Takeaways from Recession Watch It's been one of the most interesting two weeks of programming we've ever done at Real Vision. I think it was really useful to come with a theme and test the hypothesis. For me personally, I found it incredibly useful. Because when I write and look at this stuff I operate in a vacuum where I don't try to filter down the noises, and I try not to listen to too many people. But there comes to a point where you need to make a call, and with that, you do need to open up the filters a bit more and hear some more opinions. The way to do that is get the people that you trust. Again, as you can see from the two weeks program, it's not necessarily people with the same view as me. So I'm not trying to get confirmation bias at any of this. What I'm trying to do is have a nuanced understanding. So I can understand when I'm right and when I'm wrong, and how to play it. So I think over this week I've learned that, much like I set up a Twitter survey at the beginning of this, which was to see what people thought the probability was of a recession in the next six months starting. It was split 50-50 basically. So, of the, I think it was five or 6,000 people on Twitter who answered that short survey, everybody split. I think we could have seen that from the programming over these two weeks that people aren't quite sure where it's going to fall. People who look at the data itself, tend to have seen some stabilization in some areas, that has made people pause. I remember Teddy Valet was saying that some of his forward-looking indicators might have turned up. But if we remember from Acray and Lakshman, he wasn't so sure that he was seeing any pickup. He just didn't see the more determined deceleration of growth. So, it's not clear from those guys whether we're going to see anything weaker yet. But when I speak to people like John Burbank, and I hear from people like Christopher Lee Ari and others, they're more concerned. I think that those are the people who've been paid to have the view. I think that's interesting that they started to say, "look, the balance of probabilities is for something much bigger." For me, it's clear that you're going to make all the money from making this call, and you'll see a few of these and sometimes you'll get them wrong and sometimes you'll get them right. Two thousand and fifteen was one of the times I nailed it all the way down, and then I thought, this is going to turn into a full recession, not just a collapse of the old market and global industrial production. That didn't happen because of the stimulus. But we've heard over this series of shows that stimulus isn't there. There's a real concern the Fed might be pushing on a string as well. Much like the ECB have been. But there's really nothing they can do that's going to generate the kind of growth that we need to offset this. I think the aging population dynamics and other issues are really real and meaningful. But, does that mean that the equity market is a bad place to invest? It's not clear yet what's going to upset that apple car. But I do think that the wheels have been set in motion. My view is always that, there is the general business slowdown, but then there's the one thing that's tips things over the edge. I think that one thing was tariffs. I do think that they were much more significant in their impact on psychology of businesses, than anybody appreciates. I also think that the dollar is a big risk in this equation. I talked about it in the original expert view, and other people have referred to it. The dollar has been thrashing around on a very tight range. To me as we're shooting this, I have a feeling it's going to break higher, I really do. It had every opportunity to break lower. We had the Fed cutting rates, the ECB cutting rate, everybody cutting rates and everybody said, "the dollar will collapse in that environment." We've seen that, we've seen some pores in the trade tariff negotiation issues that didn't cause the dollar to go lower. In fact, I can't see anything that's going to cause the dollar to go lower than here. We're going into the Fed meeting, and I'll talk about that in a sec. But the reality is, is if the dollar is not going lower, chances are it's going to go higher. It could get stuck in a range, but I don't think at the structure of the market to me feels like it's going to break higher. If it does, we know what to do. That will tip the dynamics significantly towards a much faster slow down of global growth. A much faster deceleration of commodity prices, a much faster deceleration of emerging markets. I think that is the thing that would tip everything over the edge. I think it is coming. But, as we come into this process now, we need to think, "Okay, how do we play this?" The FMC meeting that is coming out around the same time that you'll be watching this is going to be a tricky one. Because some of the data has not been as weak, people have been following employment data for example. So, the market's trying to grapple with, "is it going to be 25? Is it going to be 50? Is it going to be nothing?" There's many people who think it should be nothing. The Fed should not be cutting rates. I think the Fed are behind the curve, and they need to cut 50, and 50 again, because of the number of factors that I talked about in the original program. But, what's important now is what are the outcomes from that meeting, and how I look at it is this, if the Fed cut zero, all right, nothing happens. I think that the dollar screams higher. The dollar screams higher, oil collapses, commodities collapse, global growth collapses, and the Fed are cutting 50 and 50 again, super fast. So I think if they don't cut, the bond market sells off very quickly, and then rallies very fast along with the dollar. If the Fed go 25, I think it's a similar situation. I think the market may or may not be pricing in 25 or 50 at that point. Let's say 25, and the chances are that this moment you get the 25 cut, they must going to go, "what's next?" We have to price a probability of another cuts because the Fed never cut once. So, in that case, the Eurodollar market, the Fed funds market, and the bond market probably start rallying. It's the short end of the market that I really care about that John Burbank laid out that case of why that trade is such a phenomenal trade as I think rates go to zero. So I think that's setting up as a great trade. The other thing that I think is super interesting to me is when I look at the 2,000 recession and the 2008 recession, the dollar played a very big part in that, and the dollar rallied both times, and the reality is the dollar rallies soon as the Fed cut, and particularly in 2001, in January 3rd, 2001, the dollar had been selling off in the anticipation of the rate cut, as soon as it cut, the dollar just exploded higher and that combination of the strong dollar into the cycle meant that the Fed were forced to cut faster. So I think that is coming in this whole situation. If it's 50 basis point cut, I think maybe the dollar size range bound for a little longer. But remember, the dollar is based around a smile, and that dollar smile is, if things are really bad, then the dollar goes up. If things are really good, then the dollar goes up, and is in the middle, where the dollar does badly. In this environment, I do think that, if the Fed are going 50 and they're communicating why, then it's telling us the global growth is bad, and the dollar should rally. So those are my outcomes, I do think that you're going to get the opportunity, maybe before the meeting, to start buying bonds again, particularly the short end. I think there might be this chance to sell oil and copper. We looked at the charts of copper in particular in the first program, and I think that's a really interesting opportunity to look at. The equity market, I've called it the vanity trade. We all want to show equities. Because you sound like a hero because you sound like Paul Tudor Jones in 1987. Reality is as equities in a bear market are not the best risk return. The reason for that is their volatility goes up, and volatility in equities, very high volatility means that the reward you get out of that trade is less high-quality. The volatility doesn't go up as much in Eurodollars for example. So the risk adjusted reward at the Eurodollar trade is far superior in every measure than the equity trade. Occasionally, you'd nail it dead right in equities and things just free fall and it works in your favor. That's not the easy trade. I remember it so well, I think I've recounted that story before of a good friend of mine in 2000-2001 who got it dead right, he was like, "I'm bearish, I need to short the equity market," he short the equity market, and because he over-sized his trades, what he found was, every time he should have been adding to a trade, he was getting stopped out. Every time he should have been taking profits, he was adding to trades and he just got chopped up. He lost 30 per cent over that period from being right. That's the volatility of the equity market and how hard it really is to trade in equity bear market. Stan Druckermiller told us very clearly as well as he says all of his money is to be made from the bond market, and in particular, he's another Eurodollar trader. So I think that is the key thing to focus on right now. The other thing is, okay, maybe I'm wrong. I think everybody told us, we should see a resolution of this over maybe August, September, and October. If we start to see the negative resolution over that period of time, we know what to do. If it's a positive resolution and this is another false alarm, then it's pretty simple. The dollar should start to weaken, and with that, emerging markets become the asset of choice. Commodity markets we've heard from a few people, are relatively discounted. So in which case, you're taking the lid off that market, and we can see commodities rally strongly. So that's how I look at this, so that there would be a reflation trade to be heard. I don't think it's a great reflate trade, I don't think it's a high-quality trade. But I understand how we could trade it if we needed to. But for me, the balance of probabilities lies on getting that recession call rise. This cycle has been as similar to the 90 cycle, the other longer cycle in history. It has been incredibly similar, that had those two false lows like this one had, and then eventually it broke. It feels like we're there now. It feels that people don't want to trust what they're seeing, because the equity market's at its highest. The equity market was at its highest in 2002. It was pretty much at its highest in 2007. So don't trust the equity market, trust the bond market. The bond market's the thing that tells you the story and it's been screaming to you, that the global economy slowing down fast, and the US is part of it. I think that is the story that I think many people don't understand. Most people watching Real Vision have not been historically bond market guys. It's been an equity world out there, and to shift your mindset, and to understand the opportunities across asset classes gives you the real edge that it takes to make money in a really complicated situation like a recession. So hopefully, you found this series of programming as useful as I have. You might reach different conclusions, and that's fine. Again, I've always said there are no certainties in this world. All I'm trying to do is, corral all the information you could possibly need to make an informed opinion. Because being ahead of the crowd, taking the opposite opinion to what you think the market's thinking is where you make the real money. You can jump on the trend later. But first, it's the turning point that matters, and I think the turning point or the returning point with the bond market yields falling is upon us again, and I think the opportunity to make a lot of money is coming up rapidly. Thank you for coming with me on this journey. It's been a real journey of discovery and learning, which is what I set out to do in the beginning, and I wanted to bring you all with me to come and find out about my hypothesis. Was it right? Was it wrong? Where are the weaknesses? Where are the strengths? I think that's been the great thing about this whole two-week journey of discovery that we've all found things that we didn't know. To learn new things is really what we're in watching Real Vision for. It's something that adds the value to our investing lives, and I hope you found it super useful.