Episode 229

full
Published on:

26th May 2025

Julian Brigden on the Coming Reset and Decline of US Exceptionalism

ReSolve Riffs returns with Julian Brigden, the president and founder of MI2 Partners, who joins the conversation as a seasoned market strategist and global macro expert. In this episode, Julian and his co-hosts Adam Butler and Richard Laterman dissect a broad range of topics—from U.S. exceptionalism and dollar dynamics to treasury market vulnerabilities and the complex interplay of global capital flows. The discussion navigates themes such as fiscal deficits, policy shifts, asset rotations, and geopolitical recalibrations that are reshaping the global financial landscape.

Topics Discussed

• U.S. exceptionalism and the reflexive cycle of capital inflows, hyper-financialization, and current account imbalances

• Policy triggers and market cycles driven by the Trump administration’s tariff measures and shifting economic narratives

• Dollar performance and its impact on global purchasing power, equity valuations, and hedging dynamics

• Structural challenges in the U.S. Treasury market, fiscal dominance, and the looming implications of elevated deficits

• Global capital flows and the divergence in behavior between sovereign investors and private market participants

• Comparative dynamics across asset classes, including equity market rotations, emerging market opportunities, and the role of commodities

• Geopolitical recalibrations driven by U.S. retrenchment from European defense commitments and the evolving Middle Eastern investments

• Divergent monetary policy challenges in key economies, especially Japan’s yield curve control and the risks of fiscal dominance

Mentioned in this episode:

The Return Stacking Symposium

October 8, 2025 | Chicago A full day of curated portable alpha / return stacking education. Register Here: https://www.returnstacked.com/return-stacking-symposium-2025/

Transcript
Julian Brigden:

Well, this is a conversation I have with my

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wealth managers, my, the guys who

manage my pension fund, and I'm

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like, your job is what it says on

the tin - Wealth Manager, right?

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Your job is not, you know,

dollar, US Retirement Fund.

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It's Wealth Manager.

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So if I'm up 20% in five years time on my

S&Ps, but the, you know, the dollar's down

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50% and you've done a crappy job, right?

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Because my global purchasing

power is down, right?

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Adam Butler: Okay,

welcome to ReSolve Riffs.

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It's actually been a little while since

we've had a Riffs, and it's been an even

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longer while since we've had Julian on.

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Those who, are tuned into markets or

to ReSolve Riffs will know Julian.

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He's, been on a couple of times before.

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Julian being the Julian Brigden, being

the president and founder of MI2 Partners.

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And, I think probably a

member of the League of Ex of

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Extraordinary gentlemen as well.

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Julian,

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Julian Brigden: Yeah, in

my dreams, in my dreams.

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Adam Butler: uh, overall market

superhero, here to share his experience

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and wisdom and, what's been going

on so far this year and how this is

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likely to play out over the remainder

of the year and, and into the future.

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So, Julian, with that, welcome sir.

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Richard Laterman: Welcome.

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Good to have you here.

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Julian Brigden: gentlemen.

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Thank you for having me on the show.

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Adam Butler: Uh, Richard too.

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My, uh, compatriot.

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Welcome Richard, and

thanks for joining me.

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Richard Laterman: Thanks, Adam.

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Julian it's been an interesting start

to the year, eventful to say the least.

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how would you describe events that

have taken place so far and, and how

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do you see the state of, the global

macro space right now as it pertains

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to the major asset classes and,

and, and where you see the, uh, most

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glaring mispricings and asymmetries?

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Julian Brigden: So.

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look, I, the first thing I'd start off

by saying is, you know, global macro is

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one of those disciplines, which most of

the time, most people don't really need

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to pay that much attention to because

it, it doesn't move much, so quickly.

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Clearly, you know, when we get

political interference and, and, truly

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tangential historical events, which I

think is what we are seeing, clearly

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it, it, it can change quite a lot and

it, it can come to its fore and we

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think we've been heading into one of

these inflection points for a while.

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So in the middle of, sort of last

year, and I think it's important to,

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to stress, you know, this is not kind

of a timing call, but you need, when

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you have institutional clients, like

we do big institutional clients, you

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know, one of your jobs is to kind of

talk about bigger picture themes, get

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sort of share of mind, and then, you

know, as you hone it and hone it and

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hone it, that sort of thesis, you get

to a point where you can sort of say.

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Okay, here's the trade and

it's today, slot the thing.

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And so really in the middle of

last year we started to talk about,

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what we thought was the reflexive

nature of US exceptionalism.

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So there's sort of, and I, and

I will say I think narrative.

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I think there's actually very little

that is truly exceptional when it comes

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to the US unless you call spending

money like a drunken sailor exceptional.

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I think what we've ended up with

is this cycle, which really started

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with a vengeance in 2014 when the

dollar started to diverge and really

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appreciate when Europe and Japan

moved into negative interest rates.

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And the US actually ended

quantitative easing.

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And this wall of global money

went piling into US assets looking

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desperately for some sort of return.

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So money goes piling into US corporate

bonds because European corporate

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bonds were yielding nothing as ECB is

going into negative interest rates.

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And US corporations took that money

and started to buy back stock.

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And then US stocks start to outperform

and the dollar is rising at the same time.

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So foreigners are making this

sort of two for one trade, this

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classic sort of, you know, unhedged

long dollars, this is all great.

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And then it drives these sort

of three economic effects.

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You get a, What we call

hyper financialization.

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So this incredibly tight

relationship between the employment

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market and the labor market.

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So as the, as the, sorry, between the

equity market and the labor market.

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So as the equity market starts

to rise, employment rises.

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secondly you get a wealth

effect, which is enormous.

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'cause the top 10% in the US are

basically 50% of all consumption now.

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you get this growing current account

deficit, which sucks in more money.

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So you get this sort of effect

and you suck in and you suck

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in, in suck in more money.

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So we had this cycle where the whole

world has piled in money to fund our

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egregious spending here in the US.

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Running, you know, a 7% of current

account of of, fiscal deficit

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and a 4% current account deficit.

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And that has, those are all things

that have, that you can be in part or

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certainly in the current account basis,

have to be all funded by finance.

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So all the money sitting here.

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So what we were looking for was a

catalyst to start to change that around.

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And the Trump administration's

election was that catalyst.

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We thought that people were being overly

simplistic in terms of their read of what

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the Trump administration really meant.

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And we wrote the day after the

election, this piece called

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Assumption Confirmation in Reality.

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And we said, we're gonna

go through three phases.

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We're gonna assume that it's Trump 1.0

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again.

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So we are just gonna go and buy

stocks, sell bonds, buy dollars.

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Then we're gonna get to the middle

of December and we'll start to

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run out of a little bit of oomph.

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But then all the soft data,

all those animal spirits

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will go, woo woo, It's great.

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Fantastic.

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And they will get to the inauguration.

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And when it gets to the inauguration,

we're in for a shock because they really

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mean what they want to do on tariffs.

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They really mean about what they want when

they say Wall Street's had it too good.

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Now it's Main Street's turn.

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And none of these things are

structurally necessarily so

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bullish for the US equity market.

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And in in particular what worried

US as well was this idea about the

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dollar, because the dollar, gentlemen,

is the underpinning is one of the key

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underpinnings of US exceptionalism.

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And with foreigners sitting on a

whopping, I mean these numbers guys are

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bloody mind blowing 26 trillion dollars

of net investments in the US right?

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Up, you know, from BA basically

55% in the last five years, right?

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That if you start to weaken the

dollar and in other words weaken

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their returns because a lot of

this is not FX hedged, the risk is

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you are gonna send the money home.

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That was kind of our bet that, you know,

as people realize what the agenda was

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of the Trump administration, now we

can have a debate as to whether that

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agenda is still the agenda, right?

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But you were basically supposed

to be short US stocks, short

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bonds at some point, and short the

dollar going into the start of the

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year, not the other way around.

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So in our alpha capture book, we've

had a really excellent start to the

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year, you know, we've killed it.

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And you know, that's kind of where we are.

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And I think the question now is this sort

of twofold questions is has Trump pivoted?

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Are we going back to kind of, oh we

thought we were gonna try and address

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these fundamental issues, but we kind

of looked over the precipice as to what

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those would actually entail we'll lose

the midterms and so, ah, forget it.

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Right?

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And so we're just going back to good

time Trump, spend a lot of money, right?

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Don't address any of

the fundamental issues.

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Backtrack on trade.

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I was only kidding.

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And then, you know, if that's the case,

whether that's enough to keep this game

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going, this US exceptionalism game,

this sucking in a foreign money to

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fund extension of, overvalued assets,

or whether you, whether you've just

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done so much damage now that you can't

put Humpty Dumpty back together again.

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Adam Butler: I think there's also

been, um, some actions by non-US

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players, that may have caught markets

a little bit by surprise and, and

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amplified the effects, that the

tariffs might have had in isolation.

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For example, the, fiscal expansion

unlock in, in Europe and in particular

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in Germany and their declared intentions

and forging into law, huge fiscal

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expansion, over the next five or 10 years.

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like unprecedented post-war expansion,

in Germany, and also Germany's implicit,

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encouragement for the rest of Europe

to unleash their own fiscal space.

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and China reacting with their own, major

fiscal and, banking and credit unlock.

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Right?

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so you had other jurisdictions who

are powering up their economies from

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a fiscal standpoint, while the US for

a while seemed like it was going to

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be suppressing, its own growth and

capital favoritism agenda, right?

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Julian Brigden: So you are

absolutely right, Adam.

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But in a way, they all come back

to this Trump administration.

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I mean, Europe is only powering up

its defense spending because the Trump

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administration has withdrawn the military

protection of the umbrella, right?

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I mean, I.

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You know, this is, this is

something that we can discuss,

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I think is hugely profound.

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When essentially the US is saying,

you know, we've hit what historically,

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if you look at any PAC system is

called peak imperial overreach.

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Right?

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You've basically reached the limit

of the, the, the, your ability to

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can maintain the empire, right?

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So the US has basically told us they

cannot afford to defend Europe anymore.

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Right?

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Now, whether you can argue it

from, it's not right that we do,

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it makes absolutely no difference.

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They're just not going to do it.

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And that's going to have inordinate

consequences because Europe is going to

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have to increase its spending and then

you have to raise the question, where's

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that money going to come from to do that?

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Right?

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Where is their piggy bank?

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Right?

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And then on the China thing, look, I

mean, we've arguably picked, we've told

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the Chinese to quote Steven Miran that

they are our greatest adversary right?

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As though they didn't know that already.

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And the problem there is they're

also the world's largest provider of

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savings by an inordinate percentage.

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I mean, they're basically 28%

of global disposable savings.

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And we just told them, you

are our greatest adversary.

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Why?

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Why would they be investing

in the US anymore?

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I wouldn't, I mean, we've already

seen the FT story where they talked

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about, not putting any more money

into private equity, and they were

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a big player in private equity.

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you know, we've seen talk of other

sovereign funds in Asia being

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less interested to buy, US assets.

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I know of one who's, who said to one

of my clients, they're not increasing

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their assets in the US at all.

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Right.

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And you know, all of this against a

backdrop where we're continuing to spend

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money like it's gone outta fashion, right?

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And just think it's our unalienable

right to run these deficits.

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We'll see.

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Richard Laterman: Doesn't it also make

sense to consider that the US stock

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market, outperformance versus the rest

of the world has been enormous, partly

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because of US growth and, and, and,

and the strength of the US economy, but

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also partly due to say, non fundamental

reasons, whether the buybacks, whether

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the rise of passive investing, that's one,

one of the other proximate causes that has

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been, pointed as as having contributed to

that we saw after a top:

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plus percentage, increases in, in the S&P

in 23, and then in 24, isn't it somewhat

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inex that there would, there was going

to be a change in leadership across,

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the different stock markets and the

different jurisdiction in terms of growth.

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And I, and I pair that with this idea of

US exceptionalism that you pointed out.

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That is no more, the, the Pax

America and the unipolar moment

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is kind of a blip in history.

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we've, we've typically had, at least

in in modern history, multipolar,

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global, balances, if you will.

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And, and the US is has now decided

it seems to retrench partly

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because it sees an exhaustion in

the US versus the rest of world.

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And, and if.

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Julian Brigden: I mean, you've hit,

basically what you're talking about

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is we've hit what an economic terms

is referred to as Triffin's dilemma.

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Richard Laterman: Right.

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Julian Brigden: So Triffin's dilemma

is a point that only, and, and

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is an issue that only, you know,

applies to the reserve provider.

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Where the perceived benefits or the

actual benefits of, being the reserve

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provider, outweigh the perceived costs

or actual costs and are no longer

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compatible with domestic policy.

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So I think all of those

are absolutely true.

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you know, you can, whether you can

argue, you know, that the costs or

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the benefits are really less, I think

we're gonna find out over the next few

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years that we may have underestimated

the benefits that we derived from that.

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And that's going to come as an incredibly

painful reality check for the US.

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but that's, that's the fact.

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Now at historically, when you go back

and look at PAC systems and there've

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been seven through history, when you

hit this tipping point, then that's it.

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Peak empire peak hegemonic power,

peak reserve currency status, and you

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move slowly into the next phase, which

you, to your point, you typically

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is a process where you get this sort

of multipole in the world for a bit.

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It's very unstable.

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Right.

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And then we come out with

the next PAX provider.

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but if we're going into that point, then

it's got, the consequences are enormous.

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Right.

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I mean, Europe has, you know, I, I'm

not really concerned about who is

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right and who is wrong in this debate.

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Whereas if you, if you are, if

you're a Republican in the US

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you'll say, you know, each cost us

a lot of money to defend Europe.

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True.

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But if you're a Europe, European, we've

foregone a lot of consumption to funnel

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our savings back into the US so that

you can afford the defense as a, as

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a Korean client of mine said, think

that this is just a one way street.

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But in Korea we live in little

apartments and in America you live

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in big houses with swimming pools.

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So maybe it's about time that we

siphon less of our savings back to

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you and we live in bigger houses.

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Right?

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I mean, this is gonna come as an

inordinate bloody shock to the US and,

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and to your point around this, and this

I think is a structural factor, right?

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This is not going away.

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I mean, Adam you were

just raising the point.

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You're talking about trillions of

dollars of multi-year defense spending.

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If we are going back to 5% of GDP right?

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Defense spending, apart from the

huge dvo one, you know, duration,

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but you know, deluge, you're gonna

end up in global bond markets, right?

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Which is gonna to displace.

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Money from elsewhere.

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you know, Europe is going to have

to do things to get money back into

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Europe to fund these things, right?

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So it's either gonna have to

offer, you know, incentives

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to buy European defense bonds.

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Right?

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And then where does that money come from?

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Well, my guess it'll come

out the treasury market.

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Right.

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You know, 'cause that's

where a lot of the money is.

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You know, European stocks

become more attractive.

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Well, where's that money gonna come from?

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Well, US stocks, 'cause that's

where all the money is, right?

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So you put this together and, and then

you look at this sort of, what I think

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is this reflexive nature of that.

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And you link that

together with indexation.

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Right.

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And I think, you know, Mike Green's

done a lot of work and I dunno if

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you, you've probably had him on the

show talking about the, the sort of

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self-reinforcing nature of indexation.

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So, but he's talking about the microbe.

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I.

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What I'm really talking about here

is the macro self-reinforcing nature

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of this sucking money into the US

But it is dependent gentlemen on

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that ongoing dollar strength, right?

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That ongoing dollar strength.

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'cause if, if the dollar is weak, right?

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And at the beginning of the year,

a European investor watched if they

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were un hedged in the S&P, they

watched their total value of their

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portfolio drop 25% in six weeks.

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Right?

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In six weeks.

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Okay.

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If the dollar starts to materially

weaken, which is what's something

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that the Trump administration

wants, that money is going to leave.

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Okay?

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Secondly, if, US assets start to

underperform, which they will generally

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do in a weak dollar environment, right?

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I mean, I, I, Morgan Stanley came out

with something today, and I'm sorry

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I've got great respect for some of their

work, but that was the most asinine

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piece of research that I've read, and

it's that classic stuff that's aimed at

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Americans and not the rest of the world.

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Oh, the S&P's gonna go up, Because

it'll be good for corporate earnings,

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but the dollar's going down a lot.

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Well, this is a conversation I have

with my wealth managers, my, the

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guys who manage my pension fund, and

I'm like, your job is what it says

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on the Tin Wealth Manager, right?

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Your job is not, you know,

dollar US Retirement Fund.

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It's Wealth manager.

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So if I'm up 20% in five years time on

my S&Ps, but the, you know, the dollar's

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down 50% and you've done a crappy job.

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Right, because my global

purchasing power is down, right?

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So you are US assets because you

know, you get a weak dollar typically

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other assets outperform, right?

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Growth typically massively underperforms.

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In a weak dollar environment you

buy value and the US equity markets

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are very growth focus markets.

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Secondly, PEs tend to decline when

the dollar goes down because that

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foreign money is what's bid up PEs.

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At the same time, we've gone right back

to the PEs of the dot com bubble and

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it's no surprise that the dollar was

on the highs at the dot com bubble.

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And you look at PEs from 1995

to:

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went up along with the dollar.

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So.

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Then thirdly, if we go into a recession,

the current account deficit's gonna

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shrink and the money's gonna go home.

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Right?

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Or if they shrink the, the current account

deficit because, you know, they impose

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all the tariffs and so on and so forth.

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We don't need the money here.

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And, and this is, this concept I think is,

is something that I've really struggled

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to understand why I get different sponsors

from foreign clients and American clients.

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foreign clients will go,

well, it's just mechanics.

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If you shrink the current account deficit,

less money from the rest of the world has

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to flow into what's referred to as the

capital account surplus to balance it.

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And so US assets will underperform.

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It's not a controversial statement,

it's not a political statement,

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it's just bloody mathematics.

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Now when you pose that to Americans,

depending on, you know, some

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degree their politics, I think

some degree self-interest, I.

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They don't, they don't want

to acknowledge that, right?

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Professionals understand it, but they

even, they don't want to acknowledge

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that because they'll say things, yeah.

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But we'll end up with a

strong economy, right?

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If, if we get the trade deficit down,

if we get the fiscal deficit down, if

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we bolster, bolster manufacturing in the

US, if we raise middle class incomes,

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all of which are highly, highly laudable,

long-term aims, don't get me wrong,

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we are gonna end up with this stronger

economy, they say, and so equity should be

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strong, and the answer is absolutely not.

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They are absolutely nothing,

nothing to do with each other,

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Adam Butler: Mm-hmm.

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Julian Brigden: Korea has a large

current account surplus, a arguably

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strong, far less of a divergence between

the rich and the, and the poor, right?

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All of those things.

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Big manufacturing sector,

et cetera, et cetera.

354

:

I can't say that the last time

that anyone talked about, buy

355

:

right, buying Korean stocks.

356

:

Right.

357

:

Their

358

:

Adam Butler: I mean, yeah.

359

:

Look across the world at any surplus

country and, and their equity market has

360

:

been in a quasi depression for 15 years.

361

:

And it's the deficit countries that

where, where the equity markets

362

:

primarily US being the primary

deficit country where the, where

363

:

the, equity markets have thrived.

364

:

Right.

365

:

And I do think it's important to

recognize that you can have, some

366

:

of the driver of the decline in

asset prices can be just driven by.

367

:

Actual current, I'm sorry,

capital account dynamics.

368

:

Right.

369

:

There can be just, and I think, you

know, you were, you were describing

370

:

that where just foreign investors are

either putting foreign savings into

371

:

US assets at a declining rate, or

are physically removing US assets and

372

:

moving them to other jurisdictions.

373

:

Right.

374

:

Those are kind of two more aggressive

versions of the same dynamic.

375

:

Julian Brigden: You can just have a

situation where the assets just disappear.

376

:

Adam Butler: Right.

377

:

But it's, but I agree it's a

mathematical accounting identity.

378

:

But what I'm saying is some of it

can be driven by current account

379

:

action, and some of it can be

driven by capital account action.

380

:

It has to add up mechanically,

but the, there's a bid and an

381

:

offer in there on both sides.

382

:

Right.

383

:

And I think there's, yeah, I think

it's gonna be driven on both by.

384

:

Julian Brigden: a little bit

of chicken and egg situation.

385

:

It doesn't, you know, I think, I mean, for

example, I think in:

386

:

part of the crisis that actually happened,

which was a different setup, right?

387

:

This is where the dollar went up and

not down in a risk off environment

388

:

is 'cause actually foreign assets

were more expensive, relatively, had

389

:

outperformed US assets up to the highs

390

:

Adam Butler: Massively.

391

:

Yep,

392

:

Julian Brigden: outperformed.

393

:

And so all the money was sitting abroad.

394

:

And then what happened was the US

current account deficit started

395

:

to shrink quite early in like

:

396

:

And as that shrunk, that tightened dollar

liquidity in the rest of the world.

397

:

Right?

398

:

And so we got this risk off

event and I think, you know,

399

:

so you're absolutely right.

400

:

It, it's, it's chicken and egg.

401

:

Which one goes first?

402

:

Is it a capital account that

drives the current account?

403

:

In other words, foreigners just

pull their money and they just

404

:

won't vendor finance the US.

405

:

Adam Butler: exactly.

406

:

Yeah.

407

:

Julian Brigden: they won't fund little

Johnny to go, you know, the millennial

408

:

influencer from Iowa to go to Santorini

and stand on the cliff with 500 other

409

:

American influencers and ruin it for

everyone else who wants to go there.

410

:

Right.

411

:

You know, so, so

412

:

Richard Laterman: But this is a good

reminder, Julian, of the cyclical nature

413

:

of these capital markets that we study

so carefully, and the fact that whether

414

:

it's one catalyst or or another, whether,

whether it was the Trump election and, and

415

:

his tariff tantrum, or, or something else.

416

:

There had been a major imbalance in, in

some of these, asset class performance.

417

:

But I am curious

418

:

Julian Brigden: looking for that

tipping point that, that trigger.

419

:

Right.

420

:

Richard Laterman: that that's right.

421

:

If it wasn't this, it might

have been something else.

422

:

But at, at the end of

the day, I am curious.

423

:

We've seen the S&P round trip,

treasuries are somewhat stable

424

:

depending on, on, on the maturity, but

it, it, it hasn't been cataclysmic.

425

:

I guess the long end has has

started to, to weaken again.

426

:

Yes.

427

:

Yeah.

428

:

Yet being the operative

word there for sure.

429

:

but the, the US dollar definitely has

been the, the, the big loser so far.

430

:

So what are equity markets missing from

a, a, signaling mechanism, to actually

431

:

perform the way you would expect?

432

:

Julian Brigden: I mean, I

mean, arguably nothing, right?

433

:

I mean, US equities are underperforming

certainly in Euro terms, right?

434

:

They're already underperforming.

435

:

I mean, if you look at, European

equities against the S&P.

436

:

in dollar terms, they have broken out

of a massive long term trend line.

437

:

I'll see if a, let's see if

this, if this thing works, where

438

:

we, we try and share a chart.

439

:

Okay.

440

:

So this is Euro stocks ETFs.

441

:

So it listed in the US in dollars.

442

:

So ethics neutral against the S&P.

443

:

Now this is a log chart going

back to:

444

:

through that trend line in March.

445

:

We took out basically the best

part of a 20 year trend line.

446

:

So to me, this is, this is done.

447

:

I was really hoping for a retest to

pick up more, just think this trend is

448

:

reversing and it doesn't really matter

what, whether it's, you know, gonna

449

:

be driven by currency, right, which

will leave the phase to outperform,

450

:

or you know, gonna be driven by,

you know, US assets correcting lower

451

:

and or sitting here as European

assets rally for the next five years.

452

:

And, and Richard to go to your

point, these are cycles, right?

453

:

We see I.

454

:

We see these cycles.

455

:

I dunno if I flip to another chart.

456

:

I mean, broad dollar

cycles the norm, right?

457

:

Adam Butler: It's remarkable the degree

of of US equity outperformance relative

458

:

to rest of world, just absolutely stopped.

459

:

Julian Brigden: it

460

:

Richard Laterman: How long it lasted.

461

:

Adam Butler: Yeah.

462

:

How long and how persistent

and how just the.

463

:

Julian Brigden: Yeah.

464

:

So they look, I mean here's, here's

the dollar going back to:

465

:

So we get a 50% correction.

466

:

You can't see it 'cause

the chart doesn't start.

467

:

We get a 50% correction in, 1972,

then we get a 60 plus percent rally,

468

:

then we get a 43% decline, then we

get a 40% rally, then we get a 38%

469

:

decline, then we get a 50% rally.

470

:

So why not another 30, 40% decline?

471

:

I mean, that's, I'm not talking about, I

think this has been very important to say.

472

:

I'm not talking about the demise of

the dollar as the reserve currency

473

:

or anything silly like that.

474

:

Right.

475

:

simply talking about a decline

in the value, the exchange rate.

476

:

Right?

477

:

In fact, I think, you know, the, the

ambition of the Trump administration

478

:

is at the end of this to have an

inherently stronger dollar, right?

479

:

if we keep spending money like we are, the

dollar's gonna be a piece of toilet paper.

480

:

Right.

481

:

And, you know, and, and I think that's,

that's kind of where, you know, it just

482

:

doesn't, doesn't preclude a de decline

in the value of the dollar, but that's

483

:

an important variable in global markets.

484

:

In, in fact, it's really the probably

most important macro variable.

485

:

If you get the trend of the dollar

right, you're pretty much gonna

486

:

get your asset allocation right.

487

:

Richard Laterman: Right, and, and

obviously prices are set at the margin,

488

:

so regardless of the, Volume that we

would expect at the end of this journey

489

:

of assets to flow out of the US as prices

are being set at the margin, marginal

490

:

appetite for the global reserve asset

and currency seem to be diminishing.

491

:

But to go to your earlier, point and,

and on the reflexive nature of things,

492

:

you have China, you have Japan, you

have so many emerging, economies

493

:

or just global economies holding US

treasuries as a foreign reserve asset.

494

:

do we expect these, countries to light

the reserves on fire and start divesting?

495

:

Because we, we also understand

that as they move towards the

496

:

exit, we would potentially cause

a huge in treasury pricing.

497

:

So

498

:

Julian Brigden: the

499

:

Richard Laterman: how

do you see that dynamic?

500

:

Julian Brigden: So I think, I think

you've got to really split this between

501

:

sovereigns and private investors, because

sovereigns don't really hedge, right?

502

:

They don't, I mean, we've

seen a diversification of

503

:

sovereigns, you know, into gold.

504

:

There's no question right?

505

:

saw the SMB, which is a great trade.

506

:

We'll see how it pans out, but probably

be a better trade than treasuries.

507

:

You know, move into US

equities for their reserves.

508

:

Right?

509

:

We've seen essentially the

Norges fund do the same and,

510

:

and, and, and other entities.

511

:

But when it comes to their sort of

core treasury holdings, they're,

512

:

they're supposed to be rev reserve

stabilization funds, basically, or, or

513

:

sort of currency stabilization funds.

514

:

And they're not really going to

hedge those, you know, they might

515

:

not increase them very much.

516

:

They might decrease the

duration of them might.

517

:

Um, which is why, you know, Stephen

Marin's trying to propose that, he

518

:

forced countries to come and buy a

hundred year bonds that yield nothing.

519

:

Good luck with that

'cause that's a default.

520

:

But, I don't think it's that.

521

:

I think what you're seeing is in

particular, is this right here, right

522

:

now, I think you're seeing this big equity

float of global equity money that has come

523

:

into the US, which rarely, I mean, I was

in Europe joking with clients that, you

524

:

know, and I was in currencies for most

of my professional career, as opposed to

525

:

this amateur shit that I do these days.

526

:

But, but so when I actually sat on the

trading desk of a bank, I was, I was in

527

:

fx and there were times, there were whole

decades where we never spoke to an equity

528

:

fund and then something would go wrong.

529

:

Like for example, the, ERM crisis

in the early nineties in Europe, and

530

:

you'd be, I was sitting at Lehman

at the time and I was getting these

531

:

phone calls from these US funds.

532

:

You know, in Boston or, or New York

going, yeah, so we got this, all

533

:

these Italian stocks and, we didn't

do very well last year 'cause of the,

534

:

the lira, And you're like, oh, we can

help you with a hedge on that one.

535

:

Cha ching, cha ching ching.

536

:

but, but the, you know, the,

the point is, is these equity

537

:

guys generally don't hedge.

538

:

I think we are seeing some of them

hedge now, but I bet you they're

539

:

having to discover who their

contacts are at the major bank,

540

:

you know, on the f on the FX desk.

541

:

Right.

542

:

And some US equity

investors will not hedge.

543

:

So in those guys who will not, and

particularly the general public tends

544

:

not to, those guys just hit the bid

if, if the currency moves too far and

545

:

undermines the value of their US stock

holdings in their own currencies.

546

:

Richard Laterman: Right.

547

:

So what countries, what

jurisdictions, have capital markets

548

:

with enough depth and breadth?

549

:

Enough volume to absorb a portion

of this wall of liquidity were

550

:

it to decide, to find a new home.

551

:

Julian Brigden: So this is an

interesting question, so get this one

552

:

a lot, but there's no alternative.

553

:

Okay.

554

:

Richard Laterman: Be creative,

555

:

Julian Brigden: You know, there was

arguably you could argue in:

556

:

was no alternative to having your money

in the rest of the world when foreign

557

:

stocks were three standard deviations

more expensive than US stocks, right?

558

:

Well, guess what?

559

:

You know, all of a sudden everybody

wants to trade European stocks, then

560

:

liquidity's going to improve, right?

561

:

Number one.

562

:

secondly, this sort of gives you

this sense of, you know, that

563

:

we've sort of discovered here in

the US this concept of perpetual

564

:

economic motion and it's cycle free.

565

:

And even more and more money

can only come into the US right?

566

:

And last year, Bridgewater had this

great stat where they said, you know,

567

:

70 cents of every dollar went into

US, of every dollar that went into

568

:

global equities went into the US.

569

:

So what's it gonna go to?

570

:

80?

571

:

90?

572

:

So what happens when it

goes to a hundred, right?

573

:

Do we just go, okay, that's it.

574

:

It just stays here forever and we

never have a, I mean, you know, the

575

:

answer is at the moment there's not

many markets that are as liquid.

576

:

But what we will discover is

we can hedge the currency quite

577

:

quickly and quite easily, right?

578

:

So if you are that, you know, Swedish

Pension Fund and you haven't hedged,

579

:

you know, your Swedish kroner, you, you

know, in your long, a lot of US tech

580

:

stocks, you're going to first probably

do the currency, you might buy a put

581

:

on the NASDAQ to protect you as you

start to civvy up the kind of position.

582

:

So there's ways of sort of doing it.

583

:

I'm not suggesting it's gonna be clean,

but as I was saying to to Adam, I

584

:

think people forget in this process

people lose a lot of money, right?

585

:

So there is less money to

rotate because the money's gone.

586

:

You need to use that

great South Park analogy.

587

:

Right.

588

:

You know, and

589

:

Richard Laterman: And it's.

590

:

Julian Brigden: Right?

591

:

I mean, it's just true.

592

:

I mean, if stocks go down 30%

and no one hits the bid, then the

593

:

amount of money that has to get

transferred is down 30%, right?

594

:

'cause the money was never there

595

:

Richard Laterman: No doubt.

596

:

And what role do you see, you know,

gold obviously has had this massive

597

:

rally and, and is now, right in the

center of the Overton window of,

598

:

of where people see an alternative.

599

:

what else are you looking

at as alternative, from

600

:

an asset class standpoint?

601

:

Do you look at other precious metals?

602

:

Do you look at energy?

603

:

do you think about that Problem is, is

there a role for crypto in any of this?

604

:

Julian Brigden: I mean, look,

you know, there's, there's

605

:

potentially a role for crypto.

606

:

I have structural concerns about crypto.

607

:

You know, we could address

those if you want to.

608

:

But, you know, look, I'm still quite

concerned that cryptos is very sort

609

:

of, highly correlated, you know,

risk on risk off asset, right?

610

:

So to me, I'm not convinced that if

we were to see a major correction

611

:

in US stocks, not saying, you

know, but let's say, you know,

612

:

that crypto really outperforms.

613

:

I, I just don't know

whether that's the case.

614

:

still think it's owned by a lot

of people who own Nvidia stock

615

:

and, and this sort of stuff.

616

:

And it's owned by the market now.

617

:

So it is subject to, to

risk off or var events.

618

:

I think that, gold is a little unique.

619

:

I do want to own all of those

other assets that you talked about.

620

:

I want to own emerging markets.

621

:

I want to own overseas stocks.

622

:

I want to own, commodities outside gold.

623

:

But, but here's the problem.

624

:

Typically when you're in a

capital rotation event, which

625

:

I think we are right out of the

US and into other things, right?

626

:

The initial phase is what is what

I refer to as a nasty correction.

627

:

So if you think about, you know, when you

see huge divergences, there are one or two

628

:

ways that these divergences can normalize.

629

:

You can get a nasty divergence,

normalization where the expensive

630

:

asset just craps out, right?

631

:

That's it, right?

632

:

So the S&P just drops, foreign

assets, you know, outperform.

633

:

But it's rare that in those

scenarios, they absolutely rise.

634

:

So if you look at 2000 to 2002,

silver massively outperformed the

635

:

S&P, it still got drilled, right?

636

:

You still lost money if you were

outright long silver, right?

637

:

So what you really are waiting

for is the nice rotation phase.

638

:

And the nice rotation phase is typically

when the fed starts to cut rates and you

639

:

get that nice warm fuzzy re release of

weak dollar liquidity like that that, you

640

:

know, that's the grease that, you know,

oils, the machinery of global finance

641

:

is the dollar still, and it will remain

as far as I'm concerned for a while.

642

:

but when it's, when it drops in value

for the, for the right reasons, right?

643

:

Because the Fed is cutting, maybe

they're doing QE again, who knows?

644

:

then you're getting that nice

liquidity flooding into other assets,

645

:

and that's when everything rises.

646

:

So your stocks will bounce, but less than

emerging markets, less particularly in

647

:

Richard Laterman: Right,

648

:

Julian Brigden: the dollar

into account, right?

649

:

Richard Laterman: right.

650

:

Julian Brigden: that's when I really

want to own them, and I don't think

651

:

we are there yet because we have

not seen that capitulation at all.

652

:

At all.

653

:

Richard Laterman: Liquidation.

654

:

Well, we haven't really seen liquidation.

655

:

So at, at the end of the day, I

think what you're describing is,

656

:

and, and it's something that we've

observed, here at ReSolve as well.

657

:

Initial phase, you sell

first, ask questions later.

658

:

Anything that has a bid gets whacked.

659

:

People are just raising cash because

of the uncertainty, of the scenario

660

:

that is unfolding before their eyes.

661

:

The second phase is once you start to

put that money to work, and then you

662

:

start to see which jurisdictions, which

asset classes are gonna be favored.

663

:

So in, in view, once we, we haven't

even really seen that first phase,

664

:

we haven't really seen capitulation.

665

:

there's this old adage that you

have to see some kind of, you know,

666

:

critical events, some major bankruptcy.

667

:

It's typically the case that

we see something like that

668

:

taking place before we see,

669

:

Julian Brigden: you know,

670

:

Richard Laterman: right.

671

:

Julian Brigden: you

672

:

Richard Laterman: Someone cries.

673

:

Julian Brigden: Yeah.

674

:

Someone cries on call.

675

:

I mean, maybe it's the US

treasury market, but we'll see.

676

:

Hope not.

677

:

Richard Laterman: Right.

678

:

Julian Brigden: could be.

679

:

but yes, that's, that's typically the

case when you can, when you can truly

680

:

own assets outright and, you know, go

to the beach for the next five years.

681

:

Richard Laterman: So commodities,

emerging markets, and then to a lesser

682

:

extent, some of these other esoteric,

asset classes that are still, you,

683

:

you have some doubts whether a.

684

:

Julian Brigden: I, problem that I've

got with crypto, right, which is really

685

:

what you're raising, as I said, I think

it's very heavily correlated to Nasdaq

686

:

and B, let's play a little game, right?

687

:

And I'm not saying this is where

we're getting, so let's say.

688

:

I, I believe we're in a structural

bond bear market, right?

689

:

A completely structural,

it's driven by demographics.

690

:

There is nothing we can

do to stop it, right?

691

:

So basically unless we do YCC or yield

curve control yields are basically up and

692

:

to the right for the next 25 years, right?

693

:

And my work suggests somewhere between

unhindered, US treasury yields are gonna

694

:

be eight to 10% at that point, right?

695

:

By 2050.

696

:

I suspect we can't do that,

we can't live with that.

697

:

So at some point gonna end up with a,

we could end up with a crisis, right?

698

:

Let's say where yields are too

high, you know, let's say the

699

:

deficit is, or the interest on the

deficit is running at 2 trillion.

700

:

Which would, all that would take is

the CBO being more, more realistic

701

:

of where the funding costs of the

deficit are gonna come from, right?

702

:

If we're funding at four and a

half, the deficit isn't a trillion,

703

:

it's 2 trillion a year, right?

704

:

you know, the long end of the

bond market becomes unhinged.

705

:

and the Fed comes in and does yield

curve control what, or you know, or

706

:

QA, Then the dollar gets hit, right?

707

:

inflation spikes even further

because the dollar gets hit.

708

:

US assets are underperforming in

that situation off and possibly

709

:

even selling off, depending on where

you are in that cycle of foreigners

710

:

divesting, and then they have to

do really something quite nasty.

711

:

And the last time we were in a

structural bear market, it was the

712

:

late was really the sort of post-second

World War period into:

713

:

world looked different, gentlemen.

714

:

We did not have, let's say,

fair free open markets.

715

:

We had capital controls, exchange

controls, prices and incomes policies

716

:

where governments literally told

you what you could get paid and

717

:

how much prices were going up.

718

:

Because that was such a

painful environment, right?

719

:

That governments had to intercede.

720

:

let's envisage that we are heading

towards that environment and crypto

721

:

and the dollar's getting trashed.

722

:

And, you know, crypto's 200,000,

300,000 could be an amazing trade.

723

:

Here's the problem.

724

:

If you have to get to the point to

put capital controls on and exchange

725

:

controls to stop money fleeing the

US or some other economy, you have

726

:

to close down crypto because it is

designed to avoid those restrictions.

727

:

And so you have to turn around to

American citizens and say, uh, you

728

:

can keep your crypto, but you cannot

transfer outside the US dollar system

729

:

or outside the US or, you know.

730

:

Or you close the thing completely, right?

731

:

So that ability for you to

let that liquidity leave the

732

:

US, they have to lock down.

733

:

Now, whether that means banning

crypto or just banning it to only

734

:

working, you know, US asset, US

crypto for US markets, I don't know.

735

:

But I think that could become quite

a diff difficult event, right?

736

:

And I'm just, that's where I worry

about crypto and what that does.

737

:

Adam Butler: With the US debt, the

size that it is, and I mean, I think we

738

:

had maybe three weeks where the market

began to contemplate the vanishingly

739

:

small possibility that we may see a

reduction in deficits this year before

740

:

it became obvious that we were just

gonna double down again on, on deficits

741

:

with tax cuts and other features.

742

:

why isn't the, the basement inflation

cascade that you described the base case?

743

:

Julian Brigden: I dunno.

744

:

'cause I try and be optimistic.

745

:

I, I mean, I, I think I, you

know, it is, I, I'm, I'm, I will

746

:

say it probably is the best case.

747

:

It's a question of timing.

748

:

So you cannot, you cannot

constantly think about that, right?

749

:

Because if, let's say, the bond market

does hold in, I think it's got some

750

:

inordinate challenges ahead, and US

equities go to, you know, 6,500 and we

751

:

keep playing this, and the world does fund

it for another year, then you're wrong.

752

:

Right?

753

:

It doesn't, you know, if you're

thinking structurally for

754

:

20 years, it doesn't matter.

755

:

I mean, it's like I've said to

my wealth clients, you know.

756

:

If you've got a client who thinks

they've, you know, you've got a house

757

:

in the Amalfi coast as an American and

they want to go and retire there, right?

758

:

'cause they're Italian or

European or, or whatever.

759

:

Then make sure they've got a pot of cash

that's sitting outside the US ready to

760

:

do that because in 10 years time, they

may not be able to take the money out.

761

:

So, you know, I, there's, there's

a difference between that trading

762

:

timeframe and that sort of

structural thinking timeframe.

763

:

But I, I, I tend to agree, I don't

see how we get out of this apart

764

:

from acute financial repression.

765

:

Right.

766

:

And,

767

:

Adam Butler: I mean, even in the event

of a, of a recession or some type

768

:

of, major global growth shock where

you get some relief on the inflation

769

:

front for a short time, the fiscal

stabilizers kick in, you've got much

770

:

larger deficits to fund coming out of it.

771

:

We're already at, you know,

near record non-war deficits.

772

:

What a, as you look across at

Ja, the Japanese bond market,

773

:

I mean, obviously there's been

some attention over there, right?

774

:

Rightly so.

775

:

what's playing out there as,

and is that a canary that we

776

:

can learn some lessons from?

777

:

I.

778

:

Julian Brigden: Really good.

779

:

It's a, that's a really good

question and I really hate it when

780

:

people say, and that's a really

good question 'cause everyone seems

781

:

to start their response with that.

782

:

But that actually is

a good question, Adam.

783

:

' cause that was on actually our morning

debate this morning, internally.

784

:

And so the reason why that's an

important question is historically.

785

:

Japanese money flows are absolutely

pivotal to what happens in global

786

:

markets because they're very

large savers and you know, if they

787

:

start to shift, that's important.

788

:

I think historically, this would be a

very bad sign, this unhinging of the

789

:

long end of the Japanese bond market.

790

:

I think it's important, but

I'm less immediately concerned.

791

:

And let me explain why.

792

:

The problem that you've got in Japan

is that you've got A BOJ, which

793

:

is just not raising rates enough

to protect long-term investors.

794

:

you look at Japanese inflation, it's 3.5%

795

:

rates are pathetically

low compared to that.

796

:

And what's been priced into the JGB curve

in, I mean, even as with the BOJ saying,

797

:

we're going to continue to raise rates.

798

:

You know, you've got this very,

very little priced into the sort

799

:

of front belly to the, to the

front end of the, of the JGB curve.

800

:

so you are really not being protected by

the BOJ when it comes to the long end.

801

:

In addition, have a really screwy

political setup at the moment with a,

802

:

basically a minority government, which

is just having to hand out, you know, do

803

:

the TV to you and the TV to you and the

TV to you trade to keep the government

804

:

together with, with spending promises.

805

:

And that's obviously

being a, being a problem.

806

:

But that set up is what it is.

807

:

Now if, if I thought that Japanese private

money was all of a sudden gonna say,

808

:

oh, I'm really enticed by four percent

long-term, 30 year yields in Japan, going

809

:

to sell my US treasuries and buy those.

810

:

I would be more worried.

811

:

I just don't think Japanese investors

wanna buy, like most private investors

812

:

are waking up to the reality.

813

:

I just don't wanna buy

duration, period, end of story.

814

:

So I don't know whether we're

gonna see that switch flow.

815

:

So they sell us to buy Japan.

816

:

I think if the BOJ were to get

religion and to start to raise rates

817

:

more aggressively, that might be.

818

:

Adam Butler: So walk me through that

process because one thing I've always

819

:

felt that is gets too little attention

is that the last time there was a massive

820

:

rate rising cycle was in the 1970s when,

well, late:

821

:

when debt to GDP in most developed country

was countries, was in the 50, 60% range.

822

:

And now we're in, you know, in the

US what are we, 190% or something?

823

:

In Japan, it's like 300%.

824

:

So, you know, I hear people

say that the BOJ needs to get

825

:

ahead of it by raising rates.

826

:

So they raise rates, they rise,

they, they increase the, the

827

:

funding rate for, Japanese spending.

828

:

Now most Japanese bonds are owned by

either the BOJ or the, postal bank or

829

:

whatever it's called, right in, in Japan.

830

:

So.

831

:

You know, and, and it's

the same in the States.

832

:

Like if it's, it is very different to

raise rates to disincentivize the private

833

:

sector, from lending and investing

when you've got very low deficits

834

:

relative to the size of the economy.

835

:

When the, the deficits are 200% of the

economy, are you sympathetic to the

836

:

view that maybe raising rates actually

may be counterproductive and may

837

:

actually amplify the inflation channel?

838

:

Julian Brigden: So you are, look, you

are dealing in a much more complex,

839

:

set of, you know, chess game here.

840

:

You are playing three dimensional

chess here, essentially, I'm quite

841

:

mastered the nine dimensional chess

that the president's supposed to play.

842

:

But anyway, the three dimensional chess,

or the two dimensional ch you know,

843

:

three dimensional chess, I think, you

know, you do start to run into problems.

844

:

So you're absolutely right.

845

:

know, is there a sweet spot

where the BOJ can raise rates?

846

:

Now, I think in Japan it's a little

different than net savers, right?

847

:

So you actually boost income somewhat

by, by raising rates, that you do enough

848

:

that holds in bond market and prevents

that point where you get that kind of

849

:

accelerative meltdown in the long end,

where the risk is then that you have

850

:

to do something which then weakens the

currency, which pushes up inflation.

851

:

You know, you have to come in and

do yield curve control or YCC again,

852

:

and then the currency lurch is lower.

853

:

So I think you can end up in that

quite nasty, vicious, and then

854

:

the debt servicing gets wrong

and it just, it gets very messy.

855

:

So,

856

:

Adam Butler: Well, the other

angle in Japan too, right?

857

:

Is that a big reason why people

haven't been as concerned about

858

:

Japanese yen debt is because they

have such large dollar reserves.

859

:

But if there's a concern that the

value of the dollar reserves are gonna

860

:

decline at the same time that Japan

enters an inflationary cycle at 200%

861

:

debt to GDP, I feel like the BOJ is

in a box raising rates stimulates an

862

:

economy that's already overheated.

863

:

Julian Brigden: They also

own a lot of their own debt.

864

:

Right.

865

:

They kind of eat what they kill as

a current account surplus country.

866

:

Adam Butler: But, but in that respect,

you're raising rates that amplifies the

867

:

extent to which higher rates feeds back

into stimulus in the economy, right?

868

:

You're raising rates.

869

:

Julian Brigden: To, to some degree.

870

:

Yes.

871

:

So, look, it's, the way I liken this

is the higher your debt goes, right.

872

:

Debt to the GDP deficits, whatever,

that essentially you are trying

873

:

to walk a tightrope, right?

874

:

But you're doing it at higher and

higher and higher and higher level.

875

:

So maybe that this is that, I think it

was a French or a Swiss guy that walked

876

:

across Niagara Falls or walked between

the Twin Towers before that tragic event.

877

:

9/11.

878

:

Right.

879

:

You know, that's what you are trying to do

880

:

Adam Butler: And you have fewer degrees

of freedom available to you to solve the.

881

:

Julian Brigden: Yes.

882

:

It's, it's a really precarious setup.

883

:

But I think, you know, I think

Japan in a way is luckier than the

884

:

US because she's not dependent as

much on the kindness of strangers.

885

:

We have to be very, very, very

careful as the reserve provider

886

:

that this is how reserve systems

end because you lose that faith.

887

:

I mean, I think, know, I wrote, a couple

of months ago, and I expect to get a

888

:

few months ago, I expect to get a lot

more pushback on this, you know, could

889

:

be reaching peak packs of Americana.

890

:

Right.

891

:

And the analogy that we used was the

late sixties in the UK, which may seem

892

:

bizarre 'cause the UK hadn't been the

reserve currency for quite some time.

893

:

But what was interesting is, is

coming outta the second World War,

894

:

the UK was on the winning side.

895

:

You know, it had a, an enormous

military had a, it was a global

896

:

power, but it was bankrupt.

897

:

it had all these sort of vestiges of

empire, but it just couldn't fund them.

898

:

so co so in 1968, the UK government bites

the bullet and they make this announcement

899

:

that they're pulling all UK military

forces east of Suez, which means that we

900

:

left, the Pacific Ocean and the Indian

Ocean un patrolled by the Royal Navy.

901

:

The problem was, is that three of

the biggest holders of Sterling

902

:

Reserves and they hold, held

basically all their reserves in the,

903

:

what was called the sterling area,

India, Canada, and New Zealand.

904

:

And so as they started to diverge, because

they were no longer getting that military

905

:

protection, and they would have to chummy

up to the US, that money starts to leave

906

:

and this is where this unique impact

of that reserve status comes into play.

907

:

Because as a reserve provider, you've been

loose to for a long time having subsidized

908

:

current, bond markets essentially.

909

:

Right?

910

:

And you've been used to having that

usually quite strong currency or

911

:

stronger than you know, typically is.

912

:

And so as those start to adjust,

you tend to get higher inflation.

913

:

You tend to get higher funding

costs, which if you are in a

914

:

weak fiscal situation, which

the UK was just exacerbate.

915

:

And I think people forget how

quickly things can spiral out out

916

:

of control, where your deficits

are getting more outta control.

917

:

Your public spending is

getting more stressed.

918

:

You are less able to provide

that military coverage.

919

:

You are less your, crowding out, that

classic term, which we haven't heard

920

:

since the seventies, but I suspect is

coming back where government, you got

921

:

the need to fund government basically

squeezes out the, the room available for

922

:

the private sector to fund itself, right?

923

:

And so you, you crowd out private

investment, so your CapEx is

924

:

low, so your productivity is low.

925

:

So for an extended period of

time, you know, the UK basically,

926

:

went through a period where its

inflation was higher than its peers.

927

:

Its currency was weaker than its peers

and it growth to a lower than its peers.

928

:

And so the end result was, and this

may, you know, surprise some of your

929

:

younger viewers, even in the Uk.

930

:

The UK in the end had to go cap in

hand to the IMF for a bailout, right?

931

:

So I I think this look, don't get

me wrong, I think the Japan thing is

932

:

important, I think, but I think there's

some, there's some dynamics there that

933

:

are, that are different to when you

make that comparison to the US because

934

:

the US is the reserve currency and that

means the whole world owns your assets.

935

:

That's how the reserve works.

936

:

Adam Butler: Uh, but it's a critical

difference too between the:

937

:

British situation and, and the current

situation is that we, they were operating

938

:

under a fixed exchange regime, right?

939

:

So you don't, you don't really get

crowding out in a floating exchange

940

:

regime because, you know, the central

banks and, and the tre and treasuries

941

:

have a lot more flexibility about

how they decide to fund it, right?

942

:

Julian Brigden: Okay, so yes, but you

are talking about essentially get to

943

:

a point, we just talked about what's

the base case essentially the, you

944

:

pushed yields to a point where it is

unsustainable and we're questioning

945

:

the solvency of the US government.

946

:

And that is a point called fiscal

dominance, that the central bank then has

947

:

to cross this Rubicon and it is a Rubicon.

948

:

It is something they will not do lightly.

949

:

Adam Butler: Yep.

950

:

Julian Brigden: it is an abandonment

of independent central banking, right?

951

:

They hand the keys to government,

Because they move from targeting

952

:

inflation employment to solving

for the solvency of their boss.

953

:

Adam Butler: Mm-hmm.

954

:

Julian Brigden: Right?

955

:

And I think we can get there, but that

then triggers a whole, all of those

956

:

other things that we talked about, right?

957

:

Where you end up with significantly

weaker dollar, argueablly right?

958

:

Unless you're doing it in

parallel with everyone else.

959

:

Right.

960

:

Significantly weaker

dollar higher inflation.

961

:

Right?

962

:

So you, so you kind of get to the

same places as, as the UK had under

963

:

a more fixed exchange rate basis.

964

:

It just takes you a little

965

:

Adam Butler: Yeah.

966

:

And the mechanics are a little bit

different, but I, yeah, I generally agree.

967

:

speaking of funding, the, the deficit,

what do you make, I mean, and, and also

968

:

I was laughing earlier when we were

talking about oiling the machinery.

969

:

Speaking of oiling, the machinery,

what do you make of the way that

970

:

the Saudis and the Emiratis have

been oiling Trump's machinery over

971

:

over the last few weeks in the.

972

:

Julian Brigden: ways.

973

:

I'm not, but I'm not going there.

974

:

if you believe about those tapes from

Moscow, uh, the, um, the, you know, look,

975

:

I look clearly the President wants to

achieve certain set of a certain outcome.

976

:

I mean, conceptually, let's say I say

I'm worried he's walked back, right?

977

:

We've seen that pivot, at least the

objective is, is at face value to sort

978

:

of strengthen US manufacturing and to

strengthen the, the inherent, economic

979

:

underpinnings of growth of the US economy.

980

:

And so those investments are important.

981

:

are they playing to an ego?

982

:

Absolutely.

983

:

Will they happen?

984

:

We will see.

985

:

Will they fund them out of US Treasury

holdings that they have, I mean, they're

986

:

just gonna get a big tax break on them.

987

:

So it's, you know, maybe

not the worst thing.

988

:

you know, net net is this.

989

:

Suddenly we're gonna spend, you know,

the Kuwaitis gonna divert half a

990

:

trillion dollars of money from their

US, from their European bond holdings

991

:

and go and build a data center or

whatever the heck I track of, you know,

992

:

what everyone was promising to do.

993

:

Right?

994

:

Or are they just gonna say, we're just

gonna take that half a trillion we've

995

:

got sitting in existing US assets

and we'll, we'll direct it to that.

996

:

I suspect it's the latter, not the

997

:

Adam Butler: A latter.

998

:

Yeah.

999

:

Yeah.

:

00:59:44,235 --> 00:59:44,385

Julian Brigden: So

:

00:59:44,447 --> 00:59:44,687

Richard Laterman: All right.

:

00:59:44,985 --> 00:59:46,005

Julian Brigden: are we better off?

:

00:59:46,425 --> 00:59:50,565

I mean, you know, we'll create some

manufacturing jobs, which is great, you

:

00:59:50,565 --> 00:59:53,775

know, but if we lose half a trillion

dollars from the treasury market, when we

:

00:59:53,865 --> 00:59:55,695

pretty clear we bloody need it, you know?

:

00:59:57,328 --> 00:59:57,388

Adam Butler: Yeah.

:

00:59:57,432 --> 00:59:57,762

Richard Laterman: I don't know.

:

00:59:57,762 --> 01:00:02,247

To what extent do you follow, sort of

the, the, the non-economic elements of,

:

01:00:02,247 --> 01:00:07,749

of geopolitics, but do you think that

there might be, a defense element to

:

01:00:07,749 --> 01:00:11,339

this in the sense that, you know, they're

trying to bring, a lot of these other

:

01:00:11,339 --> 01:00:16,109

Arab nations into the Abraham Accords,

and perhaps there's an element to this

:

01:00:16,109 --> 01:00:20,869

where you're trying to tighten economic

ties, in order to sort of facilitate

:

01:00:20,869 --> 01:00:22,903

this, the diplomatic element of it.

:

01:00:23,101 --> 01:00:27,871

Julian Brigden: so look, I, like I said

before, you know, typically at this point

:

01:00:27,871 --> 01:00:31,111

driven dilemma, you, that's it, right?

:

01:00:31,171 --> 01:00:33,961

You know, peak, peak, imperial

power and so on and so forth.

:

01:00:34,771 --> 01:00:36,571

Now, the US doesn't want that to happen.

:

01:00:36,571 --> 01:00:38,371

They want to try and maintain that status.

:

01:00:38,471 --> 01:00:40,541

I'm not convinced they can totally.

:

01:00:41,241 --> 01:00:47,991

but there are definitely areas of focus,

So the US made it pretty clear after

:

01:00:47,991 --> 01:00:51,771

they've stuck it to the Europeans or

they read the riot act to the Europeans

:

01:00:51,771 --> 01:00:53,571

and said, we are not here, right?

:

01:00:53,661 --> 01:00:58,893

I mean, this last weekend, US

NATO, ambassadors said we are

:

01:00:58,893 --> 01:01:01,713

starting talks now as to when we're

withdrawing troops from Europe, right?

:

01:01:01,713 --> 01:01:02,283

So that is.

:

01:01:02,658 --> 01:01:03,288

Ongoing.

:

01:01:03,288 --> 01:01:05,868

They are out of Europe right.

:

01:01:06,978 --> 01:01:13,698

I think part of that reorg,

Southeast Asia, clearly, you

:

01:01:13,698 --> 01:01:15,138

know, greatest adversary China.

:

01:01:15,168 --> 01:01:22,848

You gotta keep those forces, build those

forces up, arguably and the Gulf, right?

:

01:01:23,238 --> 01:01:27,618

So I think there are, you know,

there's a, there's a change in the mix.

:

01:01:27,618 --> 01:01:28,758

So yes, absolutely.

:

01:01:28,758 --> 01:01:33,838

I think we're reemphasizing those areas

that we want to, place our emphasis.

:

01:01:34,425 --> 01:01:38,235

Richard Laterman: And to be clear,

when you say, the US wants to retain

:

01:01:38,235 --> 01:01:44,155

their, Hegemonic e exceptional, status

that is more on the economic front

:

01:01:44,155 --> 01:01:48,985

and sort of dollar and treasuries as

reserve currency, reserve asset, less

:

01:01:48,985 --> 01:01:55,612

so on these geopolitical and defense

unipolarity because they, uh, to your

:

01:01:55,612 --> 01:01:59,581

point there, retrenching from from

Europe, they are trying to, I think one

:

01:01:59,581 --> 01:02:04,561

of the, of the few bipartisan agreements

is that, I mean, from an electoral

:

01:02:04,561 --> 01:02:06,481

standpoint, no one wants more wars.

:

01:02:06,751 --> 01:02:10,171

And so there, there's this element

of the US needs to spend so much

:

01:02:10,171 --> 01:02:14,521

treasure and so much blood in

order to, to be the global sheriff.

:

01:02:14,621 --> 01:02:19,571

and that seems to be, you know,

squarely in, in Trump's agenda that

:

01:02:19,571 --> 01:02:25,061

the US will no longer be that player

and everybody else needs to step up.

:

01:02:25,061 --> 01:02:25,451

So

:

01:02:25,709 --> 01:02:29,969

Julian Brigden: So, so I mean, the, the

tragic, the tragic historical reality

:

01:02:29,969 --> 01:02:33,269

of that is when you tend to move to a

unipolar world, there are inherently more

:

01:02:33,269 --> 01:02:34,979

unstable, you end up spilling more blood.

:

01:02:35,219 --> 01:02:38,549

But I guess, you know,

uh, a multipolar Yeah.

:

01:02:38,549 --> 01:02:39,029

I mean, sorry.

:

01:02:39,029 --> 01:02:41,699

You, you, you mo it becomes

increasingly unstable.

:

01:02:41,788 --> 01:02:42,059

Right.

:

01:02:42,119 --> 01:02:45,704

you know, there's an interesting video

going around on TikTok about George

:

01:02:45,704 --> 01:02:49,769

Bush in:

thing and the concerns he has about

:

01:02:49,769 --> 01:02:53,999

isolation tendencies in the US and

pulling back and so on and so forth.

:

01:02:53,999 --> 01:02:56,249

And that being, you know, if

you look back at the twenties,

:

01:02:56,249 --> 01:02:57,629

that was just a bloody mistake.

:

01:02:57,629 --> 01:02:57,839

Right.

:

01:02:59,249 --> 01:02:59,669

you know.

:

01:03:00,149 --> 01:03:00,689

Okay.

:

01:03:01,019 --> 01:03:05,519

but that, to go back to your original

point about wanting to maintain, you

:

01:03:05,519 --> 01:03:11,609

know, that peak reserve status and so

on and so forth, and that, letting that

:

01:03:11,609 --> 01:03:16,959

military thing go, reorientate when

those things are inexorably linked,

:

01:03:17,779 --> 01:03:20,459

right there is, you cannot divide those.

:

01:03:20,609 --> 01:03:20,939

Right.

:

01:03:21,149 --> 01:03:27,749

We are able to be the largest

military because we have the

:

01:03:27,749 --> 01:03:31,429

funding to be the largest military.

:

01:03:31,849 --> 01:03:36,869

The UK was able to be the largest military

heading into the Second World War.

:

01:03:37,349 --> 01:03:39,989

I mean, you know, coming outta the

first world, but heading into the

:

01:03:39,989 --> 01:03:44,429

first World War, the Royal Navy was

three times, was, was as large as

:

01:03:44,429 --> 01:03:46,259

the next three navys put together.

:

01:03:46,409 --> 01:03:46,799

Right.

:

01:03:47,249 --> 01:03:50,159

You know, that was, the value

proposition if you want.

:

01:03:50,159 --> 01:03:50,459

Right.

:

01:03:50,939 --> 01:03:55,829

And so this is, they

are inexorably linked.

:

01:03:55,889 --> 01:04:03,779

So if the US is saying, which it

appears to be that we are not the global

:

01:04:03,779 --> 01:04:08,309

policemen anymore, certainly not when

it comes to Europe and other bits of the

:

01:04:08,309 --> 01:04:10,079

world, that we are not that interested.

:

01:04:10,079 --> 01:04:10,409

Yeah.

:

01:04:10,469 --> 01:04:10,649

Yeah.

:

01:04:10,649 --> 01:04:11,579

We're interested in the Gulf.

:

01:04:11,579 --> 01:04:11,729

Yeah.

:

01:04:11,729 --> 01:04:13,989

We're interested in the Middle

East, sorry, in the far east.

:

01:04:13,989 --> 01:04:14,169

Right.

:

01:04:14,169 --> 01:04:14,769

In Asia.

:

01:04:15,099 --> 01:04:15,339

Right.

:

01:04:16,119 --> 01:04:16,719

Okay.

:

01:04:17,469 --> 01:04:21,549

But then you are moving to that

increasingly multipolar world.

:

01:04:21,549 --> 01:04:21,759

Right.

:

01:04:21,759 --> 01:04:24,969

'cause Europe has to become

its own, own pole, cannot be

:

01:04:24,969 --> 01:04:26,589

covered by that umbrella anymore.

:

01:04:27,324 --> 01:04:30,339

then the implications for the flow of

funds that have been coming from Europe.

:

01:04:30,699 --> 01:04:34,839

Back into the US are

inordinately profound.

:

01:04:35,079 --> 01:04:40,569

Particularly since in the last five

years, Europe has been by far the

:

01:04:40,569 --> 01:04:48,759

largest funder of US exceptionalism

AKA exceptional spending.

:

01:04:48,759 --> 01:04:48,849

Right?

:

01:04:50,126 --> 01:04:52,736

Richard Laterman: We could be seeing

though a substitution effect here

:

01:04:52,736 --> 01:04:57,236

where the Gulf countries, step up,

yet to be seen whether these headlines

:

01:04:57,236 --> 01:05:00,926

actually pan out and, and all

these investments, uh, materialize.

:

01:05:01,226 --> 01:05:05,996

But it seems like you can, you definitely

cannot be the global sheriff without

:

01:05:05,996 --> 01:05:09,806

being the global reserve currency and

have the global reserve asset, but it

:

01:05:09,806 --> 01:05:12,176

seems like the opposite could be true.

:

01:05:12,176 --> 01:05:17,366

You might still retain some hegemonic

status financially on a global status.

:

01:05:18,081 --> 01:05:24,321

But retrench from the global stage as as

the sheriff, and perhaps, do you disagree?

:

01:05:24,774 --> 01:05:25,014

Julian Brigden: I don't

:

01:05:25,071 --> 01:05:25,401

Richard Laterman: Okay.

:

01:05:26,184 --> 01:05:27,054

Julian Brigden: I don't think you can.

:

01:05:27,054 --> 01:05:29,064

I mean, I think, don't get me

wrong, I mean, the US equity

:

01:05:29,064 --> 01:05:32,094

market could remain the biggest

equity market for a very long time.

:

01:05:32,094 --> 01:05:33,374

All of these sorts of things.

:

01:05:34,224 --> 01:05:35,554

Adam Butler: Nature abhors a vacuum.

:

01:05:35,614 --> 01:05:35,924

Julian Brigden: Yeah.

:

01:05:35,924 --> 01:05:39,207

I mean, I, I, but I don't believe

that that's the case, right?

:

01:05:39,207 --> 01:05:44,410

I mean, I think if we truly the

risk is we truly are and we are not.

:

01:05:44,410 --> 01:05:44,650

Right?

:

01:05:44,860 --> 01:05:48,430

The the, you know, but the risk, the risk

is, is we go through this period where we

:

01:05:48,430 --> 01:05:50,500

go through this adjustment phase, right?

:

01:05:50,770 --> 01:05:55,450

Where even if it's just Europe that

just, we adjust to financially, right?

:

01:05:55,690 --> 01:05:57,610

The consequences of that are enormous.

:

01:05:57,615 --> 01:06:00,940

'cause, 'cause where we're starting

from, like, you know, look, if we were

:

01:06:00,940 --> 01:06:06,970

trying to rewrite the right the ship

and we weren't sitting at, you know, US

:

01:06:06,970 --> 01:06:11,260

equities versus the rest of the world at

four standard deviations from the mean.

:

01:06:12,700 --> 01:06:17,279

Using, you know, basically,

55 years worth of data.

:

01:06:18,300 --> 01:06:20,850

And just to put that into perspective,

ladies and gents, you know, you are

:

01:06:20,850 --> 01:06:24,000

talking about that event should occur,

and I'm being generous here 'cause

:

01:06:24,000 --> 01:06:26,070

I'm assuming both ends of the barbell.

:

01:06:26,070 --> 01:06:26,460

Right.

:

01:06:26,700 --> 01:06:30,810

Not just one tail, two,

in one day every 43 years.

:

01:06:31,740 --> 01:06:32,130

Right?

:

01:06:32,835 --> 01:06:36,300

if we weren't starting at the excuse

extremes, if we weren't starting with

:

01:06:36,300 --> 01:06:42,300

foreigners having net holding of US

excess of $26 trillion, would think

:

01:06:42,300 --> 01:06:44,160

this process could be a lot smoother.

:

01:06:45,332 --> 01:06:45,572

Richard Laterman: Right.

:

01:06:46,904 --> 01:06:47,185

Julian Brigden: I mean,

:

01:06:47,192 --> 01:06:49,112

Richard Laterman: It's the

extreme position that we find

:

01:06:49,112 --> 01:06:51,577

ourselves in today that you know,

:

01:06:51,690 --> 01:06:51,870

Julian Brigden: we've

:

01:06:51,932 --> 01:06:54,332

Richard Laterman: even if At

the margin, even if the margin,

:

01:06:54,420 --> 01:06:54,840

Julian Brigden: Yeah.

:

01:06:55,140 --> 01:06:57,540

We've adopted an extreme

political approach.

:

01:06:57,540 --> 01:07:00,750

I mean, maybe we're trying to cool

that down a little bit, right?

:

01:07:02,370 --> 01:07:02,550

We

:

01:07:02,607 --> 01:07:02,952

Richard Laterman: All right.

:

01:07:02,970 --> 01:07:03,990

Julian Brigden: it, you know, extreme.

:

01:07:03,990 --> 01:07:07,890

We went into this, assuming that

we held all the cards right and our

:

01:07:07,890 --> 01:07:11,295

attitude was very much like F U right?

:

01:07:11,654 --> 01:07:12,645

To the whole world.

:

01:07:13,035 --> 01:07:13,425

Right.

:

01:07:13,755 --> 01:07:20,355

And it's possible that we may hold

some of the strongest cards, but to

:

01:07:20,355 --> 01:07:24,045

assume that we hold all the cards

when basically the, the rest of the

:

01:07:24,045 --> 01:07:29,197

world is our banker, I think that's,

you know, that's a little dangerous.

:

01:07:29,197 --> 01:07:32,287

And I think I, I, you know, I truly,

I've got a lot of respect for certain

:

01:07:32,287 --> 01:07:38,317

people who work in the administration,

and I think they truly thought that they

:

01:07:38,317 --> 01:07:45,397

could take the pain upfront and that

we'd get a little adjustment period.

:

01:07:45,397 --> 01:07:47,257

Maybe we'd get a correction in stocks.

:

01:07:47,257 --> 01:07:49,687

Maybe we'd end up with a slight recession.

:

01:07:49,687 --> 01:07:55,717

But come like of Q3, Q4 of this year,

you know, we'd be emerging into,

:

01:07:55,931 --> 01:08:00,221

Reindustrialization and strong CapEx

growth and a rebound in equities.

:

01:08:00,581 --> 01:08:02,291

And we would've got yields lower.

:

01:08:02,291 --> 01:08:06,941

So housing would be recovering

and you know, we'd be able to roll

:

01:08:06,941 --> 01:08:08,291

out, return out some of our debt.

:

01:08:08,321 --> 01:08:10,241

I truly think that's what they thought.

:

01:08:11,801 --> 01:08:17,531

And then what they discovered was, if

you look, if you undermine the dollar

:

01:08:17,711 --> 01:08:21,461

and everyone is long US assets, then

bond yields don't necessarily fall.

:

01:08:21,461 --> 01:08:21,970

They rise.

:

01:08:23,291 --> 01:08:23,560

Right.

:

01:08:23,560 --> 01:08:26,111

And I think that is the

thing that's really thrown

:

01:08:26,111 --> 01:08:28,991

them, you know, a curve ball.

:

01:08:28,991 --> 01:08:32,861

And I think now they're going like,

well, you know, maybe we just punt

:

01:08:32,890 --> 01:08:38,171

this to the next, the classic US thing

where really we only have six to nine

:

01:08:38,171 --> 01:08:41,020

months where we can do anything before

we have to consider the next election.

:

01:08:42,459 --> 01:08:43,139

Adam Butler: I forget, who was it?

:

01:08:43,144 --> 01:08:46,964

It was it Kissinger that said that,

America always does the right thing once

:

01:08:46,964 --> 01:08:48,493

they've explored all of their options.

:

01:08:49,332 --> 01:08:51,223

Richard Laterman: I

think Churchill, but uh.

:

01:08:51,890 --> 01:08:52,191

Julian Brigden: yeah.

:

01:08:52,191 --> 01:08:52,640

Exactly.

:

01:08:52,645 --> 01:08:52,935

Churchill.

:

01:08:52,935 --> 01:08:54,261

But I mean, look, it's, it's.

:

01:08:55,911 --> 01:08:59,151

That's, that's sort of where I,

I, I think we are, I think we're

:

01:08:59,151 --> 01:09:03,321

just at the beginning of, I think

this is, and I was on, on the phone

:

01:09:03,321 --> 01:09:08,504

tour to a big real money account, a

couple of, two or three months ago.

:

01:09:08,504 --> 01:09:12,584

And I said, know, it was this classic

sort of Zoom call where there's like 30

:

01:09:12,584 --> 01:09:18,729

people on the Zoom call and me and, I

was looking at it and it was this, there

:

01:09:18,734 --> 01:09:24,073

was one older person, 38, 40 maybe,

and then this sort of United Nations

:

01:09:24,073 --> 01:09:27,073

are pretty young things, super bright

kids who've obviously got a Yale and

:

01:09:27,073 --> 01:09:28,573

Harvard and blah, blah, blah, blah, blah.

:

01:09:28,573 --> 01:09:28,844

Right?

:

01:09:30,283 --> 01:09:35,054

I got off this call and I said, you know,

if I can leave you with one thing is

:

01:09:35,054 --> 01:09:39,073

that while most of, you've probably only

been in market since the global financial

:

01:09:39,073 --> 01:09:43,304

crisis, so you've only ever seen stocks

go up, you've only US stocks outperform.

:

01:09:43,573 --> 01:09:45,974

You've only ever seen

the dollar go up, right.

:

01:09:46,274 --> 01:09:46,604

The.

:

01:09:47,834 --> 01:09:52,874

What the Trump administration is trying

to do I think you may look back 30 years

:

01:09:52,874 --> 01:09:57,644

time at the end of your career and you

may say this was a period in history, like

:

01:09:57,644 --> 01:09:59,684

this was truly a transformative event.

:

01:10:00,404 --> 01:10:06,314

And in that scenario, what you don't

do is assume that you buy something

:

01:10:06,314 --> 01:10:11,114

at one standard deviation, divergence

from the mean you, you back up the

:

01:10:11,114 --> 01:10:16,634

truck at two because this could go to

a five or a six or a seven standard

:

01:10:16,634 --> 01:10:25,964

deviation divergence, and we could just

be at a major total reset period right?

:

01:10:26,234 --> 01:10:32,954

Where for the next five to eight years,

we end up with a weak dollar and US assets

:

01:10:33,134 --> 01:10:37,784

underperform in foreign currency terms.

:

01:10:37,784 --> 01:10:39,074

And that's important, guys, right?

:

01:10:39,104 --> 01:10:43,664

Even if you are sitting here just

going, I'm a US investor, I don't care.

:

01:10:44,084 --> 01:10:44,954

You will.

:

01:10:46,199 --> 01:10:48,839

Because your purchasing

power deteriorates.

:

01:10:48,839 --> 01:10:49,079

Right.

:

01:10:49,079 --> 01:10:52,739

And if you're a wealthy individual,

you don't really wanna be, you

:

01:10:52,739 --> 01:10:56,189

know, going to, not being able

to afford to go to Europe, right.

:

01:10:56,189 --> 01:10:58,949

Or buy French wine or buy that German car.

:

01:10:58,949 --> 01:10:59,549

Right.

:

01:10:59,929 --> 01:11:05,519

You know, so these things are important,

but that's what I truly, truly think.

:

01:11:05,519 --> 01:11:07,799

I think we're at one of

those periods in history.

:

01:11:07,799 --> 01:11:12,029

Could they're backing off and could

they punch it for nine months?

:

01:11:12,029 --> 01:11:12,629

Maybe.

:

01:11:13,769 --> 01:11:14,068

Maybe.

:

01:11:14,068 --> 01:11:18,149

But it, it just looks to me

like we've broken Humpty Dumpty.

:

01:11:18,989 --> 01:11:24,059

The, the money is beginning to

hedge up its dollar exposure.

:

01:11:24,179 --> 01:11:28,589

The foreign money hedge up its

dollar exposure the margins, know,

:

01:11:28,589 --> 01:11:30,689

get back to benchmark in US assets.

:

01:11:31,079 --> 01:11:33,989

But that dollar's really important

because if they, even if they just

:

01:11:33,989 --> 01:11:36,239

get back to benchmark and they're

not hedged, they're going to find

:

01:11:36,239 --> 01:11:37,229

out they're gonna be losing money.

:

01:11:37,229 --> 01:11:41,219

And that's when you start to go

under benchmark or you know, you get.

:

01:11:41,624 --> 01:11:45,884

You get redemptions in, you know,

retirement funds from Europeans

:

01:11:45,884 --> 01:11:52,994

who go, what I'm down in my Nvidia

holdings in, in Euros, right?

:

01:11:54,284 --> 01:11:56,564

these things I think are just huge.

:

01:11:56,564 --> 01:12:00,164

I, I just think we're at this point like,

you know, I'm not gonna look back at the

:

01:12:00,164 --> 01:12:02,324

end of my career 'cause I'll be dead.

:

01:12:02,634 --> 01:12:05,724

but you know, at some point, you

know, I think people will look

:

01:12:05,724 --> 01:12:09,834

back at this and say, wow, this was

one of those periods in history.

:

01:12:10,941 --> 01:12:14,721

Richard Laterman: Well, because we

haven't yet had the proper liquidation

:

01:12:14,721 --> 01:12:20,571

phase of this transition as we were

discussing a moment ago, How, where are

:

01:12:20,571 --> 01:12:25,671

the biggest vulnerabilities, from an

asset class perspective, that you see

:

01:12:25,671 --> 01:12:30,180

it, it sounds like possibly the treasury

market, but maybe US bonds as a whole.

:

01:12:30,309 --> 01:12:34,390

but I find it hard to believe

that, that they would capitulate

:

01:12:34,390 --> 01:12:38,600

and undergo a massive, bear market

without US equities, also suffering.

:

01:12:38,960 --> 01:12:42,260

So are those the two major asset

classes that you see suffering

:

01:12:42,260 --> 01:12:43,640

the most in this liquidation?

:

01:12:43,790 --> 01:12:48,370

And where would be the opportunities

in the second phase once the, sell

:

01:12:48,370 --> 01:12:52,690

off, happens and, and opportunities

start to, to arise from an allocation?

:

01:12:52,843 --> 01:12:55,003

Julian Brigden: I think US

asset underperformance, I think

:

01:12:55,003 --> 01:12:58,063

right in, in other currencies,

I think that's what I see.

:

01:12:58,063 --> 01:12:58,633

I see.

:

01:12:58,663 --> 01:13:01,783

You know, US bonds, I mean,

you're absolutely right.

:

01:13:01,783 --> 01:13:05,113

I mean, do I, do I think, you know,

US 10 year yields are getting 7% no.

:

01:13:05,353 --> 01:13:05,713

Right?

:

01:13:05,713 --> 01:13:08,053

But do they go to five and

a half entirely possible.

:

01:13:08,053 --> 01:13:08,323

Right?

:

01:13:09,103 --> 01:13:13,183

I think that's actually, there's a neck

line on 10 year treasuries right here.

:

01:13:13,303 --> 01:13:16,723

And if we break through that, I

think it's five and a five and a

:

01:13:16,723 --> 01:13:19,693

quarter is the target, you know,

so another a 75 basis point.

:

01:13:20,293 --> 01:13:25,123

I think US equities underperform in

euro terms, in yen terms, in gold

:

01:13:25,123 --> 01:13:27,433

terms, in everything else, right?

:

01:13:27,583 --> 01:13:33,773

And so to me, I want to be a,

since I want to preserve my overall

:

01:13:33,773 --> 01:13:40,013

net purchasing power, wealth, I

want to sell US assets, right?

:

01:13:40,313 --> 01:13:45,473

That our dollar, that do well

when the dollar is strong, right?

:

01:13:45,833 --> 01:13:50,183

And historically, that is, if you

look at it on a sectoral basis,

:

01:13:50,243 --> 01:13:55,133

it's obviously the broad US equity

market, but it is healthcare,

:

01:13:55,133 --> 01:13:56,678

financials, consumer discretionaries.

:

01:13:57,443 --> 01:14:01,493

are the worst performing sectors if

you go and look at them from:

:

01:14:01,493 --> 01:14:04,073

:

:

01:14:04,403 --> 01:14:09,563

The best performing sectors are the

stuff that no one really owns, tends

:

01:14:09,563 --> 01:14:16,213

to be precious metal miners, minings,

metals, minerals, energy, right?

:

01:14:16,543 --> 01:14:17,263

Um.

:

01:14:17,605 --> 01:14:18,775

Richard Laterman: related sectors.

:

01:14:19,108 --> 01:14:19,588

Julian Brigden: related.

:

01:14:19,588 --> 01:14:23,368

And then, you know, emerging markets

typically do quite well at, as I said,

:

01:14:23,368 --> 01:14:26,848

at that point the Fed starts to cut

and that nice liquidity goes into the

:

01:14:27,205 --> 01:14:28,555

Richard Laterman: Also a commodity play.

:

01:14:28,615 --> 01:14:29,370

When you think about it,

:

01:14:29,638 --> 01:14:33,088

Julian Brigden: I mean it's very

much a weak dollar cycle play.

:

01:14:33,327 --> 01:14:33,748

Right.

:

01:14:34,077 --> 01:14:37,558

You know, I would, you know, when I

was doing real vision with Row, we

:

01:14:37,558 --> 01:14:41,758

used to joke like, if you can get the

dollar right, then you just go and buy

:

01:14:41,758 --> 01:14:46,498

emerging markets and commodities and

go and sit on the beach for five years,

:

01:14:47,181 --> 01:14:50,526

Adam Butler: Well, that

was the 02 to 07 playbook.

:

01:14:50,968 --> 01:14:51,598

Julian Brigden: Absolutely.

:

01:14:52,318 --> 01:14:52,888

Absolutely.

:

01:14:52,978 --> 01:14:56,278

And, and, and you know, I

think it's possible we end

:

01:14:56,278 --> 01:14:58,468

up in that environment again.

:

01:14:58,838 --> 01:15:02,318

I just don't think it's yet, well, I

still think we're in that, you know,

:

01:15:02,318 --> 01:15:06,368

if I go, is this the nice bit or the

nasty bit of that capital rotation?

:

01:15:06,638 --> 01:15:10,178

I'm still that we're in that nasty phase,

so I think you have to be bloody careful.

:

01:15:11,178 --> 01:15:12,870

Richard Laterman: what are the

catalysts that you're looking for?

:

01:15:13,130 --> 01:15:15,190

for the nasty bit to ensue, I.

:

01:15:15,992 --> 01:15:21,014

Julian Brigden: I mean, look, it, it could

be, you know, if I worry that as I said,

:

01:15:21,074 --> 01:15:24,794

we've pivoted from this sort of Trump 2.0

:

01:15:24,794 --> 01:15:29,815

agenda, this, highly laudable agenda

to onshore, you know, improve the

:

01:15:29,815 --> 01:15:35,725

lot of the middle class, reduce the

twin deficits, to much more of a 1.0,

:

01:15:36,175 --> 01:15:39,535

eh, you know, who cares?

:

01:15:39,590 --> 01:15:41,065

I'm a, I'm just a good guy.

:

01:15:41,065 --> 01:15:42,684

You know, up stocks go.

:

01:15:43,345 --> 01:15:47,770

in that situation, you pivot from being

worried about the immediate worries

:

01:15:47,770 --> 01:15:50,305

around the US equity market, right?

:

01:15:51,985 --> 01:15:56,335

In nominal terms, not in, you know,

foreign currency terms, but media

:

01:15:56,335 --> 01:16:01,525

concerns around that, to being worried

about the treasury market, right?

:

01:16:02,635 --> 01:16:08,440

you can't have a country just continues

to spend like we do, where there's

:

01:16:08,440 --> 01:16:12,040

unquestionably inflation pressures

coming through from tariffs where we

:

01:16:12,040 --> 01:16:17,050

have 4% and change unemployment and

think that we are going to accelerate

:

01:16:17,050 --> 01:16:20,020

growth without a re, without inflation.

:

01:16:20,200 --> 01:16:22,210

I mean, that's just a joke, right?

:

01:16:22,210 --> 01:16:24,340

An absolute joke.

:

01:16:24,670 --> 01:16:25,030

Right.

:

01:16:26,710 --> 01:16:30,970

we have never successfully re accelerated

growth from the current levels of

:

01:16:30,970 --> 01:16:32,760

unemployment without, inflation.

:

01:16:32,760 --> 01:16:34,290

We tried it in the late sixties.

:

01:16:34,650 --> 01:16:37,230

It was a bloody disaster.

:

01:16:37,559 --> 01:16:37,980

Right.

:

01:16:38,040 --> 01:16:42,600

It was the beginning of the trend that

laid us through into the seventies

:

01:16:42,600 --> 01:16:47,760

lation that started in really:

the foothills of that, of that trade.

:

01:16:47,760 --> 01:16:49,590

So I think.

:

01:16:49,620 --> 01:16:55,440

You know, that's kind of where I, I, right

here, right now, I'm focused on that,

:

01:16:55,680 --> 01:16:59,490

on that treasury market and the dollar

because the dollar, if we are seeing

:

01:16:59,490 --> 01:17:03,780

another leg lower in the dollar and we saw

a big move in dollar career overnight, it

:

01:17:03,780 --> 01:17:06,800

looks like, dollar stock is going, lower.

:

01:17:06,800 --> 01:17:09,080

Again, I'm worried dollar

knock is breaking lower.

:

01:17:09,080 --> 01:17:13,850

So dollar against to Norwegian kroner,

I'm watching dollar CAD, huge exposure

:

01:17:13,850 --> 01:17:18,470

to US assets and I, I think it's the

next Taiwan where these guys, where

:

01:17:18,470 --> 01:17:21,890

the Maple Hs, they're called the

big real money accounts in Canada.

:

01:17:21,920 --> 01:17:23,660

I bet they haven't hedged anything.

:

01:17:24,110 --> 01:17:24,410

Right.

:

01:17:24,680 --> 01:17:28,513

And, you know, they've got

12% of GDP and US assets.

:

01:17:28,763 --> 01:17:32,153

I think good luck, you know, when they

try and start hedging all that stuff.

:

01:17:32,153 --> 01:17:37,239

So, you know, so I, I think I'm

looking at the treasury market

:

01:17:37,239 --> 01:17:38,229

and I'm looking at the dollar.

:

01:17:38,244 --> 01:17:41,349

'cause the dollar will just,

if the dollar starts to weaken.

:

01:17:41,754 --> 01:17:47,364

Maybe US equities hold up here and

they don't go down in, in dollar terms.

:

01:17:48,114 --> 01:17:50,904

But like I said, I don't wanna sit

here in five years time and have a

:

01:17:51,023 --> 01:17:57,324

US equity market that's at, know,

7,000 and yet the dollar's 50% lower.

:

01:17:58,289 --> 01:18:02,789

Adam Butler: Yeah, I mean, in Canada too,

you've got a, an accelerating crack in,

:

01:18:02,849 --> 01:18:11,039

in home prices and impending, you know,

potential major capital call where people

:

01:18:11,039 --> 01:18:17,398

with a lot of home based wealth who are a

little bit over, over leveraged and also

:

01:18:17,398 --> 01:18:21,599

have, you know, retirement properties

in the US are gonna be forced to, to

:

01:18:21,599 --> 01:18:24,509

liquidate and bring that capital home.

:

01:18:24,699 --> 01:18:29,289

you've also got a cracking housing

market in the US on, on just

:

01:18:29,589 --> 01:18:34,779

unbelievable unaffordability

at these top borrowing rates.

:

01:18:34,891 --> 01:18:36,541

Julian Brigden: they probably

own a lot of that stuff.

:

01:18:36,969 --> 01:18:37,359

Adam Butler: Yep.

:

01:18:37,771 --> 01:18:39,661

Julian Brigden: you know, in

Florida and stuff on overbuilt, I.

:

01:18:40,614 --> 01:18:41,124

Adam Butler: Yeah.

:

01:18:41,289 --> 01:18:41,509

Um,

:

01:18:41,648 --> 01:18:44,608

Richard Laterman: Canada in

particular, unlike the US you have

:

01:18:44,608 --> 01:18:46,378

to refinance every five years.

:

01:18:46,378 --> 01:18:50,938

You're not allowed to lock your race

for 25, 30 years like you do in the US,

:

01:18:50,938 --> 01:18:55,588

which is mind boggling to both Americans

and Canadians when they realize that the

:

01:18:55,648 --> 01:18:57,508

other current, uh, other country has.

:

01:18:57,696 --> 01:18:59,526

Julian Brigden: the way this bond

market's going in the US we're

:

01:18:59,526 --> 01:19:00,786

going to be doing the same thing.

:

01:19:00,846 --> 01:19:03,786

You're not gonna get a mortgage beyond

five years if this thing keeps going.

:

01:19:03,786 --> 01:19:03,996

Right?

:

01:19:04,026 --> 01:19:05,196

'cause you're not gonna

be able to afford it.

:

01:19:05,887 --> 01:19:06,177

Adam Butler: yeah.

:

01:19:06,550 --> 01:19:10,056

Um, and then of course, you know,

we've got the, the Japanese, I think

:

01:19:10,211 --> 01:19:12,821

the Japanese bond market's gonna be

interesting to watch too, here in.

:

01:19:13,023 --> 01:19:16,952

Julian Brigden: I, I, I think there is, we

a str I've been saying since:

:

01:19:17,103 --> 01:19:22,563

I mean, that Covid, you know,

obviously was the exception but the

:

01:19:22,563 --> 01:19:26,013

demographics of, of asset purchases.

:

01:19:26,193 --> 01:19:30,532

So those people who are working and

saving to their retirement, right.

:

01:19:31,093 --> 01:19:32,933

Peaked in:

:

01:19:33,413 --> 01:19:35,418

That was the low end global bond yields.

:

01:19:35,418 --> 01:19:39,288

That's when we absent Covid, that

was the low end global bond yields.

:

01:19:39,588 --> 01:19:43,848

And you could mask it with QE and

yield curve control for a few years.

:

01:19:44,088 --> 01:19:49,938

But the structural trend from here

on out is, as you know, people of

:

01:19:49,938 --> 01:19:52,938

my age, you start to retire, right?

:

01:19:52,938 --> 01:19:56,388

Is to go, okay, well I'll just

start living off my, you know,

:

01:19:56,448 --> 01:19:58,368

my income, my savings, right?

:

01:19:59,298 --> 01:20:04,428

And so you just divest those, those

savings, and that's when assets go down.

:

01:20:04,428 --> 01:20:05,088

They don't go up.

:

01:20:05,238 --> 01:20:08,988

I mean, you know, and that's gonna

create a lot of problems for a

:

01:20:08,988 --> 01:20:10,518

world which is going into it.

:

01:20:10,698 --> 01:20:15,798

I mean, if we were going into it with

debt to GDP ratios of 20% or stuff

:

01:20:15,798 --> 01:20:18,948

like that, then we'd be like, yeah,

you know, government can fill the gap.

:

01:20:19,157 --> 01:20:20,868

They can, you know, they can do this.

:

01:20:22,178 --> 01:20:24,038

You know, that's the

nature of Sod's law, right?

:

01:20:25,125 --> 01:20:25,365

It's gonna

:

01:20:25,407 --> 01:20:26,247

Richard Laterman: Anything else,

:

01:20:26,295 --> 01:20:26,565

Julian Brigden: though.

:

01:20:26,655 --> 01:20:27,705

Great for macro

:

01:20:29,097 --> 01:20:29,787

Richard Laterman: any other asset?

:

01:20:29,835 --> 01:20:30,705

Julian Brigden: my retirement.

:

01:20:33,074 --> 01:20:36,523

Richard Laterman: That we haven't touched

on a a, anything across the, you know,

:

01:20:36,523 --> 01:20:40,554

the, the, the major, jurisdictions

or asset classes that are fly under

:

01:20:40,554 --> 01:20:45,174

the radar that you have spotted as

potential asymmetric opportunities.

:

01:20:45,612 --> 01:20:49,120

Julian Brigden: So I I quite like,

you know, I've been, I've been toying

:

01:20:49,120 --> 01:20:52,750

around with some of these Latin American

currencies and, and the, and the market,

:

01:20:52,809 --> 01:20:56,470

the equity markets in those currencies

are quite, I do quite like those.

:

01:20:56,800 --> 01:20:59,590

I'm watching things like, you

know, one of my clients asked me,

:

01:20:59,590 --> 01:21:01,300

what's your bottom draw trade?

:

01:21:01,720 --> 01:21:06,010

And I was like, I really wanna

own valet, the Brazilian mining

:

01:21:06,370 --> 01:21:09,850

Company in Brazilian real right.

:

01:21:09,967 --> 01:21:11,122

Richard Laterman: I haven't

heard that in a while.

:

01:21:11,122 --> 01:21:13,462

Holy, I, I'm from Brazil

originally, so, uh,

:

01:21:13,705 --> 01:21:15,985

Julian Brigden: yeah, so

I, I, I wanna own that.

:

01:21:16,085 --> 01:21:20,285

and, you know, I've been toying

around with Japanese banks.

:

01:21:20,684 --> 01:21:26,145

I think those look pretty cheap

in, in dollar, you know, in yen

:

01:21:26,325 --> 01:21:27,765

terms, I'll take the currency risk.

:

01:21:27,795 --> 01:21:29,475

'cause I want to, you know, to see that.

:

01:21:29,775 --> 01:21:32,215

And so I, I think, I think those are it.

:

01:21:32,215 --> 01:21:33,684

I really wanna buy silver.

:

01:21:33,684 --> 01:21:38,184

I'm like, I'm gagging, I'm so gagging to

buy silver, but I can't because I still

:

01:21:38,184 --> 01:21:40,345

think we're in that nasty rotation phase.

:

01:21:40,795 --> 01:21:41,095

Right.

:

01:21:41,095 --> 01:21:46,434

And it's quite hard even, you know,

me, to sort of sit there with a

:

01:21:46,434 --> 01:21:48,475

short S&P position against it.

:

01:21:48,595 --> 01:21:48,865

Right.

:

01:21:49,267 --> 01:21:49,557

Richard Laterman: Yeah.

:

01:21:50,232 --> 01:21:50,712

Okay.

:

01:21:50,832 --> 01:21:51,372

Um.

:

01:21:51,465 --> 01:21:53,535

Julian Brigden: I think, I mean, look,

the only other thing I would say is

:

01:21:53,595 --> 01:21:56,905

I, you know, what's gonna determine

the next leg down, I think is at what

:

01:21:56,905 --> 01:21:59,205

point we get that capitulation trade.

:

01:21:59,205 --> 01:22:04,395

I mean, most of this rally that we've

seen in US stocks has been either

:

01:22:04,395 --> 01:22:13,015

systematic, you know, vol, sellers,

risk parity, guys, re leveraging, CTAs

:

01:22:13,045 --> 01:22:16,915

getting along, and then US retail, right?

:

01:22:17,095 --> 01:22:17,395

So the

:

01:22:18,198 --> 01:22:24,258

Adam Butler: Is is has started to look

abroad, start buying EV and emerging.

:

01:22:24,258 --> 01:22:24,888

Oh, I was gonna.

:

01:22:25,225 --> 01:22:26,215

Julian Brigden: heritage, right?

:

01:22:26,215 --> 01:22:28,015

I mean, s sacrilege, right?

:

01:22:28,015 --> 01:22:31,135

I mean, I don't know,

I I in heresy, right?

:

01:22:31,135 --> 01:22:35,275

I mean, I dunno whether that's, I,

I hadn't, I mean, I know that they,

:

01:22:35,335 --> 01:22:37,885

they, there was something this morning

that they've lightened up a little

:

01:22:37,885 --> 01:22:39,385

bit on some of their positions.

:

01:22:39,979 --> 01:22:43,789

you know, so I look until

those guys capitulate.

:

01:22:43,789 --> 01:22:45,529

That's to me, the big capitulation event.

:

01:22:45,529 --> 01:22:51,329

Don't, I mean, we targeted, we, we

sort of were short stocks in, November,

:

01:22:51,329 --> 01:22:55,709

December and, and advertised and

advocated that to our retail clients.

:

01:22:56,669 --> 01:23:00,039

It was quite hard to construct it

from a professional institutional

:

01:23:00,039 --> 01:23:02,909

perspective 'cause just the risk

rewards were quite tough to, to do.

:

01:23:03,954 --> 01:23:07,854

but um, we advocated 5,000 as

our sort of initial targets and

:

01:23:07,854 --> 01:23:09,023

we got down to those levels.

:

01:23:10,254 --> 01:23:11,844

We advocated closing that.

:

01:23:11,844 --> 01:23:15,384

Now, I didn't go long, but I didn't

go long because I just, you know,

:

01:23:15,384 --> 01:23:20,304

I write, I write research and I

can't all of a sudden go, right.

:

01:23:20,304 --> 01:23:24,534

You know, I'm sure I'm long, I'm

short, I'm long, I'm short, I'm long.

:

01:23:24,534 --> 01:23:24,804

Right?

:

01:23:24,804 --> 01:23:28,764

It, it's, um, but within our trading

with our alpha capture book that we run,

:

01:23:29,244 --> 01:23:30,624

you know, we can do stuff like that.

:

01:23:30,624 --> 01:23:36,384

And so we are now looking at to build

up the short dollar position again.

:

01:23:36,759 --> 01:23:41,059

The short treasury position,

again, the short, stock position

:

01:23:41,059 --> 01:23:44,359

again, but, you know, cautious that

we'll, and we'll build into those.

:

01:23:46,107 --> 01:23:46,737

Adam Butler: Phenomenal.

:

01:23:47,457 --> 01:23:51,347

Well, as usual, an

unbelievably informative chat,

:

01:23:51,909 --> 01:23:52,089

Julian Brigden: Thank

:

01:23:52,101 --> 01:23:52,431

Richard Laterman: Yeah, this

:

01:23:52,517 --> 01:23:52,877

Adam Butler: Julian.

:

01:23:53,357 --> 01:23:53,747

Thanks man.

:

01:23:54,339 --> 01:23:54,549

Julian Brigden: Pleasure.

:

01:23:55,517 --> 01:23:58,425

Adam Butler: Uh, again, for those

who tune in a little late, this is,

:

01:23:58,476 --> 01:24:05,326

the great Julian Brigden, founder

and president, at MI2 Partners.

:

01:24:05,425 --> 01:24:07,642

and, it's always great

to have you on Julian.

:

01:24:07,702 --> 01:24:08,362

Thanks again And,

:

01:24:08,479 --> 01:24:09,839

Julian Brigden: Richard,

now it's been a pleasure.

:

01:24:10,721 --> 01:24:10,871

Richard Laterman: Look

:

01:24:10,912 --> 01:24:11,362

Adam Butler: all right,

:

01:24:11,471 --> 01:24:11,621

Richard Laterman: one.

:

01:24:11,711 --> 01:24:12,251

Thanks.

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About the Podcast

Resolve Riffs Investment Podcast
Welcome to ReSolve Riffs Investment Podcast, hosted by the team at ReSolve Global*, where evidence inspires confidence.
These podcasts will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media, covering topics that appeal to left-brained robots, right-brained poets and everyone in between. In this show we interview deep thinkers in the world of quantitative finance such as Larry Swedroe, Meb Faber and many more, all with the goal of helping you reach excellence. Welcome to the journey.


*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.