2020 Macro Trends With Juliette Declercq of JDI Research | RCS 57

Juliette Declercq is who the hedge funds and high net worth individuals call for advice, and she's now giving it to you. She does very few interviews and has given us the pleasure to hear her expert insights. Hit the play button, read and listen!

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Juliette Declercq and I discuss the V-shaped recovery in the stock market, the phases of the economic recession, government deficit spending, the European horizon, and much more! 

Juliette Declercq is the founder and main analyst of JDI Research, which focuses on providing timely and exclusively trade-driven market strategy on global assets and risk.

With a strong macroeconomic background and over 20 years of experience in strategy and proprietary trading, Juliette has spent most of her career advising some of today’s most successful portfolio managers.

She has the ability to turn a vast amount of information – macro, geopolitical, technical, statistical, and psychology analysis –  into high impact and good risk-reward trade ideas. I can’t recommend this interview enough, just take your time and read it.


Juliette Declercq’s Background

George: All right guys, it gives me a great deal of pleasure to bring someone to The Rebel Capitalist Show that I have a tremendous amount of respect for.

She is my mom's favorite macro thinker and that is saying a lot. Her name is Juliette Declercq. 

Juliet, welcome to The Rebel Capitalist Show.

Juliette Declercq: Thank you very much for inviting me.

I know we were overdue for a while, but I didn't really want to be talking about coronavirus, so I think it's a good opportunity now to not talk only about that.

To be honest, the last three months have just been unbelievable, macro wise, so that's the thing that has been keeping me up and going in the lockdown.

Basically to be able to come out with all these exciting sorts and trade ideas for clients. So it's been ups and downs, but for the macro world, I think it's been definitely up.

George: Well, there's a lot to talk about, that's for sure. I guess we met at MacroVoices Live in 2019 where you were there with a group of people.

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We were all in Vancouver, Canada, and that was just a phenomenal event. You're one of my favorite speakers.

So I've really been looking forward to this for a long time, for some of my viewers who might not be familiar with your background Juliet, can you get us caught up with that?

Juliette Declercq: Yeah, of course. I've got about 22 years of background both in investing and in strategy.

What I'm really excited about is not so much investing, but really advising clients and coming out with a strategy.

That's really what I'm in love with so when people ask me, why are you not trading if you're as great as what people say? Well, the answer is simply that I don't like trading.

George:

Most of your clients are institutional?

Juliette Declercq: Yes, most of my clients are institutional, but I have a fair amount of high net worths that are also faithful clients that I've been helping over the past five years.

I started JDI Research about five years ago and really my only goal is to help clients advance in the markets.

My horizon is from a few weeks up to a year and everything is based on the macro fundamentals, technicals, sentiment. Basically every saying that is potentially going to impact markets.

I really pride myself on not being dogmatic at all, even if I can talk politics and on Twitter or actually my pieces are politic because the only thing I care about is calling the market right.

George: That's one reason why I really love talking to people in finance, especially people that are in research or they manage money because when it comes to political views, they just can't afford to have a bias.

They've got so much skin in the game so you tend to get a very equal approach or a balanced opinion from them where they can go back and forth on each side.

I enjoy talking to those people much more than the people that are extremely dogmatic to your point.

Juliette Declercq: That's exactly why I think you have to be right when you work for your own company. When I was in banks, I would be paid anyway, whether I was right or wrong.

It was just all about writing something interesting, but I can't afford anymore to just write something vaguely interesting. It's got to be to the point, otherwise, my clients will leave.


Phase One Of the Economic Recession: What We’ve Done So Far

George: On that note yesterday, you emailed me your last report which was just fascinating. 

We're going to walk through that because I think there are so many points that you could hopefully explain to my viewers that they'll really enjoy it.

The first thing, and I'm just going to read right off my notes here is, you talked about the most recent recession is very short-lived and having a V-shaped recovery.

That contradicts a lot of the thoughts and opinions of the majority of the people I interview.

So can you explain that? And then I don't know if you could go into that German indicator that you talked about. I found that very fascinating.

Juliette Declercq: 

Firstly, on the economic recovery what I've been talking about is a short term V-shape, but, actually, in the longer run, I'm more looking for a U-shape.

I've been talking about a V-shape/U-shape economic recovery which still leaves a lot of room for basically a V-shape asset recovery.

So if we focus on economics, I think there are really two phases to this recession.

There's the one that's basically happening right now, which I have called a flush recession. It's the deepest, but it's also the shortest on record. The fact is that for the first time in the history of earnings, we've had to account for the downgrades straight away, instead of getting a slow drip of downward revisions, looking back at the actual losses.

This means that in a matter of weeks, analysts were actually already looking for upgrades, that's really unprecedented.

We are going to talk about a lot of things that are unprecedented, but for me, that's really what's been driving markets.

In this first economic phase, we had income lost through loss of employment, which was more than fully replaced by fiscal programs, and we ended up with a staggering bounce in savings.

I think we have the number in savings from last Friday’s income report and I expected the income to be replaced, but what we actually got was a 33% bounce year on year, which is just amazing.

If you want to share the chart that's on my report with some of your listeners, I'll be happy for you to do so.

George: I'll have the editors sow that up right now.

Juliette Declercq: I've got the chart at the bottom of the page and I have to basically put the whole page.

George: Yeah, it's literally off the charts.

Juliette Declercq: So in the meantime, we've got businesses that were largely kept on the loan DRIP and ready to thrive.

To be honest for the COVID-19 winners and you know which one I'm talking about, the Amazon and the Zoom of this world, largely like a tech asset class and the ones that are getting ready to reopen for the COVID neutrals.

So that's the first phase, all we've done so far in terms of asset prices is revalue those COVID winners and the COVID neutrals in line with much looser fiscal and monetary conditions.

Now, that doesn't mean that I'm completely ignoring the second phase of the economic backdrop.

The second phase is of much greater concern and basically the question that we need answered and which I covered in the report that you read yesterday, is basically what part of the savings will be consumed?

As I said, in this week's report, if the consumer and especially the US consumer does not consume, he will be losing his job and that will potentially lead to a deflationary depression.

But that it's not really the story that we are trading today, and it's something that you need to keep on the radar, but you need to always be trading what's actually happening.

George:

So, Julie, do you think that's the connection point between Main Street and Wall Street?

Because I think what you're talking about there it's a lot of the corporations, it's a lot of the S&P 500, but it's maybe not so much the corner barbershop or the local cafe, something like that.

  • So do you think that the determining factor for Main Street will be what people do with this money they're getting from the government?

  • Are they going to put it into savings?

  • Are they going to pay down debt or are they going to go out and spend it? Was I correct there?

Juliette Declercq: That's basically the second phase. The first phase is re-valuing the COVID winners, the large cup that quite frankly doesn’t have any issues in terms of treasury.

And the cyclical outlook which we have started to reprice from last week in line with the global economic reopening.

Now you asked me that specific question about the IFO, it's a German survey, but for me, it's the best way to look at what's going on in the world as a coincident indicator.

The reason it actually surveys 9,000 businesses in Germany. We're not talking about analysts, we're talking about businesses here and that's really the key thing.

Obviously we all know that Germany is massively export-oriented, but what's even more interesting is Germany's exports are very well aligned with global GDP weight.

When you look at Germany and you look at what business and exporters are thinking about, you get a really good correlation between their expectations and earnings gross for the MSCI world.

What I found by looking at the last IFO, which was from last week, is that we've now re-priced in terms of earnings expectations for next year.

So 12 months forward at earnings, we are actually now in line with expectations from the IFO survey, which is telling me that the next phase is going to be not about downgrading, but actually upgrading earnings.

That's really the key thing for the cyclical outlook to brighten a bit if it's just in the next few months.

George:

So is it fair to say that you're actually bullish on the S&P or is this more Eurocentric?

I don't want to put words in your mouth.

Juliette Declercq: I'm still bullish stocks generally, but I find Europe is just exceptional value and I think we're going to be going through that in the rest of the questions

George:

Do you think Europeans is a better value because they're cheaper right now?

Juliette Declercq: Yeah, much cheaper. 

When you look at what really drives assets, I mean, there's liquidity, but also sentiment.

If you can find an amazing amount of liquidity and an asset that everybody's been hating for the last 10 years, were just 10 days ago, everybody was still looking for an EU break up and any trades to try and trade the EU break up, then you will understand the why we've actually gone up 10% in the last 10 days.


The Economic Potential Depends On Productivity

George: We might be going back a little bit here, but I want to stick with the format. Usually I just ask questions right off the cuff here, but your report was so fascinating, I want to make sure I stay organized.

So the next thing that I saw there is, you were talking about the growth of an economy having a lot to do with the labor force and then the productivity.

Can you expand on that and why you see that being so important and then maybe how you see that playing out in the United States, Europe, Japan, over the near term and longterm.

Juliette Declercq: 

An economy's potential is basically the growth of the labor force which unfortunately there's not going to be much change to that.

Structurally in the US, we're going to a gross of the labor force, which is going to continue sliding down to around 0.5% in the mid-2020s.

And you need to add that to productivity levels. So if you look at what the COVID crisis is going to do to the labor force, potentially we'll get a bit less participation.

You might have a skills mismatch between the entertaining sectors, tourism sectors and that might lower the participation rate.

You might also see some older people that finally decide to retire because they don't want to take risks on their healths.

I think we've seen a bit of that with teachers whether it's in universities or schools. But that’s not really going to be moving the needle much in terms of potential growth.

What we really need to talk about is productivity. Productivity in the last decades, with the advent of globalization, has mostly been about filling a growing gap in demand.

And the way we've been filling this gap is by constantly looking for lower cost. So instead of looking for more clients, everybody has been just looking to produce the same goods, but at a much lower price.

By outsourcing productions and sometimes services to emerging markets and obviously China.

So we've already been backpedaling pre-COVID. Part of the reason is simply that China is not as competitive as it used to be. Obviously, the trade war has been a move behind de-globalization.

I think what we need to consider in the post-COVID world is even more de-globalization. There are two reasons for that:

  1. The first one is that because of China's closures in February, there was a great risk of not diversifying production.
  2. The second thing, and that's something you really see in Europe, is we're starting to see that there's a clear political move to re-shoring, so re-shoring is the new buzzword.

And the reason is we've been farming ourselves, short of PP and medicine. That's really been the driving force, but interestingly in France, there is a lot of pressure on companies that are being bailed out.

For example, Renault to produce clean cars and President Macron has decided that “clean cars” is a new strategic sector that he wants to explore.

So clearly, a lot more protectionism and I don't think this is going away anytime soon. That's basically potential productivity lost by increasing cost.

George: We basically got a breaking down of global supply chains. Everything's coming back home.

Here in the United States, people would say, “Okay, we want it made in America, we're sick and tired of China creating all of our pharmaceuticals.

And we had this COVID crisis and we didn't even have enough face masks for our nurses, our doctors, the people right on the front lines, we never want that to happen again.

So we want all this manufacturing to come back home to the United States or to Europe.

So what do you think that does longterm?

I'm talking about five years plus for consumer prices because we've got the consumer that's really getting squeezed right now for obvious reasons.

Are we going to potentially see consumer prices go up that could put them in more of a pinch, do you think?

Juliette Declercq: That's exactly the question that we need to be answered and conventional wisdom would probably say that the consumer will pay for it, higher inflation.

But its really not necessarily the case. So the crucial question is, “Who will pay for this, it could be profits, it could be the consumer or it could be the government.”


Going From A Money Oriented Vision To A Well-Being Vision

Juliette Declercq:

What's really interesting in this crisis is I feel that we're moving more away from GDP to GDW looking for welfare rather than just money.

I think one thing we've learned in this crisis, and I'm pretty sure you will share my sentiment of that, is that there are a lot of things that money can’t buy.

It doesn't buy freedom. I mean, you told me that you were stuck where you didn't want to be in the medium term.

George: I'm getting a haircut today, Juliette. I'm so excited. It's going to be amazing.

Juliette Declercq: So money didn't buy us education. I mean, my kids have been at home for the last three months and quite frankly, it's getting really hard.

Money doesn't buy us health or transport, I've been trying to get back to France, which I think I'm entitled to, but there's literally one train per day and I'm looking to go on a cargo, to Normandy.

George: Yeah. And just to be clear, you're in London right now, correct?

Juliette Declercq: Yes, I'm in London. 

So suddenly my money wasn't devalued by inflation, but it's devalued because the country where I live did not cater for the risk of a pandemic.

I now see this going in reverse with greater consciousness about sustainability, social Well being. So the sum spent today will actually make a difference to future generations.

E.g.: We can actually spend and change things, and we can say that we're doing it for the greater good.

So I think we can make sense of why it will be financed with what I'm going to call “world bonds” which are bonds that are never going to be repaid.

In the best-case scenario, they would basically be perpetual that would be bought by the Fed or by the ECB. At the moment we are only talking about quasi monetization, but the point is your debt to GDP ratio is going to go up potentially 20% from here.

But with central banks keeping real rates really depressed, you can finance these debts easily, assuming that you get a higher real GDP gross.

Basically what we're going to spend today is not going to be turning into higher taxes in the future and it will disappear because there's no inflation and because we're looking for more inflation.

So that's the reason why there isn’t a free lunch at the moment, as long as we can justify it for future generations and in terms of achieving something that makes us happier without more money.


Can Government Deficit Spending Benefit The Market? 

George: So let's unpack that because there's a lot in there that is hard for me to get my head around. I'll be honest.

We're talking about government deficit spending and doing this in a way that's going to be more beneficial for our society at large. 

I totally understand that.

But then you're talking about, the Federal Reserve or the ECB, the central bank monetizing the debt. 

They're basically printing the bank reserves to buy the treasuries from the government so they can spend this money into the real economy that most likely increase M2 because when the government spends money, it increases deposits in the commercial banking system.

I totally understand that, but if we don't have velocity going down at the same time, how is that a free lunch in the sense that it won't create consumer price inflation?

Juliette Declercq: I don't think we know a lot about velocity right now. I mean, right now the US economy is close. So if you close the economy well velocity collapses.

The issue is government spending in the past has been Ricardian equivalence.

George: If you could go into that because I don't know that most people are familiar with that economic term and it was really cool.

Juliette Declercq: 

Yeah, Ricardian equivalence is basically the thesis that warns that any fiscal stimulus and the resulting increase in public demand, so government spending, will eventually not matter because it will be fully offset by lower private demand.

There are two ways this can happen, normally is because government financing pushes rates higher so that increases the capital cost for private investment.

And that's obviously one way it won't happen today because the Fed and every central bank have been promising that they will keep nominal yields low.

George: Unless you're talking about pegging the yield curve there. Let me just unpack that quickly, so the viewers' following you.

So what you're saying is that the additional government spending usually makes the tenure go up, which makes mortgages go up. So that's less spending. So there's a counterbalance, right there. Is that correct?

Juliette Declercq: Yeah and less private investment because the capital cost more.

George: Okay. Got it.

Juliette Declercq: This won't happen this time, because central banks have been very clear that nominal yields are going to be pegged down, whether it's with YCC or basically infinite QE, we will not see the CAF steep on this time.

George: Okay. Which we saw in world war II in the United States. I just want to be clear that this has been done in the US before, right?

Juliette Declercq: Exactly. Yeah. So that's really an interesting thing. The second way and the most dangerous place right now is not through lower private investment but through the consumer.

So what can also happen is that the consumer can start tightening his belt because of the expectations that this whole fiscal program will lead to a massive increase in taxes.

And that's something that everybody's talking about in the United States. It's the debt, and I think all macro ponders are looking at the debt as a problem in the future.

What I'm saying is, today this debt is going to be quasi monetized through QE.

And there’s not going to be any increase in capital costs because the big issue right now is just the enormous debt load, which potentially will be up to 20% of GDP, but it will not be repaid.

Therefore, it will not lead to higher taxes so you can basically put it on the central bank balance sheet with real yields lower than real gross forever.

And if you do this, your debt to GDP ratio is going to start coming back down and there won't be any debt spiral.

George:

How does the debt to GDP come down there?

I'm assuming that you're talking about taking the government spending, and as long as they're spending it on things that produce more goods and services, then it's not going to be deflationary.

Because then it's this race between M2, goods, and services, but as long as goods and services are outpacing M2, then it most likely won't be deflation or inflation or excuse me, is that what you're saying?

Juliette Declercq: 

Exactly. I think if you adapt to a possible revolution, to more sustainability and more welfare, which would be the reason for the fiscal spending, then you could have completely different consumption trends.

Which would be more conscious about sustainability and generally future aggregate welfare. I think you can really open a ton of new opportunities for investment in this new macro business model.

George: 

So the government spends the money, the Fed monetizes it, but the government has to spend the money wisely.

I think that's the big key here, and that's where I would be a little apprehensive.

Juliette Declercq: Well, I think you have to be at a stage where consumption is ready to change.

Ready to embrace the green revolution, more sustainability, and willing to embrace not going back to being stuck at home for three months with your kids because the government hasn't been doing its job.

But it's not the only interesting part, there's another silver lining to that thinking.

We've been talking a lot about inequality, and the problem with globalization has been about producing at a lower cost.

But with demand pool, that's been shrinking because of a collapsing wage share. So wage share is basically the share of income that goes to wages rather than profits.

The problem is that profits don't really consume, and that's why we are in a dead-end where you just keep growing profits, but with demand shrinking, in the end, you basically end up in a wall.

George: Yeah, and they've just been going to buybacks.


Increasing Wages As A Way To Incentivize Spending Rather Than Profit

Juliette Declercq: Yeah, exactly. What we've completely forgotten about was Ford who was [inaudible 00:28:05] in the 1920s, that there is a limit to profits if the balancing act is basically low salaries, low employment, and effectively deficient final demand.

So what I'm saying here is that a global move to fewer inequalities, I think it's possible. What if we suddenly discover that the key workers are actually key and we decide they do deserve a wage increase. 

Then you're unleashing a whole new pool of demand because these poorer cohorts have a much higher propensity to spend than profits.

So you end up with productivity gains that depend on economies of scale and focus on demand rather than an always lower cost.

So there's a potential here for a virtuous cycle, for profits to eventually pick up again and go back to the levels that we were at just by basically pushing for greater social welfare.

George: 

Well, if we were to execute that plan, I would much prefer that to be done from a bottoms-up approach, as opposed to a top-down approach.

I'm not a professional obviously, but I'd be very hesitant if the government was forcing that upon businesses.

But if the people demand it from the consumer level up, and then it just trickles up into the corporate awareness, then I think it's definitely something that's interesting.

I just get really concerned with the government creating all these new regulations and making it mandatory.

You get all this misallocation of resources, you get unintended consequences, and then to me, it might just create the worst scenario.

Juliette Declercq: I completely agree with you, but there are some places where you look at education, health care, and transport where it's not going to be consumer-led. Right?

I mean, what can you do to basically incentivize your government to care about education and not commoditize education, or even healthcare like it is in the US.

It would be ideal if it came from the consumer, but this is the thing that can happen positively and come out of this crisis.


The Government Role Is To Accompany Rather Than To Force 

George: 

So just to summarize what you're saying there is, you do see areas where the government can play a role that is positive without them just being incredibly inefficient and making things worse.

And I would love to talk about that for the next two hours, but we've got to keep moving along, but is that a fair summary of what you're saying?

Juliette Declercq: Exactly. 

The idea is more to accompany the consumer, rather than just to force anything.

If you've got a company that makes things, but not in a sustainable manner and suddenly you're getting an incentive from the States to move everything to a cycle that is sustainable then you can actually get productivity gains rather than productivity losses.


Fixed Income Can Anticipate A Cyclical Recovery

George: So let's move on to the next question here. This was really interesting because so many people think the bond market is smart and the equities market is they're lagging behind, they're there in the corner with a dunce hat on, right?

But you have a different look at this right now or a different angle. Can you explain that?

Juliette Declercq: Yes. So I've heard a lot about how equities make absolutely no sense and fixed-income is telling us that we are headed to a depression. And therefore, there's a disconnect.

I completely agree that there's a disconnect, but it's just the other way around.

So yes, fixed-income tends to have leading properties near both, equity market tops and bottom, but in the current environment, what you need to look at is not nominal rates.

The reason we shouldn't be looking at nominal rates is because of what we're hearing from the Fed that they are thinking hard about targeting specific yields on treasury as a way of ensuring borrowing cost stay at rock bottom levels. 

So what you need to look at is not nominal rates, but inflation breakevens and real yields.

If you look at short term real yields, and if we can continue trending lower in line was rock bottom funds and recovering from the breakevens. Then the market can start anticipating a recovery in real yields along the curve and that normally happens ahead of a cyclical recovery in earnings.

I've got a great shot in my report about that, but we should not consider the nominal curve as a gauge, but the real curve.

And if you look at the real US yield curve versus cyclical outperformance, you will see that in 2008, the real curve bottomed about four months before the stock started to price a cyclical recovery.

This is exactly the same that's happening this year and the exact same indicator.

So it's a one year versus five years, five-year real yield curve that has basically bottomed in March this year and has been trending higher ever since, and back to both laws that we've seen in 2019. 

So what this is telling you is that fixed income is anticipating a cyclical recovery, which until last week basically was not priced at all by equities.

Equities have been going up, not on a cyclical recovery, but just on revaluing those COVID-19 winners and valuation lower real yields on the back of the policy mix that we've launched quite globally.


Phase Two Of the Economic Recession: Cyclical Stocks

George: 

So you're saying that the bond market and the stock market are actually agreeing more than it seems just by looking at it at the surface level, because of potential Fed intervention in buying bonds, increasing the demand for those treasuries?

And then at the same time, you've got to look at real inflation-adjusted interest rates as opposed to just nominal interest rates.

Juliette Declercq: Exactly.

George: When you consider those two factors, the bond market and the equity market are agreeing a lot more than it may seem.

Juliette Declercq: No. Actually, they're not agreeing, but the other way around. 

If you consider the right real yield curve, you find out that the bond market is pricing a cyclical recovery, but that the equity markets isn't.

That's really what led me to recommend cyclical stocks, which have been performing extraordinarily since last week just on the basis that equities were pricing no cyclical rebound.

I had just basically recovered on valuation. So phase one, valuation, phase two, cyclical. Cyclicals were priced in fixed income, but it wasn't priced in equities.

Most macro ponders are actually looking at the opposite thinking, equities are pricing a massive cyclical rebound when the nominal curve, which is as flat as a crap is basically pricing depression.

It goes worse than disagreeing that there's a disconnect, but the other way around.

George: Okay, got it And I want to make sure that my viewers are very clear…

What's your time horizon here, Juliette with what you're saying?

Because I think that's so important to just normal people and just average Joe and Janes like me, if we hear someone talking, we automatically take what they're saying and apply it to our own time horizon.

My time horizon for my portfolio for five years, 10 years plus.

So if I hear someone on CNBC, that's talking about the very bullish, I just assume they're talking about over the next 10 years, but they could be just talking about the next two weeks. And so what's your time horizon for this?

Juliette Declercq: 

My time horizon, in terms of looking at cyclicals is a few months, if you're really looking to the five-year trend, I still think there's more value in looking for defensives and tech stocks.

Which quite frankly acts like duration assets. So I think there's currently a window of opportunity for cyclical recovery.

After this window of opportunity and cyclical repricing, I'm still looking for a nominal gross recovery that is globally going to be quite weak, which still suggests that you should be keeping a portfolio in the longer run, equity behave like bonds.


Views On COVID-19s Possible Second Wave

George:

How do you see a second wave or a potential second wave of COVID playing into this thesis?

Juliette Declercq: I mean, you'd have to get out of the first wave before you get a second wave.

The way I see a second wave and I see it from a European, I think we will manage it much better. I think we've got higher hospital capacity, we are used to wearing a mask, I think behaviors have changed.

So I don't see a full lockdown being imposed on the second wave, I think vulnerable will more likely be asked to stay home but you know what, in the end, everybody's allowed to make their own decision.

I think what really comes out of this crisis as well is, “Now we know the risk and if you're above 75 vulnerable and want to stay home, stay home, increase your life expectancy.”

But I think there is also great emphasis in the Western world on freedom. And you know what, if you've got five years left to live, do you really want to stay six months at home on your own?

So I really don't see the second wave as leading to lockdowns that we've seen in the last two months.

I think it's just going to be much more isolated, maybe isolating towns or regions, like certain cohorts of people, but I don't think we're going back to full lockdown.

That would be a disaster for confidence and the economy as a whole.


A Bullish View For Europe’s Horizon 

George: Okay. Got it. Now, moving on here, I know you were talking in your report about being a little more bullish on Europe and the European Union.

Do you think the release valve could potentially be the Euro? So could you explain that to us?

Juliette Declercq: Yeah. What we just discussed is the reason for the massive outperformance in the Europ stocks since the French-German proposal for green chute of fiscal union.

Why does that fiscal union matter? Well, simply because it unleashes the ECB's potential, and is super bullish for European risk assets in the medium term, because we can finally stand on two legs, monetary, and fiscal, rather than just a broken monetary leg.

The reason I'm saying broken is with rates deeply negative, you're effectively in a monetary trap unless you can count on your fiscal leg or your fiscal agents to reflate and therefore lower real rates.

So what really happened with the French-German plan is not that it makes a big difference for the microeconomic outlook in the short term, but what it does is completely change the medium. 

And, longterm, where you now have a plan for any other crisis, any other downturn, you now have a framework that is actually functional.

And somewhat you can compare the ECB and the Fed much more. They both have potential.

So I've been bullish on Europe, to me, it's the one asset class with enormous potential still. Firstly, it's cheap, secondly, the longterm fundamentals greatly improved over the crisis.

You can almost say, it's a COVID winner to the same level of Amazon and you can actually see valuations move higher over the crisis, assuming the same cyclical recovery.

But what's really powerful for me is that everyone hated the asset class and was always ready to embark on EU break up trades just a week ago.

So when liquidity is flushing through global pipes like there's no tomorrow, which is what's happening right now, the assets that everyone has loved to hate, for me, have the greatest potential.

In terms of the Euro, there are some narratives that suddenly you've got a fiscal union and therefore the Euro will become more of a reserve currency.

I think a reserve currency with deeply negative rates, I'm really struggling with the idea, especially now the ECB can lower real rates even more.

So I mean, what we've given the ECB is a way to inflict even more financial repression, so I think the wave of Euro buying that we're seeing right now is more of a knee-jerk reaction.

But I'm not saying what's happened in the past two weeks as a major Euro liberation force, I think it's just very positive for risk, but not for the Euro.

George: Okay. So then let's go and address your outlook on the dollar.

  • Can I assume by what you just said, that you would be bullish the dollar on the DXY because it's really heavily weighted toward the Euro?

  • And then what would your view be on gold, silver commodities, and Bitcoin? If you've got views on those.

Juliette Declercq: I mean, at the moment, everything is the same trade and it's a risk liquidity trade. So when something like that happens, I try to always focus on the first derivative.

How many times in your trading life you just looked at equity is going up and you just said, “You know what, I'm going to pay a bit of rates., And end up losing a ton on rates because the real trade was equities.

So for me, the dollar is more of by function of risk. I think if the economy closes down again, we are going to see the dollar go up.

What's really been driving the dollar lower in the past week is a rush for carry. So, emerging markets greatly benefited the whole Latam revolt, but for me, it's really just liquidity.

It's a liquidity and carry trade that needs to find a home before everything becomes negative and I see much more value in trading that theme via equities rather than the dollar.

So maybe we get to levels where I feel comfortable with finally fully repriced equities, and I'll start to look for long dollar trades again. I think Eurodollar is going to be caught between those two trades.

I mean, you can't really say that Eurodollar is a dollar trade given, Euro rates are massively negatives, so I think it's just going to be kept in a range.

George: Okay. 

What about gold, silver, Bitcoin, and commodities?

Juliette Declercq: I'm still bullish gold. I think there's cyclical rebound going on right now, but after that, it is going to go back to debasing currencies and FX walls.

Where the ECB can participate in and is saying everything is going to be devaluing against gold. So I'm still recommending long Euro versus gold.

Bitcoin, the chart looks good. When I don't have a fundamental view, I look at the charts and I'm like, “Yeah, why not?” For me, it's more of a lottery ticket on a good chart.

I know I'm going to get a lot of pushback on that, but personally I'm much more excited about stocks than Bitcoin. And what was the other one?

George:

Oh, do you have an opinion on commodities, like oil, uranium?

Juliette Declercq: 

Commodities are going to be the antithesis of the dollar. So the same thing but to a less extent they are really going to get fully revalue If we see the liquidity going from asset prices to the real economy.

Which at the moment, it's not really a given.

I would say probably the first are equities, secondly probably any currencies versus dollar with carry commodities, yes, but on a tight leash.

And Bitcoin, whatever, if you got some spare cash and you fancy the charts, it's good 

George: Awesome. Well, I've already kept you almost an hour Juliette. 

I sincerely appreciate your time. For my viewers who want to find out more about what you do or reach out, where can they go to do that?

Juliette Declercq: So they can check my website or they can reach us straight on emails through [email protected].

They can also follow me on Twitter, but there's going to be a bit more political and hangs there.

George: There's a lot more fun too. I follow you on Twitter and I can say that you are an incredible dancer. 

I mean, during this COVID thing, you guys did this awesome music video with everyone in your complex.

It was really, really fun. I think it was Justin Timberlake, wasn't it?

Juliette Declercq: Yeah, sometimes people say they loved the video because they got to know me a little bit and I mean, that's what I like about my business, is to get to know clients.

I've got a very small mailing list I'm really focusing on quality rather than quantity. I speak to any client who wants to speak to me even on high net worth basic contracts.

I also have premium contracts where I basically speak to the clients. It will be CEOs of hedge funds, but I basically speak to them every day.

I put a lot of my heart in my research and for me, clients are incredibly important. And that's what I love about what I do.

George: That's for sure. Well, I can't recommend it enough guys. Definitely check out her website, check her on Twitter and Juliette again, I appreciate your time and I just cannot wait to do this again.

Juliette Declercq: Thank you very much for inviting me, and good luck getting out of Colombia.

George: All right, let's go get that haircut.

Summary
Photo ofJuliette Declercq
Name
Juliette Declercq
Website
Job Title
Founder and analyst of JDI Research
Company
JDI Research
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