Julian Brigden is in my view one of the few macro strategists worth listening to.
Just listened to a recording of a recent conversation between Brigden and Raoul Pal; another name on my shortlist of quality macro thinkers.
Per the below, Brigden was on the desk, as was I (albeit serving different market functions), during the phenomenal bubbles of modern history; their runups and their collapses. Thus, as the familiarity of the below will attest to clients and regular readers, we presently share the same concerns:
“…then we go back to this bloody-great liquidity play. Are they going to pull it off again because they’re just going to let this repo run for awhile? And the market’s just going to take it and they’re just going to do what they did during the dotcom bubble; just run this liquidity thing to the point….. that they don’t. That’s why I’m not fighting these things yet. I’m watching them.”
“What I’m not sure, and this is this limbo heaven or hell, is whether this liquidity on its own can do it. Can they just do it one more time? Like 2016, can they just keep this game going, can they feed the crack addict enough drugs, irrespective of the fundamentals.”
“I worry that by dealing with a repo liquidity issue, they may have actually really put the cherry on the bubble; that we’ve really done what we did in Y2K. Because there’s no logical rationale for Apple to be up 38% since the start of September.”
“This stuff can turn so quick; as I said, you cannot have these moves in things like Tesla and Apple and hope that they’re sustainable. I’m not saying (pause)….. if the liquidity keeps going Apple could do 50%, 60% from its lows in September by the time this thing tops out. But this has been driven by cash, again! And the more that it goes on the more that I actually worry that it doesn’t end well.”
“A little bit at the margin is fine, but if you just inject the system with nitroglycerin, which is what they seem to have done, without really understanding this…. I sat on a desk in 1999 when those facilities were open and I watched the market just go straight up; not the whole market, the market where the momentum was, which was the Nasdaq. The thing was up a hundred percent, the facilities get open and the thing goes parabolic.”
“Two weeks before the facilities expire that’s the top of the market. Smart money goes “thank you, I’m out.”
“And that’s precisely how it works, we know, this whole game, QE1, QE2, QE3 has all been about asset inflation. In that sense, yes, I know the repo is a little different from QE, but to some extent they’re fungible and in 2008, before we saw the balance sheet expansion, it was the repo that got blown out. Because it is a liquidity vehicle.”
“When this game ends, and I’m looking at things like Apple and Tesla for a clue, because parabolic moves are unsustainable, as we know — you and I have done classic bubbles for the whole of our bloody lives — then things will turn very rapidly. And I’m trying to help people position…”