We were lucky enough to have Vincent Deluard, Director of Global Macro Strategy at StoneX, join us yesterday on his very first day back at work.
Thank you to everyone who tuned in on Substack!
Let’s get into it…
CPI Expectations Today
Vincent thinks today’s CPI report is “going to be a bad, bad number.” “We got lucky with the number that was reported in June - there was a positive seasonal adjustment,” he said. “Seasonal adjustment [this time] will be negative.”
🚩🚩NOTE: At the time of writing (8:50am ET), we just got the CPI number, with Newsweek reporting: “Inflation accelerated during June, coming in at 2.7 percent for the month, the highest reading since February, according to the U.S. Bureau of Labor Statistics. May's inflation was 2.4 percent.”
July Correction?
“I had this call for a July correction, and I’m maintaining it, [though] let’s give it to mid-August,” Vincent said. Why?
On the fundamental side:
The return of Tariff Man, which “might be postponed but I don’t think we’re out of the woods.”
The realization that a strong economy also means higher rates, despite what the president wants: “The economy is running hot, the labor market is tightening, the deficit is huge,” he said. “So you see all kinds of speculative stuff - silver prices up 8%, the crypto meme stocks soaring… So this is not the time you want to be cutting 100 basis points.”
The US Treasury is about to issue $500–$600 billion in new debt now that the debt ceiling has been lifted, which will drain liquidity from the financial system for the first time since COVID, Vincent said. While some of that demand may be met via the Fed’s reverse repo facility, it will also pull from bank reserves, tightening conditions and signaling the end of the recent excess liquidity environment.
It’s a tough call though: “It’s not like there’s true economic deterioration,” Vincent said. “It’s positioning, it’s sentiment, and it’s liquidity… It’s much harder to predict.”
The Money’s All In?
Retail bailed in hand over fist in the April dip, and was then followed by momentum traders, vol targets, CTF funds… “I think these guys are in by this point,” Vincent said. “Where else could more money come from?”
He pointed out that foreign investors haven’t been buying and he doesn’t think that’ll change. “It’s like the U2 song, With or Without You - you want to sell the US because you see the fiscal crisis, the attack on the central bank… but you cannot sell the Mag 7. So what they’ve been doing is hedging the dollar.”
Yields “Need to Go Higher”
“Every time you get the 30-year at 5, the 10-year at 4.5, you get some volatility in the stock market,” Vincent said. “You get a 5-10% correction every time that happens. The 30-year is already there; the 10-year is a couple of bad days away.”
Vincent thinks “yields need to go higher for a bunch of reasons,” including “secular inflation and deficits.”
“So as of Friday, the federal government had spent $4.5 trillion. $600 billion more than the same period last year. $600 billion more. We had Doge which on paper should have done something, we had the tariff revenues, we have a great economy. I mean, this is insane. The deficit is bigger by 300 billion bigger now than it was at the same time last year. Spending is 63% higher than it was in 2019. We added $2 trillion in government spending since COVID. So I think that that may be one of the reasons why stocks are performing well.”
The “Reverse Currency Crisis”
Before we get into this, here’s the Robot’s short explanation of the 1997 Asian currency crisis:
The lesson Asian countries took from this crisis was that “you need to have a cheap currency,” Vincent said. “So this led to 25 years of suppression of Asian currencies, and correlated to that, accumulation of currency reserves.”
Now, he said, “I think we are at the end of that cycle, and also people have now forgotten about it, and the demographics have changed. They actually need strong currencies now because they are retiring. Everything is kind of turning around.”
In fact, it’s almost the exact opposite now, he said. Back then, “you borrowed in dollar, you invested in the Thai economy… Now, this is the exact opposite. Look at what happened to Taiwanese life insurance - Rates are higher in the US than in Taiwan, so you have all these insurers who are borrowing in Taiwan and investing in the US treasury market and bargaining a risk-free profit. It’s the exact opposite.”
So, Vincent sees a wave of Asian currencies increasing in value, and thinks “it’s quite good for the world.” “For 25 years we had fake prices,” he said. “And as you move to true prices, I think the world is better off. We need to rebalance the world.”
And because they’re all rising together, he doesn’t think governments will intervene and suppress this time.
💡“I’m shocked by the similarities between Asia today and Europe in the 70s, where we had the same pattern,” he said. “In the 50s and 60s, Europe was completely dollarized, depending on US capital, and they they rebuilt their economies… and eventually figured out, maybe we don’t need to go through the dollar when we do so much other trade together. [So] the Europeans did an accord in the 70s, then we had the European monetary system… You can see that developing in Asia.”
Consequences
This generational shift is:
“Inflationary for the US because we’ve benefited from [the suppression of the last couple of decades… Now we’re going to have to pay fair market price.”
“You could see these massive trade surpluses that end up in US capital markets kind of dry up, if [Asian countries] let the currency rise and rebalance total consumption.”
“Central banks will intervene if it gets too destructive,” but “I think it’s going to be more like a slowly rising tide,” Vincent said.
And Vincent thinks another reason they’ll let currencies appreciate is “that’s what Trump wants… A lot of these countries were labeled as currency manipulated.” So, he thinks t. hey will let currencies rise in the hope of getting a deal.”
The Dollar
Jordan in the live chat asked, “Over the next 3-6 months, does Vincent think the dollar is higher or lower from here?”
“That’s a good question,” Vincent said. “In general, I’m a weak dollar guy. I think the great rotation movement is real, and if he asked me over the next 2 years, down for sure. [But] in the short term… My outlook is we get a market correction, we get a hawkish Fed, we get a hot inflation number, hot job numbers… So in the short term, I could see the dollar rally. And the move has been so rapid this year [for the dollar], straight down, that it will make sense to get a counter move.”
🪢That is pretty much exactly Jared’s view, too.
What about you all?
And Finally… Lessons from Bastille Day…!
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and overall financial plan.
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