00:00So last time we speak to you, you were extremely positive about stocks.
00:03Are you still, are you even more positive about stocks?
00:07Well, I can't be more bullish because I've already was maximum bullish.
00:10So, you know, obviously days like the last five, six trading sessions,
00:14I'm sort of itching to put out a note that says buy the debt,
00:17but I have no money left to buy the debt.
00:18So it's a bit, but I think we are probably in an environment again
00:22in the last two weeks where the narrative has shifted a little bit,
00:26where particularly sentiment has taken a hit.
00:27We see that in survey-based sentiment.
00:30Survey-based sentiment hasn't got really stretched in the last three, four weeks,
00:34but it's gone a little bit above average.
00:36Just the last week of setback was enough to just make that pop down again.
00:40So we see across most of the big surveys, particularly also among retail,
00:45that actually, you know, survey-based sentiment has deteriorated quite a lot once again.
00:49That's pretty good.
00:50And I genuinely think, you know, we've got all these,
00:52all the macro guys now being worried about IPOs.
00:55So we have loads of IPO experts now.
00:57I suspect we're going to be experts on something else this time next week.
01:01And then we're all worried about Kevin Walsh being super hawkish next week.
01:04I suspect that the Fed is going to be super boring compared to what we've priced
01:09and how much the pricing has shifted over the last five and a half weeks.
01:12If you get a sort of boring-ish Fed next week, plus the IPO today actually going well,
01:18I think, honestly, I'm going to invite myself back to this time next week,
01:22because that's what I do.
01:23And then we'll probably be a couple percent higher.
01:26I'll be like, ah, shoot, that was the dip that I should have bought.
01:29It seems to be max long leveraged.
01:31Two times max.
01:33That's the way we go.
01:33Is there an ETF for that?
01:35Is there what I wonder?
01:36You know, we need to, maybe somebody wants to channel you into an ETF, Max.
01:40I think that would be to somebody's advantage.
01:42What about, so do you think the market then, on the other side of digesting SpaceX,
01:47will it look more positive?
01:48Is that part of what we're talking about?
01:49I don't think it's actually about digesting.
01:50So we talk so much about, oh, what's this equity supply going to do?
01:54And, you know, it's totally different from the 2010s,
01:56and it's going to bring the share count up and all this.
01:58I think we forget about a couple of things.
02:00Number one, when you look at, oh, who's going to buy all this?
02:03Look at just ETS.
02:04Just look at the passive space in the U.S.
02:06And just in the U.S., we've raked in almost already $400 billion of inflows, right?
02:10So when we say, oh, how is that going to be absorbed?
02:12I mean, we're talking about $75 billion supply today,
02:14and we have $80 billion inflows into passive per month, right?
02:20That's already something where I'm like, look, why are we talking about it?
02:24Is that inflation from cash?
02:25I think it's mostly from cash.
02:27I think it's also a lot of times we are underestimating, I think,
02:32particularly in the U.S., the wealth effect, right?
02:34We talk so much about, I'm sure you guys were talking about it at some point
02:38in the last couple of weeks, about how the savings rate has gone down.
02:41That's entirely wrong.
02:42That's a flow variable, right?
02:43That's how much they are saving from income.
02:45The U.S. being so K-shaped is no longer that susceptible, actually,
02:50to changes in income.
02:51It is much more driven by the higher end of the K, right?
02:54We know these things, like Moody's had that paper, which I get it.
02:57The methodology was maybe a little bit off, but, you know, it is,
03:01they said the top 10% are driving 50% of consumption.
03:04It's probably a bit much, but at least you can say the lower 20%,
03:08you're driving something like 5%, 6% of consumption.
03:10It just doesn't really matter that much, whereas the wealth effect matters.
03:14Look at last year.
03:15The household wealth effect, the change in U.S. household wealth was $1.6 trillion.
03:21That's almost the entire fiscal deficit this year.
03:24So what happens if you get a 10% drawdown, 20% drawdown?
03:26I think it depends.
03:28Obviously, I'm going to say it depends, because that's what strategists do.
03:32It depends whether you get a 20% drawdown and you stick there, right?
03:36So if you, let's say, if you get a 20% drawdown because of tech and AI,
03:40and suddenly, and no V, right, nothing like we had this year or with Liberation Day,
03:44I think then you have an issue.
03:46And to be honest, I think there's no coincidence that in 2022,
03:49when we did have that and, you know, the buy the dips were shallower
03:53than the previous highs, you know, we did have negative wealth effects,
03:57and that did lead to lower consumption quite quickly, right?
04:01The issue is, are we going to have that?
04:03Are we really going to have, you know, 20% down in equities?
04:07We're sticking down there, and the Fed says, oh, by the way, no Fed put.
04:10Let's say, next week, what's the incentive for Kevin Walsh to say,
04:13I am even more hawkish than my predecessor, because you know what?
04:16Until there's a 2.0 on CPI, I am not going to yield.
04:20Why?
04:21You look at this, I'm like, you know what?
04:22Six weeks ago, front end, if you look one year ahead, was pricing minus 20.
04:26We've come off now a bit, right, with what's happened on oil.
04:29But you've moved from minus 20 to plus 30.
04:32Yeah, sure, right?
04:33That's probably enough.
04:34I don't need to fuel that fire.
04:36All the chips feel like they're in the middle of the table right now.
04:40Everybody's gone max long.
04:42Really?
04:43Do we think that?
04:44I mean, honestly.
04:45Okay, that's the question I'm asking, really, is what juices the next bit?
04:49What kind of, where does this?
04:50I don't think, but guys, I don't think positioning is that long.
04:53You look at at least our stuff, systematic, CTA, risk parity, wall target, momentum signals.
04:57All of that is like 50th percentile.
04:59Again, survey-based sentiment.
05:01It took a tiny bit of a drop.
05:03I mean, we're 2.5% off the all-time highs in the S&P.
05:06And if you look at things like AAII, maybe you guys can show it afterwards.
05:09Like AAII, if you look at the bull bear spread, it's almost as low as it was in the doldrums
05:14of 2022.
05:16So it's not like everyone's super long.
05:18We've seen that even in our sort of aggregate, systematic, and discretionary indicators, it's neither really here or there.
05:28Let me ask that question in a slightly different way, then.
05:31What is the catalyst to get the market going higher from here?
05:37I don't think there needs to be a catalyst.
05:39Because we're in an environment where inflation, structurally, particularly in the U.S., is higher.
05:44What that means is your revenues, and I'm talking more structural now, right?
05:47Not the next three months.
05:48What that means is you're in a structurally higher nominal growth world.
05:51You're in a structurally higher revenue growth world.
05:53If your margins don't change, your earnings are perpetually growing faster.
05:57You know what I mean?
05:58Perpetually.
06:00Slightly dangerous now.
06:02I'm putting myself in slightly dangerous territory.
06:05But, you know, at least for now, shall we say it like that, that means you're in a structurally higher
06:11growth trend.
06:12What that means to me is if you want to go neutral equities or neutral risk assets overall, it probably
06:18is not a, if you're between 1 and 10, it's not a 5.
06:21It's a 6.
06:22You have to be always slightly overweight because it costs you so much to shift into cash.
06:27So I think it needs to have a catalyst to be properly bearish.
06:33But to be bullish, honestly, just an absence of bearish catalyst is probably enough.
06:38Max, what's your bullish sentiment around Europe?
06:41A higher rate environment, low growth environment.
06:44Where does Europe sit in your thesis right now?
06:46Tough.
06:47Really tough.
06:47I mean, when I say I'm Max Long, I'm really long the wings, right?
06:50I'm long the U.S. and Asia, and I'm sort of ignoring Europe at the moment because the problem is
06:55in Europe is we need Iran to go away, right?
06:57We need the Middle East to go away.
06:59Why not position for that now?
07:01Get the upside on travel.
07:02Travel and leisure is soaring today.
07:03I think those are the sorts of things you can do.
07:05You missed that rally.
07:05Yeah.
07:06No, I think those are the sorts of things that you can do, right?
07:09But again, the problem is you're making – if you buy European travel and leisure, you're basically making a call
07:14on one thing, right?
07:16On one thing around geopolitics.
07:17If I buy Asia, if I buy Japan, I still have sensitivity to the Middle East conflict hopefully receding in
07:25the next couple of weeks or months, right?
07:26But I have the domestic fiscal story.
07:29I have the AI story, right?
07:31More AI exposure.
07:32I've got the defense names in there, right?
07:33I've got the currency story there.
07:36I've got loads of other drivers as well.
07:37If I buy things like Taiwan and Korea, I've got the AI story, the tech story.
07:41I also have a potential beater a little bit from, hey, Hormuz is reopening.
07:47Middle East conflict hopefully is receding soon.
07:49But it's not just a call on this one factor like you have in Europe right now.
07:55For strategists, cross-asset strategists, Max, it certainly dawned on me this morning that we have to start watching SpaceX
08:00launches from a different perspective.
08:02It's not just sort of new science.
08:03This is now market-relevant information.
08:06Do these launch years – we're going to see many by the end of the year, I'm sure – but
08:11does that start to become a new thing that the markets have to keep an eye on?
08:16I don't know.
08:17I think the single launchers –
08:19Because without them, we don't necessarily get all the energy we need for this AI build-out.
08:22Yeah, I think the single launchers – no, I think what we'll be probably more interested, particularly around the space
08:26economics, is how much do the costs really come down?
08:30You know, month after month or quarter after quarter, how much do the costs come down?
08:34Because that can then really justify some of those valuations, which now do seem lofty, right?
08:39If you're saying price-to-sales, if you take those measures at current sales, it doesn't really make sense, right?
08:45If you say, hey, you know what?
08:46My costs are coming down so dramatically over the next couple of years.
08:49So I don't think it's the single launchers that's probably more the – okay, is that cost or the efficiency
08:56gains there, do they really come true?
08:58It's what we're seeing also in AI and the chip usage, right?
09:01That is maybe a downside risk.
09:03Google wrote a paper called TurboQuant about two and a half months ago, where they're saying we found a new
09:09method that could reduce chip usage by six times, that could increase efficiency by eight times.
09:14If you do have that, that may at some point call the memory trade a bit in question, right?
09:21But those – it's more the aggregate things that we need to take into account and particularly the aggregate efficiency
09:26gains.
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