doing well, Chicago’s beautiful in the springtime. So finally enjoying the weather here.

[00:02:53] Andreas

I could just as well admit that I’m getting a bit tired of bearish investors. So I’ve had a lot of meetings over the past few weeks. I can guarantee you that the sentiment is very bearish out there.

[00:03:07] Cem

The market weather is cloudy for sure.

[00:03:09] Niels

Exactly. Well, let’s see if we can’t change some of that in the next 60 or 70 minutes. Now, since it’s your first time on our podcast, maybe I could ask both of you to kind of just set the stage and provide a little bit of context for our conversation by maybe just some highlights from each of your journeys. Until today, which I think our listeners will find very relevant for today’s conversation. And then we dive into all sorts of topics. So perhaps, Alfonso, I could ask you to give us a little bit of background.

[00:03:38] Alfonso

Sure. So I am a 31 year old guy from the south of Italy. My accent is very thick, you probably have got that already. I started in this business, I always say at 14 years old, not because of slavery, but because my mother is the treasurer of a small Italian bank. Which meant that I was always exposed to B2B future charts since I was 14. I used to ask her what the hell is that? Why am I eating my pasta looking at this B2B future? What the hell is that? So she would explain that to me. And I will be like, okay, I don’t care. But at some point, I started to care.

So I went into the WEITS when I was a kid, basically, and then the university and ended up working for a European bank, ING, for seven years. I was lucky and skilled to be able to lead a team of portfolio managers and become the head of an investment portfolio there. They’re mostly assets. The focus was on fixed income, to be honest, it was a $20 billion portfolio. I did that for a few years. And after that, I decided that I had enough of corporate politics, and in the end started my own journey, which I’ve been doing for the last six months, mainly through my free newsletter. It’s called The Macro Compass, gets sent out every week. It’s investment ideas and macro framework to navigate markets, and my Twitter account. I spoke too much. Sorry, Andreas your turn.

[00:05:04] Andreas

You actually mentioned a few things that I didn’t know about you. So kudos for that. My background is, to a certain extent similar. I also started looking into finance at a very early stage in my life. I’m a bit older than you Alfonso.

I actually remember my first experience with financial markets being a sort of an equity game with Monopoly money, run by a Danish bank. I entered this game at probably the age of 16, or 17, and ended up winning it against all of the portfolio managers of that bank. They started saluting me, because they wanted to know how I did manage that material return over such a short time span. The answer was basically just to lever up on risk. So I just had an extremely high beta to risk. Fortunately, the market was rising like crazy over that time span. Ultimately, I won against all of these portfolio managers. So I learned a lot about IP depositions during that equity game.

But otherwise, I’m currently employed within a real estate, private equity fund. I was a former sell-side analyst for 10 years, ultimating at the biggest Northern European bank called Nordea as the global chief strategist. So now I’m on the buye-side for the first time ever, which is quite an interesting journey.

[00:06:35] Niels

Absolutely. And as far as I know, and I hope I’m not stepping on any toes here, you also managed in your career, Andreas, has to be kind of censored at some point. Where I think you mentioned something about vaccine companies, and then people didn’t like that.

[00:06:50] Andreas

Yeah, at least a Finish politician didn’t like it. And then the show started. So I guess it’s kind of a checkbox that you need to be censored at some point during your career, right?

[00:07:03] Niels

Yeah, well, I think it’s pretty cool. And of course, the good thing is that it brought you guys together, and you’re absolutely crushing it on all sorts of platforms. So kudos to that.

I want to start out by asking both of you to spend a little bit of time, again, just for some context, to talk a little bit about your current macro framework. I think that’s always useful. I want also to come to you first again, Alfonso, but in addition to maybe thinking about just your current outlook, it could also be interesting to hear if something has changed in your outlook in the last six to twelve months just to frame where you’re coming from, and what might have led you to your belief at the moment.

[00:07:48] Alfonso

So, Niels and Cem. I always start a conversation with sell side-analysts, so with the Andreas’ of this world, sitting on the buy-side, getting very tired of macro blubbering very quick. Instead, I used to ask every strategist or other PM, what are your trades? It’s very simple. Talk to me about your book, your top three trades.

So when you asked me these questions. I’m going to start with the answer with the three trades, which are I’m short the S & P 500, I’m short BTP’s against long bonds, and I’m short credit spreads in the U.S. Which is basically, it’s a very, very directional bet on tighter financial conditions. That’s because my macro model is suggesting to me that the best case environment is going to be for tighter financial conditions going forward, and slower economic growth at the same time. Which is a very toxic combination for risk assets in general.

That assessment comes from one of the main tools that I use, it’s called the macro compass. It’s a four quadrant very simple asset allocation tool, that guides me towards looking at different asset classes across different macro regimes. I’s based on a bunch of forward looking indicators for economic growth. The king being the global credit impulse index that I’ve built, which looks very poor; has been looking on a descending path for a few months, actually a few quarters. That’s because governments around the world are not handing over fiscal stimulus anymore, they stopped somewhere in Q1 2021. Banks are not lending apart from mortgages that much. Which means that the amount of spendable money for the private sector is not increasing as fast as it was during 2020 and 2021. As the private sector doesn’t get new resources, new credit, new money to spend, with the lag in earnings, GDP growth, consumer confidence will all start to drop as well in sync with the credit impulse and other forward looking indicators.

So we’re seeing this slowing economic growth impulse, which doesn’t mean we’re going to go into recession straightaway, but we’re going to grow below analysts consensus. On top of that, I’m seeing central banks around the world tightening monetary conditions and financial conditions pretty aggressively and pushing risk free real interest rates above equilibrium levels, pretty quickly.

When that happens the portfolio location choices from asset managers and other capital allocators around the world is going to shift towards a more defensive stance, because they get the risk free real return, which is now positive in most jurisdictions. It’s positive in the U.S. It’s even getting positive in Europe, to a certain perspective, which will influence them to go for the safest side of the risk spectrum rather than going by ABS, CLO’s, mortgage backed securities, credit spreads and all that stuff that you want to chase, while your risk free rate interest rate is negative. So the combination of the two makes me very defensive on risk assets. Which is why I’m short the three positions I mentioned before.

[00:10:49] Niels

Pretty interesting. Good. What about you Andreas? How do you see the world right now?

[00:10:55] Andreas

Well, in contrast to Alfonso. I actually think that we are in a recession already, at least in Europe. I think it’s safe to say that the core countries of the Eurozone will remain in a recession for maybe the next couple of quarters as well, Germany being the clear example of that. So I am extremely puzzled, to say the least, at the consensus that central banks can keep on pushing. And I know I will disagree with Alfonso on this today, because I’m basically leaning more and more in that direction that central banks have already done enough via tightening their rhetoric lately in terms of bringing inflation down.

I think inflation will come down naturally into next year just as a consequence of everything that has happened, from a central bank perspective, over the past couple of quarters rhetorically. So my main take today, is that I think long bond yields have peaked as a consequence of a very clearly slowing growth cycle, and also a slowing inflation cycle. I’m saying this on the day where German inflation printed at a six decade high. I strongly believe in that.

One thing that I would like to mention, in terms of what has changed, in terms of my views over the past year is that innitially when first of all Trump, and secondly Biden, started using these direct transfers to each and every household in the U.S. I saluted those as a brilliant invention in the toolbox fiscally. I even went as far as suggesting it to European politicians in a couple of newspapers to do the same. I’m extremely happy that they didn’t do so. Because I think this is a key reason behind the current inflationary pressure that we see.

What I missed was probably the fact that if you send direct transfers to each and every household, during a lockdown, you eventually force people into buying physical goods, instead of services. Which is a very inflationary policy at a time with already stressed supply chains due to lock downs, border constraints, etc. So this whole fiscal change of scenery that we saw through 2020, and 2021, was a mistake. I admit to that today, even though I supported it initially.

[00:13:28] Niels

Okay, that’s pretty cool. I mean, I’m sure we’re going to get back to some of those things, for sure. But it’s very good to know that there are some differences between you. So we’ll try to keep everyone calm during the discussions today.

Cem, why don’t you jump in? And let’s see where we’re going to go from here.

[00:13:52] Cem

So I’m going to pull on that thread and we’ll start there, that Andreas just mentioned, and start with the Fed and central banks large in inflation. I have a mental model, and you guys on social media and whatnot may have heard me air this, or maybe not, but broadly, we’ve been in a very free market economic system driven by central banks and monetary policy for almost 40 years. I think it’s important to have that context. That’s driven a technological revolution, because we’ve sent essentially free money to corporations and wealthy individuals to invest, and invest for the long term. That has created, broadly, a very deflationary environment, particularly for the last 20 years as we’ve accelerated that. It has also accelerated globalization because corporations are ultimately profit seeking entities that are looking to reduce their costs and compete on better and better technologies. Its natural selection on steroids I like to say.

We’ve been sending money to Planet Palo Alto. (You know, Palo Alto here in San Francisco.) Sending money to this other planet that creates amazingly advanced technological goods that, in return, sends those back to Earth. So we don’t get the money that’s printed here. Well, ultimately corporations do that is, again, obviously a wealth effect; but that primarily goes to the wealthy. Obviously, there is a wealth effect. There’s also a labor trickle down effect. They do hire labor, but with globalization a lot of that leaves America, a lot of that leaves Europe and goes to other countries. That’s why we’ve been, in my view, in a deflationary environment, really, for the last 20 to 40 years, with more and more monetary policy as the solution.

That’s great if you look at central banks, because you have two mandates: price stability and maximum employment, and it gets you there. The thing that they don’t have as a mandate is inequality. What we’ve done is we’ve created massive inequality as a function of 40 years of supply-side economics, essentially, which is what monetary policy is. So this is my view.

The reason I bring this up is this led to populism. We started seeing it about eight years ago or so, globally. In America, we got Donald Trump who brought the right left. He’s actually very populist. We got the left, going even more left with Bernie Sanders. Around the world, we’ve seen populism. I think that’s hard to debate at this point. That populism was in wait and then COVID happened and fiscal policy. That goes to your point, Andreas. That was to address the inequality that’s been building dramatically for 40 years.

So that was not to stimulate. I mean, yes, it was to save these downward moving markets. But instead of responding with supply-side monetary policy, which we’ve done every other time, this was a very different thing. That money is different, has a velocity of one, it doesn’t go to Planet Palo Alto, it goes directly to pocketbooks.

That velocity of one ultimately led to the inflationary impulse that we saw. It also led to a supply-side affect. So that’s the demand affect. The supply-side effect, in the sense that now people are retiring, they’re working less hours, you will also have the COVID affects that made it worse, with the supply chain.

There are a lot of other knock-on effects, like nationalism, and all the things that tend to happen in periods of populism which are world wars, and social strife. So that’s my mental model. I’ve thrown that out there because I want to hear your guys’ thoughts on that.

Obviously, we’re in a period of populism that’s not probably going away. Now it’s populism paired with inflation. Now we’re going to get price controls. We’re going to get gas tax holidays and first time homebuyer tax credits. All kinds of things that sound wonderful to people, but it still actually makes inflation worse. I believe that this impulse, this inflationary impulse is for the long term because it’s driven by populism, and that’s not going away. I think that’s the important thread.

Does the Fed, and do central banks have the ability to address the inflation that’s been caused by the turn towards populism, towards fiscal policy? I want to hear your thoughts on whether you think these inflationary impulses are longer term or do you think it’s going to turn to deflation? Obviously, in the short term, there’s a lot. There’s a big disagreement here. Leading off there would be a great place to start. Sorry for talking so long.

[00:18:19] Andreas

No worries at all. Let me initially say that I share your view on the inflationary effects of the change of scenery that we’ve seen fiscally through 2020 and 2021. I also agree with you that QE is, to a large extent deflationary, in sharp contrast to what central banks have told us. So the reason why I think QE is deflationary, is simply that there is no velocity at all in the money that you create in QE programs. As a consequence of bank reserves being stuck between financial institutions with the bank account at the central bank. And the deposit that is created, on top of that QE program, is basically given to a pension fund without any whatsoever incentive to float this new dollar, this new Euro, into the real economy. They’re just buying another financial instrument. So QE means low velocity, means a lack of inflation. I think it’s fairly safe to say that now that we’ve tested it empirically, for a decade.

My point here is that you need to look at inflation from both the structural perspective but also from the cyclical perspective. Right now, I think the pendulum is moving towards a clear slowdown in inflation, as a consequence of a lack of credit growth, as a consequence of a slowing growth cycle, and as a consequence of an easing supply chain due to fewer restrictions related to COVID. So these three things, in tandem, point towards slowing inflation as a cyclical theme.

As a structural theme, I tend to think that you’re right. As soon as the economy slows down, we will probably see the same toolbox being utilized again. So direct transfers, soft universal basic income measures, and those kinds of targeted fiscal measures that are very inflationary in nature. So from a structural perspective, I tend to agree fully with your analysis. From a cyclical perspective, I think it’s time to bet on low inflation.

[00:20:37] Alfonso

Mr. Steno puts me on the spot here. So let me see. First, I think, Cem, we should talk about money for a second, shall we? I don’t want to do the whole Jeff Snyder thing, but at least partially.

[00:20:52] Cem

Dive in.

[00:20:53] Alfonso

So Andreas was very right on distinguishing between QE creating a certain form of money and the government creating a certain form of money. So QE creates bank reserves and bank reserves are just stock in the interbank system. And yes,M2 can go up as a result of QE. But then M2 measures the entire amount of bank deposits and similar in the system, including bank deposits held by pension funds and asset managers, and the PIMCO can’t buy bread if they have more bank deposits as a result of a QE transaction. They got the bonds taken away from the Fed, they now have a bank deposit at J.P. Morgan, instead of the bond they had before. The bank deposit at J.P. Morgan is just a bank deposit at J.P. Morgan, they can’t buy any bread or oil with it. So sorry, but QE itself doesn’t do much to the spendable bank deposits that are the ones that potentially generate inflation.

The spendable bank deposits are the bank deposits that Cem, Andreas, Niels and, myself have in our accounts, they are printed by governments and banks, commercial banks (when they lend), and governments when they decide to do fiscal transfers, fiscal deficits and all sorts. We talked about velocity, but even then it’s not a given that by increasing the amount of bank deposits in our account, Cem, we’re going to get more inflation.

See Japan, the Japanese government has been printing deficits for 25 years, 30 maybe, with never ending deficits year after year. Where is the inflation in Japan? It’s not there, because the private sector has been taking the newly created deposit that the Japanese government has been sending them via these deficits. They’ve been saying, I’m levered. I don’t know what to do with this, I’m going to repay back some of my existing debt. As they do that, they destroy existing leverage. So they take the money from the government, and they pay back their own loan. Then the result of that is nothing because the newly created money doesn’t go after goods and services. So even then, it’s not an easy discussion.

Now, your point, Cem was, once we have defined the different forms of money, what’s inflationary and what’s not, your point is that we’re working towards a situation where governments are much more worried about inequality. They’re going to be trying to fix some of that to keep the population at bay by transferring money to their bank accounts. So doing more fiscal intervention.

Here are two things from this perspective. The first is I was lucky enough, being on the buy side, managing a lot of notional money, that people wanted to talk to me, including policymakers. Wow, that was cool. So you go and talk to them and you realize that policymakers are not proactive. Policymakers are strongly reactive. So if there is a crisis that puts the credit creation system and the wealth effect to higher asset prices system in danger, they will step in and do something to make sure that the system keeps afloat.

Now, the U.S. did too much. It’s very clear, as Andreas pointed out, they printed too much money, the U.S. government, not the Federal Reserve, the U.S. government printing too much money. Now, we’re seeing a situation where inflation has picked up. And on Twitter, in 2021, I had to fight with basically everyone that used to tell me that the government would keep on printing money forever. It’s a new regime, they will keep on printing money. It’s just the new way of things.

The last fiscal stimulus in the U.S. is dated March 2021. We are in May 2022, when the government hasn’t announced any new fiscal measure. They are actually draining resources from the private sector because they see an excess in aggregate demand that they want to bring back and make sure the inflation situation goes under control. Why? Again, they are reacting to a situation.

The situation they are reacting to today is the opposite. We have too much buoyant aggregate demand according to them. They’re scaling back things. I can’t foresee, Cem, the governments, the Western governments saying, “From now onwards we are going to structurally transfer more resources to the private sector year after year, after year, after year.

Yes, there can be a bit of a shift. But the shift I see is more in the fact that the government has been proven, by facts, that if they react strong enough with the fiscal lever, they get an economic pickup; they get the pick up in aggregate demand that they’re looking for. They should be careful with how much they do, because otherwise they get an inflationary spike.

So if you ask me, what the experience that we have had has done is to prove to governments they can use the fiscal lever in a reactive way, if there is a problem. They should be careful in how much they do otherwise they incur further problems.

It doesn’t change, at all, the structural environment where they’re going to say, oh, we’re going to be printing more deficits. Talk to the German’s, talk to the Dutch, talk to the Danish in Europe, go to them, and tell them that they have to blow a hole in their balance sheet every year, year, after year, because there is inequality and there is populism. I’m sorry, but especially in Europe, that’s not going to be possible. In the U.S., we are seeing a situation where if inflation picks up, policymakers want to make sure they shrink it back to the status quo where they’re comfortable with inflation, expectation, etc. They are draining resources from the private sector as we speak. They are not injecting further resources. Policymakers are reactive, not proactive, and these won’t be changing.

[00:26:22] Cem

I actually, I completely agree that policymakers are reactionary. I think that goes without saying, especially in a democracy. Unfortunately, because it is a democracy, I think it’s less reactive to what they should be doing, and more reactive to what the people want, or what’s politically expedient. At least here in the U.S., (and I think this is where we’re going to maybe go back and forth) I feel like European policymakers sometimes are more sophisticated, depending on the country (sometimes, I say very carefully there). Rhetoric, here in the U.S., whether you’re poor white from West Virginia, or poor African American and from Chicago, is distrust of government; rich versus poor populism at its core. It’s only been exacerbated by inflation.

We had populism, which got met by fiscal policy, which made people a little happy. Then we got inflation as a response. Now people on the bottom are pitchforks in hand, saying, hey, this inflation is not okay. And at the midterm, here, they’re going to be coming for Biden and that administration because of inflation, and you better believe all the rhetoric is going to be about helping fight inflation, not from a policy perspective, but for individuals; for actually human beings helping them out with the inflation at hand. Ironically, that type of policy (price controls by any other name, they won’t call it that) is inflationary secularly. I think the populist response is alive and well. It’s just getting started, really. I think government will continue to be very active, even if it’s not rational, given the framework we’re talking about. They won’t call it fiscal policy, it won’t be checks to individuals anymore, like in the usual sense. It will be gas tax holidays, like I said, first time homebuyer tax credits, things that are going to help with educational credits, and discounts on interest, and forgiveness of loans, etc. All of that ultimately, only increases that impulse, in my opinion, this is just being polemical, here. It’s hard to say for sure, but I think it’s important.

[00:28:51] Niels

Can I throw in three more things, because this topic, obviously, is very important to everything. We’re going to spend a little bit of time on that. But I do want to throw in three things that I didn’t hear you talk about. Maybe in particular, I’m very interested in, Andreas, your view on this and how that fits into this kind of peak inflation.

So in my simple mind, I have three things I look at. I look at potential deglobalization. I don’t think that’s going to be deflationary in any way, shape, or form. I’m looking at ESG. I don’t see that as being deflationary either. Then I’m looking at demographics. Here I’m a little bit uncertain because I hear arguments on both sides. But one recent argument that I came across, is this argument that workers are deflationary and dependents are inflationary. We’re heading towards a period of time where they’re going to be a lot more dependents than workers. So that will keep pushing inflation higher. Without getting into too much detail on each, because I think we all know where these arguments are coming from, how do these three things play into your framework? Let’s go back to you Andreas, again.

[00:30:14] Andreas

If we start with demographics. If you look at the demographic projections from the World Bank, the United Nations, etc.

For Europe, let’s start there, they look horrible, all of them. If you look at the potential growth of the labor force on a yearly basis going forward by 30 years, then I would be very, very surprised if we even have growth in the labor force in 10 years from now. Maybe even in five to ten years from now. So if we simply translate that into a structural growth perspective, then it means that the growth projections should be extremely low, maybe even around zero, if we look 15 to 20 years forward. Essentially what we have in Japan. So, if we look at the demographics in isolation, then I don’t see any reason to fear an inflationary breakout to the upside for Europe.

I’m a bit more in doubt about the U.S. because demographic projections actually look better in the U.S., even if you exclude the possibility of immigration. So I’m much more certain on the prospects for the Euro in this regard, and also for China. Take a look at the demographic projections for China, from the U.N. and the World Bank. They look absolutely horrible.

[00:31:46] Niels

Okay, if I can just interrupt you there Andreas, because okay, so you’re definitely taking the stand that less workers actually will decrease inflationary pressures. What I was arguing is actually, it’s going to increase because workers are by definition deflationary. You can say that with fewer workers, maybe we’re going to see a return of strong unions, higher minimum wages, all of those things, because they’re going to be in demand.

The other thing is, that the dependents are going to shift. Meaning the dependents are going to be much bigger on the elderly side. Caring for elderly is a mandatory cost for governments. They can’t just say, well, we don’t really care about the older population. It’s going to cost money. That’s the argument I’m hearing. But actually, what I’m hearing from you is you don’t think that that holds in terms of demographics becoming more inflationary as we get more dependents relative to workers, because I completely agree on the demographics. They are clear, we can all see them.

[00:32:53] Andreas

Yeah, I mean, it takes 20 years to create a 20 year old, right? So we know where this is headed. So on the last question, you asked about savings and the costs of taking care of the elderly. My working assumption is basically that the older the population, the bigger the probability that the average worker saves more to ensure that they actually have savings left by the age of 75 or 80.

As the dependency ratio increases, the risk of the government not taking care of the elderly also increases in my view. That’s the only simple solution to that issue. So I’m an economist, so I may be biased in this debate. But I would probably argue that you need to save more if the dependency ratio increases, so if we get more elderly compared to the working age population. If we start saving more as a consequence of that demographic schism, then it leads to lower interest rates, not higher.

[00:34:04]Niels

Okay, and with ESG and deglobalization, anything there that you’re worried about?

[00:34:10] Andreas

The dark horse, in terms of my inflation view, is the energy policy aspect of the equation. Eventually it’s impossible to get rid of our natural resources from Russia within a timeframe of 24 months or whatever they want to. It’s simply impossible. So if they actually want to go down that road, then it is a massive cost-side pressure that we just need to accept politically. By the end of the day my forecast would be that when people start seeing doubled or tripled prices at the pump they will tend to vote for some politicians choosing another path.

[00:34:56] Niels

Sure. What about you, Alfonso?.

[00:35:00] Alfonso

I’m very opinionated on the topic. So this is going be fun.

[00:35:03] Niels

Good, excellent.

[00:35:04] Alfonso

Let’s talk about the labor force and demographics. So on the labor force growth, it’s pretty bad. I think everybody has to agree with that. It’s basically impossible to argue otherwise. Now, let’s talk about this smaller labor force mean for inflationary pressures? So you said Niels, that a smaller labor force might basically want to demand higher wages, because if there is enough demand for labor, and we need labor, and there is less supply of labor that these guys need to get paid more, and you talked about unions.

So that’s an interesting thing. So this brings me back to the 70s, where unions were extremely strong with a very strong wage bargaining process on the private sector side. A lot of people are trying to reference the 70s as basically the reference period of my reference macro decade for the 20s. I couldn’t agree less. There is one main difference. I’m just going to bring it on with a statistic.

The 70s was a highly labor intensive industrial era. Where we’re by today, we are in a very technological economy. We’re going towards more robotization and technology going forward. Another statistic I want to put forward is the following. Do you know how many people a U.S. company needed in the 70s to generate 1 million of sales in a year, and how many employees they need today? Today, they need 1/10; 10% of the employees they had in the 70s to generate the same 1 million of sales. This is probably going to get even less over the next decade because of technological advancement, robotization.

Anybody can start a substack today with basically zero starting costs. If it’s good enough in building an audience, he can even start the business out of that. Just one example of where we are going. The labor bargaining power and the fact that unions might come back representing labor. Yeah they can, but the economy is moving towards a completely different regime, which is a technological regime and not an industrial regime. So we should always keep that in mind.

Even if the labor force shrinks, and it is a highly valuable labor force, the demand for labor will be there. But demand for labor will lower over time, because of technological advancements. Those won’t stop. We are going towards that direction. That pattern won’t stop very quickly, or we want to reverse back to an industrial economy anyway, very, very soon.

The other point that I have to make forward when it comes to ESG is very important, because we are now saying, okay, we are short commodities, short lithium, short copper, short nickel, short whatever, we need to green up our economy. Then we are looking at how much copper we need today to make sure that we go to net zero emissions by 2040, or ‘50, or whatever the politicians are telling us.

We look at the technology we have at disposal today. We make these assumptions, we say we need to double the copper production and consumption that there is today. Therefore, we’re going to have bottlenecks and disciplines are going to cost us more and it’s inflationary.

So you’re telling me that over the next 20 to 30 years we’re going to have no innovation, no technological advancement. From that perspective, that is going to make us find a way to use less copper to get to the same point. We have had massive improvement when it comes to technology adoption and commodities. The usage and the output we can get out of the same amount of commodities.

People are extrapolating now assuming for the next 40 years, no advancement in technology from that perspective. So yes, ESG is inflationary. Of course, it is not zero transition, it is inflationary. But again, as for the labor side, here people are underestimating the amount of technological progress we’re going to be making over the next decade, which is going to require less labor. It’s going to require less commodities that we think today is needed, given today’s technology at our disposal. So this is the second point.

And wow, I really sound like a disinflationist here, which I am. Then the third point is the inflation debate, Niels, is very interesting, but to me I’m a market guy. I’m a macro guy, a market guy, I would say. So it all comes down to interest rates at the end of the day. As my mentor used to say, “Just tell me where treasuries are and how the two stand currently, in the U.S. and in Europe, and I can tell you our any asset class is trading or is supposed to be trading in this macro environment. I think he’s right. It’s sort of a first principle to understand bonds and yield curves at any point in time.

So let’s talk about nominal yields. If I look at nominal yields they are the sum of inflation expectations and real yields. So we talked about the inflation side, but what about the real yields? So real yields are obviously dictated over the very long term by the structural real GDP growth we are able to produce. The structural real GDP growth we’re able to produce is basically the sum of the growth in labor supply and the productivity of capital and the productivity of labor.

Now we are talking about labor supply growth which is going to be negative in Europe, very likely, over the next decade. So we start with a handicap; our labor force shrinks. So we talk about the wage pressure that might come from this lower labor force. Okay, it’s an hypothesis. But one thing I know for sure, Niels, is that if the labor force shrinks, your potential GDP shrinks as well, ceteris paribus. Ceteris, in this case, sounds very smart. The other things are productivity. Productivity of capital and productivity of labor.

So is that going to be enough (the productivity gains) to offset the almost certain drop in the labor force? I’m not sure about that. But by the looks of things, it looks like we’re going to get some technological progress. Okay, cool.

So the sum of the two equations is that real growth is going to remain relatively poor and inflation expectations, we might debate, some inflationary pressures, some disinflationary pressures we just put on the table. Overall, it doesn’t look to me like we are staring into the abyss of a regime change for nominal yields. If you ask me, if I sum everything up, and I make a best case scenario, I see real growth trending slowly and negatively, on a structural basis, over the next 20 to 30 years. As inflation we can bring some topics on the table; some inflationary topics, some disinflationary topics on the table. I don’t think the best case for nominal yields is changing in a way that we’re going to see treasuries at 5% like Jamie Dimon calls year in and year out. I don’t think we’re going to see that happening, to be honest.

[00:41:51] Niels

Okay, no, that’s fair. I want to get to Cem and hear what’s on your mind. But I just want to throw in just a couple of kind of observation or thoughts. You said Alfonso, that you sound like a deflationists. It made me think, because I’m the oldest of the four of us today. And when I started in the financial markets (I also come from a bond trading background in the in the mid 80s), often, when you start your career has an impact on how you end up seeing things. Although started in the mid 80s, and one of the first things I saw was the crash of 1987. I think it’s made me incredibly cautious and risk averse for the rest of my career.

So I’m thinking a little bit if you don’t mind, thinking that maybe because of the time that you and Andreas have started in this financial world. Maybe it’s harder for you guys to see inflation, because you’ve never experienced it. That’s one thing. Because when I study history, when I look at market cycles, which I actually believe in, the 40 year interest rate cycle why would that suddenly stop? Why are we not going to see 10% yields again, and, or maybe even 15%?

That’s what history tells me. I may not know why, at this moment, but there are so many things I didn’t know two years ago that has happened since. Some of the conversations that Cem and I have had and one of my themes is – expect the unexpected. I think we’ve lost our imagination, because central banks have helped us to stay on the narrow and straight for 20 plus years. But I actually think we should… Maybe it comes back to this point, I think one of you mentioned about trust. One of my big worries is that, in fact, at some point we are going to lose trust in authorities, in central banks, in that they can manage all of the things they say they can. If that happens, I think all cards are on the table, really, in terms of what can happen. Sorry, Andreas.

[00:44:07] Cem

I just want to dive in and say one thing here Niels if you don’t mind.

[00:44:10] Niels

Okay.

[00:44:10] Cem

Just addressing as relates to what you said, Niels, and what else Alfonso was saying as well. Two of your three points there really depend on technological advancement and innovation. I think this refers… Within the last two generations, particularly the last Millennials on down. I’m, to some extent guilty of this as well, even though I’m on the higher end of that range. There’s this belief that technology can solve all of our problems.

Niels, you can probably remember this, I definitely can from the beginning of my childhood, reading books like 1984 and 2000 Space Odyssey and watching the Jetsons as a kid, the future never came quick enough, right? Everything was always very slow to advance relative to our dreams, and our aspirations as a society. But technological advancement is secular and will always happen. That is an overwhelming deflationary thing, obviously.

But I think to believe that we’ve now somehow shifted up the curve to some much quicker pace of technological advancement is projecting a trend that comes with (again to Niels point) to how we were raised and what we’ve seen during our 40 years. This is part of what that 40 year cycle is about. Monetary policy, the free market, capitalistic push, it happens whether it’s through monetary policy or through other ways. This is what drives these massive cycles of technological innovation and deflationary forces. That speed of innovation slows when that lifeblood of advancement, which is money, which is access to resources, comes off the table. That happens during times of populism.

I think that’s what’s important to understand why these big cycles happen; 40 years are multigenerational just long enough for people to forget projected trends, and things to get out of hand and for absolute power to corrupt, absolutely. So I’d be cautious, Alfonso, from my opinion, to project this deflationary technological revolution piece into the future. Whether it’s for energy or whether it’s for just broad economic advancement. That’s kind of just an aside, but something that is an opinion and something that I think we might be missing here as part of the calculus.

[00:46:28] Andreas

I also wanted to touch up on what Niels said, because you basically accused us of not being old enough to understand inflation, Niels. I’ve heard this before when I was in France the other week meeting investors. The first question I got from the French portfolio manager was, why on earth should I listen to you on inflation? You weren’t even born the last time it was here. I actually struggled to answer questions, to be very honest. But I think there is a point to what you’re saying. I don’t think it’s right that we cannot analyze inflation.

I think that there is a risk that as soon as decision makers enter the office, from my generation, they will have a very different view on how to tackle a topic like inflation. I can guarantee you that in my forecast, as soon as all decision makers are millennials, as I am, I can guarantee you at that point, when the tipping point is there, then we will tax the shit out of the boomers. I have not one second of a doubt about that. So there’s a generational cliff here. It matters as soon as the millennials will actually be in office, but they’re not yet in office. Therefor, I still believe that, from a political perspective, we still have much more in common during the next 10 years, with the 10 years that preceded 2022, compared to what we can envision in 30 years from now.

[00:47:59] Niels

Alfonso, what are your thoughts on this?

[00:48:01] Alfonso

On taxing the boomers? (laughing)

[00:48:05] Niels

On all of this.

[00:48:08] Alfonso

I think Cem has a good remark that extrapolating a technological advancement trend, and even assuming that the second derivative gets steeper is perhaps a dangerous assumption. I want to make clear that I am not even extrapolating gets steeper. I’m just saying, looking at today’s resources, looking at today’s technological situation, and extrapolating net zero emissions, consumption required for commodities might be misleading, because you’re assuming no technological advancement from that perspective, which seems to be a bit too conservative on the other end of things. The same for the labor demand. Assuming no globalization, no technological advancement seems to me too much, assuming at least some when you make these assessments. In general, not being old enough. Yeah. I’m used to that trick being played to me for my entire career.

I started to manage, I think I was 27.5 [years old] when they promoted me to run the large book with a team of people. I had to face a lot of this criticism, but I am bold. So being bold really helps because I look older than I am. But in reality it’s a valid point. That’s one of the reasons, Niels, why Andreas and I interviewed, Steen Jakobsen on our podcast, The Macro Trading Floor show. He has been around literally when we had the last inflation spike. So we are keen to hear from people who lived through that, and there is a value in experience, definitely. We can only run the analysis based on what we see today; our understanding of the monetary system and looking at history. That’s all we can do. I’m not old enough to have experience from the ‘70s.

The last comment is on taxing the boomers. Well, that’s a rather interesting thing. Taxing means draining resources from the private sector. It means taking resources away from the guys that are supposed to buy the goods and services in an inflationary basket. That’s what it means. It means the government is getting richer and the private sector is getting poorer. That’s what it means. If you tax the boomers and then you reallocate resources to another cohort of the population, that’s a different thing, because it’s a reallocation of resources. This can be positive both for real growth and for inflationary prospects going forward, because one of the main reasons why we have very shallow structural growth and pretty low inflation is because resources have been misallocated.

We have zombie companies that have gone around for quite a long time. They have a very weak business model, but they have been able to survive because borrowing costs have been extremely low for a while. This is one example of a misallocation of resources. So if you allocate the same amount of resources in the private sector in a better way, this might be quite a smart way to announce some long term structural growth and as well to revive some inflationary pressures.

I do agree with Andreas, that this is going to get done. It’s basically a tax on wealth at the end of the day, because the “boomers” (in air quotes) are the guys who benefited the most from everything, really, that we have seen over the last four years. Housing, bonds, equities, if you close your eyes and throw a dart at the wall and bought an asset class, you made money over the last 40 years. So obviously, if you tax some of these capital gains, effectively wealth (let’s say wealth tax) and you distribute that towards more productive outlets, if you’re able to find those, then you’re going to get a better perspective for positive real growth and some revival in inflation too. I think it’s going to get done, but it’s in a minimum of 10 years from now.

[00:51:54] Cem

I would argue that, and I think we all agree on this, this is populism embedded. At the end of the day, the labor class is the young. They’ve been the ones without the capital. Crypto is an embodiment of this. Honestly, this distrust of government that they’ve had because they haven’t been able to build a nest egg. The speculation in the market that we’ve seen is an attempt to catch up because they’ve all been behind the YOLO calls and the crypto. The growing up during a time of technological revolution, the belief that technology can solve all of our ills.

I think that I couldn’t agree more that rebalance is coming. It’s coming as a generational divide, as well, as is really inevitable. I would say it’s sooner than we think. I would say the pitchforks are in hand as we speak. The younger generation is coming to political power, I think, way quicker than that. So, I think we all agree on a secular trend. The question is, how soon and how that works on the timeline.

[00:53:01] Niels

Just to shift gears a little bit. I know we’ve touched on it. But I’m just curious for your thoughts on this. One of the things that we’ve also seen, and certainly in my career when I started out, there was some divergence between central bank’s policies and you had a world economy where you could have, Asia doing well, but Europe doing poorly, and the US kind of neutral. It was ying and yang at different times, but then we got into this very synchronized world. Everyone was doing well, at the same time, and so on and so forth.

Now, it seems like we’re heading back towards more divergence. Just to frame a few things. You have someone, I think the chief economist from the ECB, saying yesterday (I think he’s called Philip Lane) that rate hikes are 25 basis points, in July and September, are the benchmark pace. That also yesterday you had one of the Fed members, Christopher Waller (I think, actually, his term is going all the way to 2030) saying, “I support tightening policy by another 50 basis points for several meetings, and in particular, I’m not taking 50 basis point hikes off the table until I see inflation coming down closer to our 2% target.”

Then you have somewhere in Japan, where the BOJ is on their way to buying up every single government bond there is given the pace that they have had so far this year. We’re talking about potentially that could be done by the end of the year and no more 10 year JGBs. How do you guys, who are experts in this, how do you see the divergence of central bank policies play into all of this?

[00:54:44] Andreas

Maybe we should look into a scenario with a revival of FX Hedge Funds because they struggled big time over the past five years due to a lack of divergence between central banks. In particular the last five. I tend to think that you’re onto something. The first clue being the big move that we saw in the Japanese yen in a negative direction, as a consequence of the Bank of Japan refusing to join this reverse FX war. It is really interesting times when it comes to divergence between central banks.

I’m still of the view that the European Central Bank is trapped to a much, much, much larger extent then the Federal Reserve when it comes to being independent in the monetary policy by the end of the day. Which means that I could invest. It’s a very strong move in the dollar if the European Central Bank, by the end of the day refuses to act on the inflation that we see right now. They will have a huge struggle over summer with coming up with right communication because I don’t think that they can go a lot above zero on the policy rate due to the nature of the Euro setup. Therefore, I perfectly agree with you that we will have diverging trends, both from an economic perspective but also from a monetary policy perspective.

[00:56:13] Alfonso

So, on the effects from the banks and interest rates, I’m just looking in front of me at one year implied volatility at the money in FX pairs. I look at the following, Euro/dollar one year implied vol at the money 8%. Okay, US dollar/yen, 8.5%. So does it look to you as a very high volatility regime? Where if you look at where realized volatility effects on pairs, over the last 10 years, there have been moments where for a few quarters, maybe, you had some divergence, then you had realized volatility in Euro/dollar or dollar/yen, which was maybe 10% to 12% annualized.

Generally speaking, you have been at 5% to 6%. Nothing, basically speaking nothing if you assume a normal distribution, and you divide this by square root of 252, it’s going to be like half a percent a day, less than half a percent a move a day. So nothing happened in effects land. Why? Because we were all stuck to the zero lower bound everywhere in the world.

Now you have Japan that has a completely different, let’s say, landscape, monetary policy wise, compared to the U.S. or Europe. Japan is in a situation where inflation expectations in Japan are 1%; five year inflation expectation of 1%, five year forward five year inflation expectation in Japan are below 1%. So you have to tell me where these guys would have to find the courage to say, “Oh, we’re going to tighten monetary policy because…” Because of what? You have realized inflation in Japan over the last 20 years has been 0.2%. Core inflation in Japan over the last 20 years has been an average of 0.2% inflation expectation of below 1%. So obviously, if you ask me, Japan is like, hey, if we can get an orderly depreciation of the yen, and we can actually import some inflation into our country, we actually wouldn’t mind that too much, to be honest. So they are on a completely different path than the U.S. or Europe.

In Europe as well, I had quite a disagreement with Andreas in the past few months because, these guys are extremely reactionary. In this case, they’re seeing inflation at 9% year on year in Germany. The core inflation in Europe was 3.8% year on year, broadening towards services. These guys are like, wow, I’m at risk of losing control. And I don’t even want to think about it. So right now, I have to preserve some credibility on my inflation fighting front and I will join the party.

Look at BTP bond spreads, they’re already above 200 basis points. Italy, the weakest link, let’s say, of the European side, will suffer from it. But right now, between Italian government bonds spreads at 200 basis points or at 250 and having the Euros light through parity, basically, if you don’t do something about your monetary policy, because the Federal Reserve is being hawkish. You need to make sure that despite your energy, hitting terms of trade and the Euro, you are hawkish enough to show credibility on inflation, you will choose this path to preserve credibility.

So you are having different jurisdictions having different incentive schemes, we are not stuck at the lower zero bound anymore everywhere in the world. There are different incentive schemes from different parts of the world which will lead to higher realized volatility in effects. I agree with Andreas on that. So I think buying some volatility work makes sense in effects pairs, is not a bad thing to do here and there.

It’s just some more fun for a macro guy like me, looking at different things. For the last five years it was basically like, hey, let’s lever up on beta. Let’s find a mandate to buy a bunch of government bonds, or credits or etc. I’m going to just look for the most high beta, credit risk intensive stuff, I’m going to lever up on that and buy. Then I’m going to try and be smart with managing my downside risk. that was it, really. Now it’s more of a macro environment. It’s more fun actually, if you ask me. What’s up Andreas?

[01:00:15] Andreas

I just wanted to say that this is the first time in history that an Italian has told the Ban to be more hawkish. Mark the date.

[01:00:25] Alfonso

Yes, in the real money circle I was named to be one of the least dovish Italian portfolio managers who ever existed, that was always on the side of you don’t need to wear flags when trying to manage money. It’s all about finding risk and reward. In this case, I think the European Central Bank has a problem at hand. But the incentive scheme is rather towards preserving credibility on the inflation front and making sure the Euro doesn’t depreciate towards psychological thresholds of parity against the dollar. Rather then being afraid of fragmentation. BTP Bond spreads are 200 basis points, they were 300 plus, because some crazy politicians in Italy said that they wanted to leave the eurozone. They can be at 250 again, and nobody’s going to say, “Oh, my God, we’re on the brink of default here,” immediately, or at least an incentive scheme drives the European Central Bank towards hiking rates right now.

[01:01:23] Niels

One of my points also with this divergence is that, for example, within Europe we have all these countries that have one single currency. Now we’re heading into a period of time where maybe not all countries need the same medicine yet they’re going to get the same medicine. We’ve seen this story play out once before. Ireland didn’t do so well last time that happened and a few other countries.

Actually, I think it’s mostly a structural risk that I see. Meaning that the whole Euro project might come under extreme pressure. Once these divergences in the individual… We could just look at the energy situation right now. Yesterday, when they were trying to get some kind of agreement as to what they’re going to do with Russian oil imports, not everyone agrees anymore because we have different structural issues. So anyway, it was more an observation, from my side, that we were heading into a much more uncharted territory. We’re seeing that already in just the divergence in monetary policies around the world.

[01:02:28] Cem

Niels, I couldn’t agree more. I think we’re going from a collaboration game to a cooperation game broadly. I think that’s what happens when inflation starts. This is the unwind of some of the globalization; this is the dynamic between populism and free market economics. Everybody’s now trying to get there, it’s what’s due to them. From an American perspective the Fed is going to keep, from an credibility perspective, increasing rates. They just built a fence around the Federal Reserve with barbed wire. I don’t know if you guys know that or not, just in the quiet of darkness. Populism is a thing, and the Fed has to react to one of their dual mandates. So I expect dollar strength to continue secularly. That is going to have a ton of knock-on effects globally that people are not prepared for.

[01:03:25] Niels

So the good news, of course, in all of this is, as both Andreas and Alfonso were talking about recently on their podcast, the solution is that Cathy Wood will be right. We’re going to get 30% to 50% annualized GDP growth. That’s going to solve every situation we can imagine. But it reminded me of one of your recent sub-stacks actually, Alfonso.That is something I think you called Avoiding Making a Stupid Mistake, or something like that.

So as time is starting to run out a little bit from our conversation because some of us have some hard stops, here, today. I wouldn’t mind if we can kind of just talk a little bit about what are some of the key mistakes investors have to avoid, as we head into this.

I also want to frame it a little bit because I’m a believer in this fourth turning. I’m sure both of you are familiar with the fourth turning as a concept. All of the things that I see right now are kind of lining up in that direction. But we have another eight, maybe ten years to go before at least, Neil Howe, believes we’re completely out of the fourth turning. So being astute investors in the next 5 to 10 years is going to be incredibly important. I’m just thinking, as we round off our conversation today, what are some of the things that investors should be thinking of from your point of view maybe to at least avoid making these stupid mistakes that you talked about?

[01:04:57] Alfonso

Niels, so I’m very creative with titles. The title of my last article on the Macro Compass is called, Let’s Avoid Making Stupid Mistakes, or something like that. It looked at what a long term investor should avoid doing here. And effectively, it’s basically two things.

As a long term investor, you are rewarded for harvesting risk premia. So you sit, you have a distribution, which normally skews to the right in terms of return. So you start from a positive mean in the distribution in terms of real return. That’s an amazing position to start. So what you should avoid doing to waste this competitive advantage as a harvester of risk premia over time? Two things, A – downsize your positions without looking at the underlying volatility of each asset, and the volatility regime you’ve been looking at, because I see a lot of people sizing your position in Ethereum, or Bitcoin as if it’s a Euro dollar position. It is not the same thing. There is a large underlying volatility, which is different between these asset classes.

What people should do is try and allocate a limited amount of capital to each position according to the underlying volatility. If you do that, I think you already have a competitive advantage on top. The other one is correlation regimes.

People tend to assume that these correlations remain constant across macro cycles, but they do not. We have already seen the bond equity correlation flipped in this environment. I think people should be very careful about correlations flipping and proxy hedging, which has been one of the most detrimental things to my P&L over the last eight years. Trying to proxy hedge things, looking at correlations always be careful about correlation regimes. If you are careful about those two, the odds are skewed in your favor, because the distribution of long term returns that are linked to rewarding you for taking risks are skewed your way. So then some risk management, avoiding making stupid mistakes, and you should get there.

[01:06:55] Niels

What about you, Andreas?

[01:06:57] Andreas

The two points I want to make here ultimately, are the following. First, avoid being too active in this kind of market environment. At least, I can sort of speak for myself in that regard, because on top of losing money, from a return perspective, I’ve also paid a couple of percentages to brokerages over the spring period to be active. So it’s very tempting to be active in a very volatile environment, but I don’t think it works.

The second thing is to ultimately always ensure to have positions in your portfolio hedging against you being wrong. So I have a position in gold and I have a position in crypto. I don’t really believe in any of them as a long term bet. But they’re a hedge against me being wrong. It’s always a good idea to have a hedge against me being wrong, I guess.

[01:07:52] Alfonso

Andreas, I want to just say one last thing here is that, we always joke with Niels and Cem, on the podcast, that the inverse Steno ETF must be trademarked. The guys are wrong 90% of the time, but now, I heard Cem saying structural dollar bullishness, Andreas. Which means that as you along the UUP ETF, the dollar ETF basically, Cem shorted the inverse ETF and is now agreeing with you. What shall we do with this, Andreas? This is scary.

[01:08:25] Cem

Maybe I should be worried.

[01:08:27] Andreas

Yeah, you need to tell your wife about that.

[01:08:31] Niels

No, but a little bit of encouragement here. I did hear you guys joke about the inverse, Steno ETF. But does it come in 2x? and 3x? Sorry, no, no, I didn’t mean that.

What I was saying is that, I come from the trend following world that has been around for decades. We are wrong 60% of the time. That has not stopped these strategies for making a very healthy double digit return for five decades. So I would not be worried at this stage. I do want to ask you something because we could have gone in many different directions. I know we’re running out of time. But my last question, is there anything we missed today? Again, suggest something that you want to bring up before we close up that you think is important at this time?

[01:09:21] Alfonso

Yes, one minute, there is no Fed put. There is no Fed put. The Fed Put exists when inflation expectations are 2% and realized inflation is 2% and therefore the Fed can care about financial conditions or not destroy financial conditions too much. They actually want financial conditions to tighten. So they didn’t sell a put to the market. They actually bought a put, if you ask me, there is no Fed put.

[01:09:50] Andreas

Let me conclude by saying there is an ECB put, which is why you need to be short Euro/dollar because the ECB put, basically, is perpetual as long as the Euro exists.

[01:10:04] Niels

Okay, excellent. Great points to end up with.

Andreas and Alfonso, this has been as awesome as we had hoped for, with a lot of knowledge shared by both of you. So thanks very much for doing that today. And by the way, make sure you follow and subscribe to Andreas’ and Alfonso’s work on Substack as well as their engaging Twitter feeds. You can of course find the links in the show notes for today’s episode. And as you can tell from today’s conversation, we are living in a true global macro driven world. And it is perhaps more important than ever before to stay well informed.

From Cem and me, thanks so much for listening. We look forward to being back with you as we continue our global macro series. In the meantime, take care of yourself and take care of each other.

[01:10:48] Ending

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