The Macro Trading Floor transcript – 10 January 2025

Alf (00:00.608)

Buongiorno, welcome back to The Macro Trading Floor. Alf, as always with my friend Brent. How are you doing Brent? Happy New Year.

Brent (00:06.936)

Hey, happy new year. I got my “Currencies” shirt because FX is back. Yeah, happy new year to everybody. Welcome back. And here we are. There’s so much to talk about.

Alf (00:19.102)

Alright so let’s start from the bond vigilantes and we always make fun of bond vigilantes in the US because they never show up for real but in the UK they do show up again and again and again so here is a short summary of what a bond vigilantes trade is. The condition required: a long end bond yields go up, that’s not enough though, so not like in the US long end bond yields are going up but it’s not bond vigilantes trade because condition B and C are not met, which is the currency needs to go down too.

And possibly the equity market as well needs to go down as well. Now in the UK, all of that is happening. You have long end bond deals up, the currency down and equity markets down, which is a proper bond vigilantes trade. Basically, I would summarize it by saying, bond market investors require fiscal discipline. They don’t like the fact that there is fiscal profligacy when inflation is still high.

And so they basically sell all the assets they can denominated in that currency. Doesn’t matter. Bonds, stocks, the currency itself, all gets dumped until politicians ultimately comply, or for some exogenous reasons you get out of the bond vigilantes trade. And we are in the very midst of it. So I know a guy that last time it happened in 2022 was quite good at calling the extreme of the bond vigilante’s trade and the reversal that came back. So let me ask him, Brent, where are we in the bond vigilante’s trade?

Brent (01:41.668)

Yeah, I find it so interesting because the poster boys for the bond vigilante trade would be Japan and the US in most people’s minds. Given like the fiscal story there and just like it just never never ends like in Japan, especially that people were trying to do that trade at various times. So it’s interesting that the UK is the one where it’s happening because no one really was ever talking about the UK as like the the poster child for bad deficit spending. So it’s really interesting that it’s happening there again for the second time.

To me, generally these things are kind of self, like there’s a feedback loop that just ends up making it self-reinforcing. So generally for me, these things either end with an outright change in policy, like you said, where like Quartang and Truss essentially abandoned the mini budget that they had put in in 2022. Or it ends with a blow off that usually is stopped by a government intervention by the central bank. And actually we got that in 2022 as well.

So in 2022, the pension funds started selling gilts and they were basically becoming forced sellers. And so when they changed the mini budget and then the Bank of England came in, and even though they were in a period of QT where they’re supposed to be selling bonds, they actually came in and put the floor under the bond market. And so to me, it’s not something where you like step in and fade the trade just like in the middle at some random time. I think you have to have a signal either from policy or from the price where things become disorderly. And then when it gets disorderly, you know, the Bank of England is going to come in at some point. So you either wait for that or you try to front run it.

And like you said, I think one interesting aspect of this is that it’s not just the UK, right? Like, yeah, the vigilante trade’s happening in the UK, but a lot of term premium is getting added everywhere. And I thought it was interesting actually that Barkin from the Fed even said that he said he thinks it’s related. The rise in US yields is related more to supply and demand in the long end and not inflation.

Which is interesting because inflation actually is rising, I think or it’s like it’s definitely sticky and maybe rising. ISM prices paid specifically, if you sort of like overlay that with CPI it tends to be a decent lead indicator and it’s going back up. So I mean I think maybe Barkin is Right, but not totally right because this is not just about term premium. I think it’s about inflation as well

Alf (04:26.22)

So the comment on term premium is interesting because wherever you look, even in Europe ladies and gentlemen, we have some steepening happening and some moving the long end of the bond market in Europe, which is quite something. Even in Japan, we have long end bond deals going up. So term premium is back, but there is no literature that proves any direct link between term premium and supply of bonds.

I know this is going to come as a news, but term premium does not go up because the supply is going up, or at least literature doesn’t back the idea. But it instead backs the idea, as Brent is saying, that when there is more uncertainty around the future, so when there is more odds that inflation might go up, for example, or more uncertainty about growth, then if you’re an investor and you need to buy thirty year bonds and take thirty year duration risk with you, then you want to be compensated more ex-ante, right, for the risk that you will be running of all this inflation vol down the road.

And so you can also think about it this way. Most asset allocators buy bonds in the portfolio, not because it’s a religion, but because they need it for diversification for the risk assets. So they’re buying bonds because in good times, bonds are negatively correlated with equities and they carry a positive coupon, which is amazing. So you’re buying a hedge for your portfolio and you’re getting paid to sit on the hedge.

Now, of course, when the correlation breaks, which as Brent said again can break because inflation is going up for example, then all of a sudden that negative correlation doesn’t exist anymore. So to hold your bonds in the portfolio, guess what? You will require more premium against it. Right? So the term premium is nothing else than more compensation investors are requiring for more volatility risks, macro risks, inflation risks down the road. And we are seeing that happening all over the world, which is interesting in the UK on top of it, the market is trying to punish the fiscal stance of the UK.

Brent (06:23.748)

And it’s interesting because I had mentioned that the UK, so something similar happened in 2022. And there’s actually a lot of similarities all across the board to 2022 because at that time, I mean, that was a year when 60-40 did very poorly because like you said, the correlation between stocks and bonds became positive. And so when inflation goes up, your stocks go down and your bonds go down.

And it’s pretty stunning. If you look at charts of like you mentioned Japan, you look at charts of like UK and Japan, 10 year or 30 year yields, like these are the highest levels and some of the terms or some of the parts of the curve, it’s like highest yield since 1998 or at least 2008, 2011. So these are meaningful moves in yields.

And to me at some point, usually the sort of standard model for risky assets is slow moves up in yields are fine and fast moves up in yields are bad. Like two standard deviations in one month up in yields is generally associated with down in the stock market. And I think we’re kind of on the very front edge of getting worried about that in the risky asset side and then doing one of those situations like 2022 where you get stocks down, bonds down, I mean just everything down. So I think we’re very close to that now.

Alf (07:49.312)

Yeah, I think you’re right. There are two things that really spook risk assets coming from bond market moves. I would say the first Brent, is the pace of the move, as you said. So if you get to standard deviation or more generally, unless you have very strong nominal growth, surprising on the upside, equity markets can’t handle such a large change in bond yields so rapidly. And the second is the passage of time.

So this is a much more boring part, but it actually matters because one thing is to have a blip of 30-year rates going to 4.75, 5%. The other thing is to have 30-year rates being there, 4.75 to 5, for a couple of months. And why it matters is because the pass-through of higher 30-year yields to the economy through higher mortgage rates, higher borrowing rates actually lasts for longer.

And as it lasts for longer, there will be more actors in the real economy that actually have to face these rates. It’s not just a blip on your screen. You actually do have to refinance your debt, if you’re a corporate, for example, at these higher rates. So then the passage of time and or the move up in rates, the pace or the rate of change, both matter.

And I think I agree with you Brent there. We have had already a fast rate of change, higher in rates and also on top of it now rates have been let’s say above four and a half percent in the long run for quite a few weeks on end. So you’re getting close to the point where I would say there is a little bit of risk that persistently high rates can do some damage to risk assets.

Brent (09:22.148)

And then just on that topic, I think also you kind of have some other little warning signs like Nvidia after CES, Huang came out with all this awesome stuff that all looked super cool, robotaxis and you know, a new AI computer for your desk and all these really cool things. And pre-market I was watching, Nvidia’s up like 150, 151, 152, 153, which 153 is the all time high. And then at 9.30 and one second, straight down all day. And now we’re at 138 or something, pre-market, 138.80.

And I think that’s like a classic good news, bad price setup. And then in the midst of that, he also said something about quantum computing. So the quantum bubble burst, all those stocks dropped like 70 % in two days. And then the really popular things like Palantir and stuff are also way down.

So I think part of that is reflecting that yields going up this much, this consistently is, it’s scary for long duration things, you know, companies that are priced at $4 trillion market caps and et cetera. And one thing we’ve talked about a lot on this podcast is the asset-liability structure and how everyone owns like cash and is making 4%, but in the US, everyone’s, the liabilities are locked in, corporate and personal liabilities are locked in.

And like you said, obviously that doesn’t go on forever, right? Like your mortgage at some point, not everyone has 30 year fixed. A lot of people have like 30 year with a seven year reset and stuff like that in the US. So at some point this, higher yields is good for the economy thing ends up… it’s bullshit at some point, right? It’s just the hard part is figuring out when that point is.

Alf (11:16.384)

Yes, that’s correct indeed. So we both have a hunch that we might be closer to that point where high yields, but also I would add the strong dollar Brent, tend to be a bit toxic for risk assets at some point. So always the relationship is how far has the rise in bond yields gone and the rise in the dollar gone vis-a-vis? How much of a positive surprise in nominal growth are you having?

So like for example, in 2021, you also had the curve bear steepening, you have yields moving up rapidly, but guys, we were reopening the economy, nominal growth was like 10 % annualized. So who cares that rates are higher when the economy is booming, right? And then risk assets can just rally. And today the economy is doing okay, but it is not booming. And on top of it, you have this rapid rise in the dollar alongside long end yields.

Brent (12:07.074)

And you know what Alf, sorry to interrupt, but I think that’s a great point because if you look at the Citi Economic Surprise Index or you look at the Atlanta Fed GDPnow, they’re both going lower. So it’s a little bit unusual that you’re actually cooling relative to where we were. And then at the same time, yields are going up. So again, that’s, I don’t want to say toxic, but it’s not a great combination like slowing growth, sticky inflation, rising yields, and then also the UK getting very scared has ramifications for other places that have big debt. So it’s definitely not an amazing setup for risky assets.

Alf (12:49.564)

No. And look, the reason why I mentioned the dollar as well is that the dollar is also a big component of most financial condition indexes, and it matters for the real economy. I mean, after all, US corporates make a lot of profits abroad. So if you have a very strong dollar, it also it’s not great for corporate earnings in the US. It’s a bit of a drag there as well.

So now on top of it, we have something that is a huge risk event coming in, let’s say 10 days or maybe the next 20 days, which has to do with Trump’s announcements on tariffs, right? And of course, it doesn’t need to happen on the 20th. It can happen gradually or before or later. You never know with the guy. But in principle, we are still waiting to know what’s gonna be the strategy on tariffs. I think I’m growing more convinced about my base case, which of course can be wrong, but first I’m gonna want to hear yours. What is he gonna do on tariffs and where is the market mispriced?

Brent (13:42.436)

Yeah, so I don’t actually know your view. So this will be interesting. But there’s essentially to me three different things that can happen. The one is like shock and awe, which is like 25 % on Canada, Mexico, 10 % or 10 % global. There’s a bunch of different things that are like shock and awe. I mean, 60 % on China was something he said, but there’s no way. So, but like just on the 21st of January, basically he invokes a national emergency to provide legal justification and then puts these huge tariffs on. So that’s like one.

Number two is something, so that one’s easy to trade, obviously dollar skyrockets. The second one is way harder. So if he does a bunch of like targeted industry type things, like we’re gonna target Canadian lumber and autos and Chinese car, well cars that’s already done, but whatever, different industries here and there, then it becomes very difficult to trade because you’re trying to calculate like what percentage of exports is that and this and that. And that’s very, that’s going to be a tough one to trade.

The other sort of thing in that realm would be instead of doing 25 % on Canada and Mexico, he does like 5%, but he says every three months it’s going to go up another 5 % unless like Denmark gives us Greenland or whatever, you know, some kind of condition. Sorry, that was just a stupid joke. But in some kind of condition, like reinforcing the Canadian border or whatever.

And then the third one, which is what happened in 2017, which seems very unlikely to me, but I mean, who knows? I mean, people were expecting one or two in 2017 and they got three. And three is we’re going to negotiate. We want to use these tariffs as a threat, but we’re not ready to actually put them on. And you know, Z is my very, very good friend. And you know, now that I got Justin Trudeau fired, I’m willing to give Canada a chance.

And then interesting, there’s a whole narrative on Canada. We can get into it if we have time, but so those are the three kind of things. And like, there’s so many ways he can do it. The national emergency thing, section 301, section 338. So that’s the easiest thing for him to do, is tariffs. And if so, I’ll just leave it there. I’ll tell you my view after you give me your view just so I don’t talk too much

Alf (16:10.732)

Sure. So Summarizing I think your views are your options are correct As in what’s possible what scenarios are possible. I think my base case is option two. So option two is the one where the US decides to apply tariffs based on the category of imports. Okay, so basically if you look at what the US is importing and if you look at the effective average tariff rate that the US has on imports today, you will be surprised how low the number is. The number is something like, I don’t know, 3%, 4%, something extremely low.

So if the strategy is to raise as much revenues as possible or basically threaten foreign countries that on a dollar basis you will have to pay a lot more basically to import your stuff in the US… if the strategy is to raise more revenues effectively, which would also be a good strategy to try and target fiscal deficits by raising money pretty much from your exporters, then that’s the way to go. And then in that case, it’s very, very clumsy to trade. I agree, Brent, which then you need to go and look at the category of imports that the U.S. has and what is the volume, what is the nominal value of these imports, what is the U.S. importing the most.

And then on top of it, you need to exclude as well stuff which is important for national security. Or stuff that is crucially important for the US. I mean the US for example also imports some semiconductor components but are they going to tariff those?

Brent (17:50.016)

Yeah, and if you listen to what Musk and Bessent have said, like they’re definitely more in the camp of scaled, sort of targeted tariffs, just because they want to protect supply chains and things like that.

Alf (17:56.0)

Yeah. Yeah. That is correct. So then I would think that the actual realization of this is something where there are certain industries that Trump can target because they are big. So they make an impact really on the revenues that they can raise through tariffs and because they will bring, let’s say, a lot of negotiating power to the table.

So the car industry is a clear one, okay? So if you go after the car industry, for instance, and you go after also all car, you don’t only go after cars, you also go after people that are producing components for cars. So you go after the whole car supply chain pretty much. And it’s a large nominal value thing for the US in terms of imports. And it tends to target a couple of interesting countries, does it? One is Germany.

So it targets, let’s say, countries that are already in trouble, if you wish. And if you target somebody who’s already in trouble, like Germany, then it means your negotiating power will go up by quite a lot. Because if you impose tariffs on cars right now, you target China, you target Germany, you target also Canada to a certain extent, because you target certain ancillary industries around the car industry.

I think it’s a more targeted approach that brings more revenues to the US and brings more negotiating power to the US as well. And I don’t think he’s going to go like 50 % tariffs on the car industry in general, but he’s going to phase it in as well. So this is, if I’m right, then you’re going to have a lot of people over the next two or three weeks going on the US websites, custom websites, trying to figure out where are the imports coming from and who’s involved in all that. And I think that’s my base case. What about yours?

Brent (19:43.394)

Yeah, I mean that makes sense. So in his press conference the other day, Trump actually specifically mentioned autos and lumber from Canada. He was like, we have lots of trees and we have lots of cars here, we don’t need the Canadian stuff. And the auto industry and auto parts and all that, and all the ancillary stuff is really big in Canada. Like I think it’s 10 % of GDP or something like that.

And that’s actually the same as, I’m pretty sure energy is about 10 % of GDP as well. So auto industry in Canada is big. So I think Canada is vulnerable specifically in either like… if it’s number one, which I don’t really think either, it just seems kind of like way too out of control. Although, I mean, if he wants to send a message, 10 % global tariff definitely sends a message. But so I think that one maybe is possible. Or some kind of scaled thing on Canada and Mexico.

But the Canada thing is interesting because Trump and Trudeau never got along. And so you would think that like a lot of Trump’s trolling of Canada might be related to Trudeau. Like he’s sending out the tweets about the 51st state and all that stuff. But then Trudeau resigns and Trump came back and still was saying the same stuff.

And now we have sort of a lame duck political situation in Canada because they prorogued the Parliament and they need to pick a leader for the Liberals and then have an election and then you can get a very CAD-positive situation where Poivrier, one of his MPs was JD Vance’s roommate at Yale. So that’s like, you know, if you’re talking about negotiations, backroom talks and all that, you know, being JD Vance’s best man at his wedding definitely gives Canada an upper hand later on, but that’s only after the Conservatives win the election in whatever it’s going to be, April or something like that.

So it’s a perfect setup for him, for Trump to just like be really, really hard on Canada initially while there’s a lame duck. And then, you know, later on, everyone can save face and they can have a nice, beautiful agreement. But I think Canada’s vulnerable initially.

And then honestly, I still have an open mind to something bigger than what you’re describing because the impact is just so big. Like if he just decided, hey, we’re gonna just do this 25 % thing, which I don’t think, but I do think it’s possible. That’s like, whatever, 3, 4 % of Canadian GDP is gone, at least temporarily. Yeah.

Alf (22:23.402)

Yeah, it’s huge. It’s It’s huge. And then… So look, I think my base case is the one of targeted actions and a little bit also phased in, so not immediately the whole 25%, for example, on a specific sector. Even if he wants to target, let’s say, Canadian autos and German autos and whatever he wants to target, it’s not gonna be the full tariff from the get-go. It’s gonna still be phased in over time.

But I’m still open to the chance where he just comes in with a blanket thing and on top of it, he then goes targeted on certain sectors. In general, I think that the reaction from different economies is also going to be interesting because really there are two ways to do this. You can try to retaliate where possible, so you can apply tariffs on the US in case you have some stuff where you can tariff the US for, that’s not the same for all countries, right… and then alternatively, you can decide to defend your currency.

Which is something that is quite interesting, because everybody is assuming that all countries are just gonna basically bend over and say sure let’s have my currency depreciate by whatever 10 % and we take the hit for it, but in principle certain countries might decide to say, well we’re gonna sell down our dollar reserves. So let’s just sell down the dollar reserves, we’ll protect the currency and then the US consumer actually is gonna feel through inflation the higher cost of imported goods.

Okay? So there are two ways to react and I think it’s not easy, especially for, let’s say, allies of the US to react by selling down dollar reserves. In certain cases, it’s even not feasible, I would say, but something to consider at least.

Brent (24:07.78)

Yeah, and I think people correctly view the US has a lot of the bargaining power, of course. And one thing that would give the US less bargaining power is just doing the massive one across the board initially, because then you don’t have any new thing to threaten with. So if they do the scaled targeted stuff, they can say, well, we’re going to keep doing more and we’re going to keep doing more. So you better do all the things that we want that we want you to do.

But still saying that, and even though the US does have most of the bargaining power, a lot of this stuff is actually bad for the US as well. So like, you know, Canada is still a very big customer of the United States. And so I think that’s something that’s going to be interesting in the stock and bond markets. So if you look at volatility pricing the dollar has the biggest premium for tariffs because tariffs are clearly either bullish dollar or no tariffs is super bearish dollar.

So it’s super clear. But like you don’t really know if they’re are they bad for stocks? Are they bad for bonds, are they inflationary? Like yeah, maybe but like Smoot Hawley was deflationary, you know, there’s a point where the negative economic impact is greater than the inflationary impact. And so it’s confusing for stocks and bonds. But there is a world where like it’s scary that, these tariffs remind people of Smoot Hawley and, and look like potentially an economic risk. And then you might actually weirdly see bonds rally and stocks sell off on it.

So I think it’s a really interesting setup where the dollar reaction is super clear. Like you either, if you think no tariffs, you buy dollar puts. If you think huge tariffs, you buy dollar calls. But even if you told me what the tariffs were exactly, I wouldn’t really be able to tell you where bond yields and stocks are gonna be like two months from now.

Alf (26:00.096)

Yes, that’s interesting indeed. I think though it is quite hard to imagine what the impact of tariffs will be, for example, on the bond market because again it will depend from how much countries decide to protect their currency. If they do, then the dollar basically can’t go up that much and if it doesn’t… Well, then guess what Brent, Americans are going to be paying more to import stuff. And then all of a sudden it needs to be reflected in inflation, right? And then the bond market must react in a certain way.

Brent (26:32.322)

Right, and we’re already worried about inflation beforehand.

Alf (26:36.748)

Yes, that’s correct. And so what will the Fed do? That’s another huge question. I mean, will they look through this and they will say, yeah, but foreign countries cannot defend their currencies forever. At some point, they are going to allow some weakening. What should we do about that? So the Fed reaction function also becomes very blurry. Are they going to look through this? Are they going to react immediately to the fact that import prices might be going higher? It’s really hard.

And I think the dollar is indeed the first order, I would say of what asset do you want to trade if you have a view on tariffs. I do agree there, which also reminds me of a section of the podcast, which is very popular and we should keep doing it. For example, today talking about the topic of trading and risk management.

If you have a view on tariffs, unfortunately there is no tariff future that you can trade. Maybe there is a market for sure on Kalshi, on Polymarket, and you can go there and say, this tariff 25 % on Canada, yes or no? Pretty sure there is a market there, I haven’t checked. But if you are in financial markets, then the lesson here is try to trade the asset which is the closest possible proxy to what you’re trying to achieve here, and the dollar will be one. If you go into bonds and stocks, you have like second, third, and fourth orders that you need to consider. And… don’t do far proxy trading at home. It’s very dangerous. Don’t do it.

Brent (27:57.87)

Yeah, I agree with that. And actually just on that kind of like the more idiosyncratic trading stuff, one thing I would point out to people is, especially day traders, is to be very careful with the clickbait stories from the Washington Post and the Wall Street Journal because in 2017 and 2018, we saw a lot of articles that were very thinly sourced. You know, like sources say people close to the president are saying…

And just honestly, most of them were not true. I don’t know if they were just completely made up, but in the end they were false. And we’ve already seen that this cycle from the Washington Post, we got something saying it’s going to be targeted tariffs and a dollar sold off like one, one and a half percent. And then like two hours later or six hours later, Trump said, actually this story is bullshit.

So like who’s telling the truth? It doesn’t really matter. I would just say generally like Bloomberg and Reuters tend to be very reliable and well-sourced. And at least in 2017 and 2018, the Washington Post and Wall Street Journal stories were not very well-sourced and they were just wrong a lot of the time. So I would just say be careful with those stories. I think they’re a little bit clickbaity.

Alf (29:11.116)

Yes, and also something we discussed before the podcast, which I think is quite important is when we get a lot of times the question of how crowded is something, where is consensus, I think there is a very anecdotical screen-based behavior that you can immediately link to how much a trade is crowded. And it has to do with good news, bad price action. So because you wrote a book about it, not only about that, but a book about psychology of trading, why don’t you discuss what’s that all about?

Brent (29:45.838)

Well, so the Nvidia thing is a perfect example because generally the really difficult and counterintuitive thing about markets is that highs always get made on good news and lows get made on bad news. So you would think that, you always want to sell bad news and buy good news, but obviously that’s just not how markets work.

And you don’t always have to fade every good news story. That’s stupid. And you’re just going to be fighting the trend. But when you see something like Nvidia this week, where it opens on the ding dong highs and you know, before it was, I don’t know, 9:45, so 15 minutes into the trading session, it was already down three bucks or something like that. That’s a really strong signal that the market is positioned the wrong way, right?

You had so much good news and there was nothing, there wasn’t any way to slice and dice that news and say like, it’s bad for margins or anything like that. It was just good news. And the stock went straight down. And then it went down another 10 bucks after that. So there was plenty of time to make the assessment. This is good news, bad price.

And so I find that a lot of times those are really good trades. It doesn’t give you a signal that’s gonna be investable. It’s more of a trading signal. It tells you that the market is over its skis in Nvidia and people are way too long and you need a washout. So then you gotta determine, okay, what does a washout mean?

And I think it’s one of the best indicators of positioning. Howard Marks wrote a really good piece, I’ll link it in the show notes, asking whether this is a bubble or not. One of his good points was that you can look at all the positioning data and all that, but it’s really more like the behavioral and price action stuff that I think gives you more of a signal. So he was saying, I call it a bubble not when like PEs are this or price-to-sales is that, but when people are just saying, I want to buy this thing at any price. That’s his indicator of a bubble.

And I think for single names, like for individual stocks, it’s harder to get positioning data as well. So you can a lot of times look at price action and you can extract a signal from that. And I think Nvidia was a great example.

You know, one thing I see we’re running out of time, but I wanted to just, do you want to quickly talk about the fires in LA? Do you have any view on whether that means anything for the economy or is it just something people should be ignoring?

Alf (32:15.808)

I have no idea. And this is something I learned by the way. I suggest people at home to do the same. Not like to say you should always be humble, but there will be a lot of things in markets where you don’t have an idea and your boss will be asking you as an analyst, a trader, so what’s your view there? Sometimes it’s great to say, dude, I don’t know. Let me look it up and see if I can say something smart. But maybe Brent can, go ahead.

Brent (32:39.256)

Well, I mean, I think that’s probably like the best starting point because generally natural disasters are very hard to trade or hard to assess. I mean, normally you have like a weakness in economic data for a very short period because of the shutdowns and you know, people are not doing economic activity when they’re evacuating and all that.

But generally, like if you just take like a theoretical thing where one house burns down and then you build a new house, it’s very positive for GDP because the house burning down doesn’t get subtracted from GDP, but the new house gets added to GDP. So generally, natural disasters are good for the economy. They’re inflationary at the margin. But I mean, like you said, I don’t know. I don’t know if this is big enough to actually move the needle on the economic data.

I mean, some people think that’s why copper’s rallying now is that there’s some front loading ahead of tariffs and then the rebuild in LA. So I think it’s something to keep an eye on, but yeah, I don’t have a strong view other than probably if the market’s going to worry about anything, they’re going to worry about how it’s inflationary on the labor and commodity side.

Alf (33:50.892)

Makes sense from basic economics perspective and the way GDP is calculated. I would add one final thing which I have a very strong view on. If you are trading FX and you are not a client of Brent, you are wrong. So you should go and ping him on Bloomberg and ask him to be covered by him, read his research and trade FX with him. And if you’re not my client, well I don’t know, maybe you’re right, I have no idea. But in any case, you can still send me a Bloomberg and we can chat.

Brent (34:24.002)

And I hear somebody’s hedge fund is up and running pretty soon.

Alf (34:28.02)

Yes, actually, it’s up and running. It’s live from Monday. I’m really stoked. I’m also a bit anxious, frankly. But guess what? We’re going to put some trades on and try to do our best to deliver some decent returns. Guys, this was it for the week. I will talk to you next week together with Brent on Friday, as always. Thanks for listening.

Brent (34:53.668)

All right, thanks, Alf. Thanks, everybody. Good luck in 2025. Peace out.