My macro crystal ball begins to vibrate ominously whenever a perma-bull talking head joins the Squawk Box on CNBC, my spiritual, philosophical and financial lodestar in life and La Dolce Vita of the mercati monetari globali. After all, our beautiful business began as a money lender’s bench in Renaissance Florence 600 years ago and if we ever ran out of cash, they ruptured our banco – i.e bankrupted us. The biggest money lenders in Europe were the Medici, whose family bank was the Citicorp of medieval Europe, a family that provided Christendom with a succession of Roman Popes and two Queens of France, both evil murderesses. Sadly, the Banco Medici did not survive the English King Edward IV’s sovereign default during the Wars of the Roses.
Trump, Modi and Putin have taught us an ancient lesson that we ignore geopolitical risk at our own peril since money is the greatest aphrodisiac in the chancelleries of power as another great Florentine Niccolo Machiavelli taught us in his magnum opus – The Prince.
I have been warning investors in the GCC to protect their purchasing power by bailing out of the US dollar in favour of gold, the Euro and sterling since early January with all the subtlety of a broken record. The DXY was 110 then. Gold traded at 2640 an ounce, the Euro was 1.0260 and the British pound was 1.22. Hopefully you drank the currency kool aid the pied piper of Dubai offered you in successive money rants since gold is now 3377 an ounce, the Euro is 1.1431 and the British pound is 1.3540. So I must pay homage to the values of my real homeland Italia – Mamma, Pasta, Discoteca, which is a lot more fun than unity, faith and discipline, three fronts where I have dismally failed to excel in my life. Viva Italia, il paese più bello del mondo!
The Bible says that man does not live by bread alone and I say that the $28 trillion US economy does not live on ChatGPT alone. Housing is the ultimate supersector and US homebuilder stocks are down 30-35% on Wall Street since a 7% 30-year fixed mortgage rate and a 2% real Fed funds rate virtually guarantees a recession that will begin sometime when I am doing my best to forget the world woes on the beaches of Cap d’Antibes and my beloved Villefranche on the exquisite Côte d’Azur in August.
Powell is resisting Trump’s pressure to cut rates since he is paranoid about tariff-ignited inflation risk at a time when the Bank of England, the Bank of Canada, the RBA, the ECB and Swedish Riksbank have all pivoted to easy money. This means the US dollar should strengthen but exactly the opposite is happening. Why? Because the cognoscenti know that the hard data will turn soft very soon and Powell will be forced to bring the Fed funds rate back to neutral at the September FOMC conclave with a “shock and awe” 50 basis point rate cut.
The money market is insane since it prices in only two rate cuts. To me, a neutral Fed funds rate is 2.5%, so I expect at least 6 or 7 rate cuts till the summer of 2026. This means the US dollar will be leprosy for those poor souls who still believe in Pax Americana, whose only sacred rule is “In Trump We Trust”, all others must pay cash or TrumpCoin!
My macro view also takes me to Euro defense stocks, British inflation linked gilts, Swedish banks and South Korean chaebol/securities firms. This is an opportune moment to accumulate long duration treasury notes now that the yield on the 10 year is 4.46% and the TLT tracker trades at 84.50. I want to buy call options on TLT to generate a 20% USD return to compensate me for Trump’s foreign exchange goonda tax, which Lord Keynes euphemistically called seigniorage when the apostles of supermoney met all those years ago at Bretton Woods in the morning of creation.
In my valuation paradigm, the S&P 500 index offers a negative risk premium and the equity bulls will be left with as bloodier derriere as those locos who run with the bulls in Pamplona. I have seen the festival of San Fermín and it is a carnival of human insanity run amok as the bulls charge to gore the fleshiest backsides on offer with their razor-sharp horns. There was a reason why the commodities king Marc Rich was known as the matador as he loved to kill every energy bull market he saw. RIP to the King of Oil and King of Zug!
Also published on Medium.
