Tom welcomes back Julian Brigden from Macro Intelligence 2 Partners to discuss the inconsistencies between equities and bond markets. Markets don’t seem to be fully pricing in the probability of a recession. We are seeing hyperfinancialization, where equity markets are not necessarily correlating with the real economy. These Hyper Financial Markets are setting the patterns for the movements of bonds and equities. Those in power are concerned with how financial markets are performing rather than the real economy.

The demand for jobs remains, but is softening; however, we are not at the stage of job cuts yet. The question is can we have accelerating real growth without having to lose jobs.

Julian thinks that a higher inflationary period combined with increased bond yields is inevitable. We are in the war phase as we witnessed in the late 1960s. The lagging effects of a tightening economy will take some time to be seen fully. There are evident issues in the U.S. economy and these will manifest next year, especially if rates do not decrease. The wildcard here is fiscal policy and equities proping up the current situation. Eventually, equities will need to acknowledge the decreased growth but we are not there yet.

Julian questions if the Fed will follow the government’s wishes. Governments are demanding entitlements, like better wages and higher costs of living. The Fed will have to decide between raising inflation or following the governments demands.

Timestamp References:
0:00 – Introduction
0:45 – Bonds & Equities
6:09 – Labor Markets
13:46 – Inflation Thesis
19:05 – Historic Comparisons
22:00 – Fed Response & Toolkit
29:59 – Fed Trial Balloon
32:10 – Debt Load & Outcomes
39:42 – Bonds, YCC, & Japan
42:54 – Wrap Up

Talking Points From This Episode

• We are seeing Hyper Financialization, where equity markets don’t correlate to the real economy.
  
• Julian believes we are entering a higher inflationary period combined with increasing bond yields, similar to the late 1960s.
  
• The Fed will soon have to decide between raising inflation or following the governments demands for entitlements.
  

Guest Links:
Twitter: https://twitter.com/JulianMI2
Website: https://mi2partners.com/
Substack: https://mi2partners.substack.com/

Julian Brigden is the Head of Research at Macro Intelligence 2 Partners, a firm he co-founded in 2011. He leads a research and market team to publish independent macroeconomic research ahead of market consensus. He has over 30 years of experience in financial markets including positions in consulting, FICC sales, and hedge fund sales. He is a trusted advisor to many top money managers and is particularly skilled at exploring correlations in the economy and financial markets.

When asked about his market outlook for 2022, Julian stated that the US policy response was massive and the Fed needs to rapidly tighten policy while slowing growth. In Europe, as the impact of Omicron fades, the ECB will need to raise rates, adding to pressure in global bond markets. Julian believes that there is a significant risk that we are entering a period of extended volatility. He is featured on many big media outlets discussing macro research topics driving prices in global bonds, equities, commodities, and currencies.