Printing money in global markets

[00:00:00] Welcome to Non Consensus Investing. I'm Ram Ahluwalia, your host and CIO at Lumida Wealth, where we specialize in the craft of alternative investments. At Lumida, we help guide clients through the intricacies of managing substantial wealth so they don't have to shoulder the burden alone. Through this podcast, we draw back the curtain to reveal the strategies employed by the best in the business for their high net worth clients so that you too can invest beyond the ordinary.

All right. And we're live with Lumida Non Consensus Investing Podcast. YouTube, Twitter, Instagram. Just look up Lumida Non Consensus Investing. I'm joined by Alex Kruger. I'm really looking forward to this conversation because he's also contrarian, non consensus thinker. He does the fundamental analysis, the deep work, the research, but also has a trading mindset.

Alex is a partner at Asgard Markets or an advisory firm specializing in macro digital assets, capital [00:01:00] markets. He's got 150, 000 followers on Twitter. He's been in crypto for over a decade. And Alex is very unusual. He's got a, he's an economist by training with 25 years experience in commodities and global macro trading.

And then he went from an economist to a crypto trader. He's from Argentina originally, and he's an MBA from Columbia Business School. So Alex, let's start with consensus. What happens when you have a non consensus view, which I know we both appreciate, and then the non consensus view becomes consensus?

You make a lot of money. During the switch, I agree. OK, now here we are. Let's take a step back, right? Last year, there was no reception. There was the most telegraphed recession in history. What did the economists get wrong? They got wrong precisely that, the consensus was [00:02:00] recession and we didn't have it.

And the thing, the about recession is, I think, economies were very focused on the past. When we got one of those cases where things, this time is different, this time was different. The yield curve inversion did not bring a recession. Now, if we look under the hood, something that did happen is there is, like we can think of the economy actually as, some of its parts and many parts of the economy did see a recession.

So the thing that it was so widely telegraphed, meaning not telegraphed, it's expected by so many people, what the economic actors did is basically spread it. Anticipate the recession, start laying off people and start making, adjusting adjustments in, in, in their companies and in their economic behavior.

So what that, that cost is basically spread the pain through time. And, a few, industries did see a recession, tech, [00:03:00] you could say, that saw a recession in its own way, in, in late 22. For example, manufacturing, commercial real estate, housing starts had plummeted as well. There was this rolling recession, New York State, entire manufacturing.

It's only now starting to pick up, but yeah, manufacturing until very recently was an absolute disaster worldwide, not just the U. S. That's right. And all the leading indicators are off too. You mentioned the yield curve was off, although the coincident indicators were always showing growth, which was quite interesting.

Yep. The way I see it basically now is, are, given that we have a sort of a recession behind the hood, you could think of what's happening right now. It's actually early stage in the economic cycle rather than late stage. We already had the pain somehow.

We can debate why it didn't happen. We were talking about before. We, we didn't have that, that hard, hard landing. We're going towards a soft landing and now I think the risk [00:04:00] the economy faces is not a recession anymore. It's actually accelerating too much and getting too hot, which by the way, it's something I've been talking about since June last year, that the risk was going, getting too hot, not too cool.

Which would trigger a Fed hike or a deferral in rate cuts. Is that specifically the risk? That's the risk. So it's like the way I see it again, it's just an opinion, but for as long as we get, We get cuts, we're fine. So the market's fine, right? The market's ignored the deferral of rate cuts. You remember last year, this time there was talk about a Fed pivot, never happened.

The beginning of this year, their expectations for six rate cuts didn't happen. Expectations for March rate cut didn't happen. And the earnings growth is there. The economy is strong, so markets are looking past that. There's a one to two day disappointment around a CPI print or FOMC. But then risk assets keep going.

So why do you believe that there's left tail risk around that? [00:05:00] I agree with you, by the way, I just want to test the assumption that deferral and rate cuts is a risk. So on, on rates, first thing is, I think we're actually seeing a very good expression of, of, PT, PTSD.

That is not only, it's very, deeply prevalent in the, in crypto, but we also have it outside of crypto. It's not just strong, but it's still there. So there is this lens of negativity that everybody's putting in their lenses because they are expecting something that didn't happen and they need to see to basically feel.

That things make sense. So if we look at rates, we, we have basically, until recently, what we had is market getting ahead of itself and pricing cuts that the Fed was not signaling. The people who were bearish were saying, this is, this is poor trending. This is going to be a disaster. It's a matter of time till rates markets catch up.

We correct and equities plummet. [00:06:00] My view there is at some point they're going to correct and that's going to cost at most a 4, 5%, uh, correction. Like the rates did catch up. The correction did happen. It was tiny, was like two, 3 percent for a couple of days. So now the focus changed from a, from before was markets are pricing in too many cuts.

Now that the cuts are basically not priced in, what the market is focused is on the divergence between equity performance. And rates. So basically, the rates market, rates are going, Fed Fund futures are pricing in less, of a hawkish, less of a dovish debt, yet equities are still going up.

So the new divergence is basically doing what. rates were supposed to do initially, if that makes sense. I'll add two elements to the story here. One is first off, look, I agree. The left tail risk around markets, if there are rate hikes, I don't expect that. Larry Semmers floated that idea a few weeks [00:07:00] ago.

And again, he was former U S treasury secretary. He's the conscience of the Fed. He's shamed that I know they tuned into him. But that's the left tail risk is if inflation is unchecked, remain sticky and stubborn. That's one. I think there are two other elements last year, though. One is massive immigration.

I want to double click on that. And then the second is the bank term funding program. So going into the March banking crisis, In the middle of it, bank credit growth almost came to a standstill. It's almost 0 percent year over year bank credit growth. The Fed had a timely targeted intervention and they took steps to stop contagion around, bank run risk.

And restored confidence in the banking system. I claim that without that intervention, things would have been worse. I totally agree. But intervention happened. Intervention happened, yeah. And it was extremely well [00:08:00] executed, I think. Yeah, I think. Yeah. Market also has been focusing lately on the fact that program has been taken away and how that should have caused a significant correction in markets.

Thanks. Yet once again, it didn't happen. We have to rationalize that. It's actually very simple. It's the end of the BTFP program. That the program that the Fed implemented, last March, it was actually chronographed. We already knew from the very beginning that it was supposed to end back in January.

So there was nothing new. And banks can pledge collateral for another year up until the last day of the program. So they still have access to liquidity. They want to have incremental liquidity beyond the sunset date. Yep. That's, that's an issue, actually, we can have, if we go into things right now are very good, I can definitely see basically worsening liquidity into year end, election fears about basically [00:09:00] Trump winning, I think Trump, if he wins, which I think he will win, will be very good for markets, but short term, he would cause quite a bit of panic, I think, or may cause quite a bit of panic.

There are some issues, for me. Year end volatility, where you're, yeah, I agree, I think year end volatility is something to expect. There's not much to, have concerns about with the current economy. There's a lot of things that are working pretty well. And on the immigration, my view there is that's actually bullish for the economy.

It's not to dismiss the legitimate concerns. around attacks on police and crime syndication, other kinds of concerns. But, my, my contention is that the 5 million illegal immigrants, plus or minus, is bullish for labor, reduces wage pressure, it's helping small businesses. It's helping construction contractors.

What's your take on the impact of immigration? I fully agree with what you said. I'm, by the way, I'm quite [00:10:00] apolitical. This is just an economic view. I think immigration, it helps the U. S. because this is basic, but the U. S. middle class doesn't want to do the jobs that the immigrants, the illegal immigrants do.

Yeah, there are chicken plants in Georgia that are finally getting staffed and they're doing work that no one really wants to do there. I spoke with the restaurant owner who's getting the bus boys he needs. The kitchen is getting staffed. So yeah, overall, I agree. That's bullish also. So there's not much to not like with the current, backdrop, apart from maybe valuations.

Now on the Fed, is there a Fed put today or? Is the Fed put on hold because inflation is still, the battle to win inflation is still being waged, or maybe there's a target. Yeah, that's a very good point. Precisely what happened in December. is that the [00:11:00] Fed put came back. So the Fed pivoted in the FOMC of December.

This is priced in, now we just get inertia. So if you miss the Fed pivot of December, you already missed quite a big run. The Fed pivot basically was, a twofold thing. One is bringing down the, expected number of, rate cuts. For, this year and beyond, quite significantly.

And the second was basically putting emphasis on, on, on employment just as much as on inflation. So basically recognizing that risks are twofold to the economy, and it's not just solely about bringing inflation down. It's also about basically making sure that employment, the job market is in good condition.

The fact that the Fed is now concerned once again about The jobs market. That is basically the face of the Fed put. That's how the Fed expresses and tells the market the Fed put is back. For [00:12:00] those who don't know, the Fed put basically means if things go get very bad, the Fed will intervene. And they're going to ease and they're going to make things better so things don't, so the economy doesn't suffer, which basically means that, by extension, equity markets and other risk markets don't suffer.

I'll challenge you there a bit. Yeah, look, I think in December, the Fed changed their orientation and had a biased, Towards looking at cuts as the next consideration markets, hallucinator read way too much into that and started expecting March 2 cuts, which obviously didn't happen. I don't think there's a general fed put in the case that unemployment rises, but I do think the fed would intervene in a very targeted way.

If there was a breakdown in the plumbing of the financial infrastructure, if there was a seizing of liquidity and say the treasury or the repo market, For example, so I think it was like a targeted Fed put, or if there was another kind of banking crisis, but I don't think the Fed, if they saw an increase in unemployment, that they would [00:13:00] act, they will continue to wait.

‍