MacroVoices #238 Alex Gurevich: Bond Yields, U.S. Dollar, Equities & more

Episode Summary

Executive Summary: Macro Voices episode 238 centers on a macro regime shift debate: Alex Gurevich argues that lower yields, rising inflation risk, and policy support could keep driving nominal asset prices higher even without negative U.S. rates, while the dollar remains in a cyclical bear market and precious metals stay attractive. In the post-game, Jim Bianco argues the election is closer than polls suggest, betting markets imply a toss-up, and the red-mirage/mail-in ballot dynamic could trigger major unrest and market volatility.

Main Topics: Treasury yields and the end of the bond bull market (Priority: 5/5): Eric presses Alex Gurevich on whether the 10-year yield can go negative and whether the 38-year bond bull market is ending. Gurevich says negative rates are possible but not required; the bigger issue is that policy, inflation, and liquidity may keep yields suppressed while still allowing violent bond market selloffs. Inflation regime shift and policy response (Priority: 5/5): Gurevich argues there is meaningful scope for headline inflation to rise, driven by fiscal/monetary impulse, pent-up demand, and service-sector supply constraints. He sees room for 3% headline inflation without the Fed needing negative rates, and even allows for earlier-than-expected hikes if inflation overshoots. U.S. dollar secular vs cyclical decline (Priority: 4/5): Both Eric and Alex discuss the dollar breaking out, but Gurevich leans toward a cyclical dollar bear market rather than a confirmed secular collapse. He expects further downside in the dollar and sees precious metals as the cleaner way to express that view. Gold and the precious metals complex (Priority: 4/5): Gurevich says gold remains a constructive long-term position, though it may be expensive relative to silver, platinum, and miners. He emphasizes that gold, silver, and related assets can benefit from rising liquidity and are an effective way to be short the dollar. Equities, liquidity, and the bond-yield stock model (Priority: 5/5): Gurevich presents a historical chart linking changes in 10-year yields to stock performance two years later, arguing the real driver is liquidity, not static yield levels. He concludes the current yield decline implies substantial upside for the S&P 500 over the next two years if the pattern holds. Election polling, betting markets, and civil unrest risk (Priority: 5/5): Jim Bianco contrasts polls with betting markets, arguing the betting markets are much closer to a toss-up than the polls indicate. He explains the 'red mirage' from mail-in ballots and says contested results could fuel prolonged political unrest, institutional distrust, and volatility. Market implications of election and pandemic risks (Priority: 4/5): Bianco says markets are already under pressure from election uncertainty and a possible European COVID wave. He expects heightened volatility rather than an immediate crash, with the Fed and fiscal authorities likely to respond aggressively to any larger drawdown.

Key Arguments: Historical interest-rate patterns matter, but this cycle is unusual because policy response to the pandemic reversed the normal liquidity shock faster than in prior recessions. Negative U.S. rates are not required for the macro regime to remain supportive of bonds, equities, and gold; the more important question is whether inflation rises enough to keep the Fed pinned near zero. If service-sector demand rebounds while supply remains constrained, headline inflation could rise sharply even without a classic wage-price spiral. The dollar is more likely in a cyclical bear market than an outright collapse, but another 10%-15% downside is plausible. Gold's correlation with the dollar is partly 'pathological' because gold is quoted in dollars; gold can rise even when the dollar rises, and precious metals remain a strong expression of dollar weakness. The key driver of equity prices is liquidity, not merely the absolute level of rates; falling yields over the last two years have historically been followed by better stock performance over the next two years. Betting markets are treating the presidential election as much closer than national polls because they aggregate broader information and price in the risk of an October surprise or late shift. The 'red mirage' dynamic means election-night Republican leads may reverse as mail-in ballots are counted, potentially making both sides believe the election was stolen. Civil unrest risk is material because a large share of the country may reject the legitimacy of the result, especially if narratives of fraud or suppression take hold. The market is vulnerable to a correction, but authorities are likely to 'throw the kitchen sink' at any severe drawdown, supporting a volatile but not necessarily collapsing market.

Data Points: Macro Voices episode: 238 - Episode number announced at the top of the show. Recording date: September 23, 2020 - The episode was recorded a day early on Wednesday. U.S. 10-year yield: Around 60-75 bps - Eric frames the 10-year as very close to zero, with the exact level varying that week. Dollar breakout level: 94.35 - Eric notes the December dollar contract was near a daily close above 94. Crude oil inventories: -1.6 million barrels - Weekly inventory draw discussed as supportive for oil prices. Gasoline inventories: -4.0 million barrels - Gasoline stock draw cited as bullish for crude complex. Distillate inventories: -3.4 million barrels - Distillate drawdown discussed alongside gasoline and crude inventories. U.S. crude production: 10.7 million barrels per day - Production was said to have ticked down 200,000 bpd. U.S. crude production change: -200,000 barrels per day - Weekly decline discussed in the oil market segment. Gold support / downside target: Just over $1,800; entries around $1,820-$1,825 - Eric identifies levels where he would begin buying gold. Gold moving average: $1,859 - Eric cites the 100-day moving average as nearby support. Potential deeper gold retracement: $1,377 - Eric says this would be the deepest conceivable correction and a major buy zone. S&P 500 downside scenario: 3,000 - Patrick says his team thinks a move toward 3,000 remains possible. S&P 500 upside over two years: More than 750 points - Gurevich infers this from his yield-to-stock historical chart. Biden national polling lead: 6.5 points - Jim Bianco cites RealClearPolitics polling average. Biden national polling peak lead: 10 points - He says Biden led by about 10 points in late June. Trump Electoral College win probability (PredictIt): 45% - Bianco compares betting markets to polls. Trump Electoral College win probability (Economist model): 13% - Used to illustrate poll-based models versus betting markets. Trump Electoral College win probability (538): 23% - Another poll-based election model comparison. Biden Electoral College projection from polls: 353 to 185 - Bianco summarizes polling-based Electoral College estimates. Trump state-level betting market map: 248 EVs to 290 EVs for Biden - Bianco says betting markets show a much closer contest. Republican chance to keep Senate: 47% - Bianco describes the Senate as essentially a coin toss. Democratic chance to keep the House: 85% - Bianco says the House looks likely to remain Democratic. Trump approval rating: 42.9% - Aggregated polling cited by Bianco. Democratic generic ballot lead: 6 points - Bianco says the margin narrowed from 9 points in mid-July. VIX on all-time high day: 26.57 - Bianco notes this was the highest VIX ever on a day the S&P 500 hit an all-time high. Civil unrest / institutional breakdown risk: 10%-20% - Bianco agrees with a nonviolent institutional civil-war-style fracture scenario at this probability.

Pivotal Quotes: "I think that if inflation does go higher than we think, and there is overheating going on that side, there might be some scope for interest rate hikes even before people think." — Alex Gurevich: On the possibility that rates rise sooner than markets expect if inflation surprises to the upside. "If you feel it like, well, other currencies might be debased as well, then precious metals complex is a good place to go to express continued short dollar view." — Alex Gurevich: Explaining why gold and related metals are the preferred expression of a weaker-dollar thesis. "The polls are telling you that this is over and Biden has won. If you look at the betting markets... they've got it far, far closer than the polls do right now." — Jim Bianco: On the gap between polling models and election betting markets.

Implications: Listeners should expect a regime of volatile liquidity, contested politics, and potential inflation pressure that could support nominal assets while creating sharp drawdowns. The election, not just macro data, may be the dominant near-term market catalyst.