MacroVoices #284 Lakshman Achuthan: Economic cycle is turning...but what about assets?

Episode Summary

Executive Summary: Episode 284 centers on Lakshman Achuthan’s warning that ECRI’s leading indicators have rolled over: global industrial growth and U.S. growth are slowing, and inflation’s strong cyclical upturn may be peaking. The hosts discuss how this may pressure commodities and raise equity correction risk, while noting that post-GFC monetary policy can mute the usual stock-market transmission. A post-game debate with Grant Williams argues the bigger future issue is digital money/CBDCs and the power shift they could enable.

Main Topics: ECRI’s cyclical downturn call (Priority: 5/5): Lakshman Achuthan explains that ECRI’s long-leading, short-leading, and coincident indicators now point to downturns in global industrial growth and U.S. growth, with inflation cycle momentum also easing. Macro market implications: equities, commodities, and bonds (Priority: 5/5): The hosts and Achuthan discuss how growth slowdowns typically hit industrial commodities first, raise equity correction risk, and push down real rates, while stock-market effects are less direct than before the GFC. Oil, gold, and inflation assets (Priority: 4/5): Macro Voices opens with market commentary on crude oil’s pause, gold’s sharp Sunday-night selloff, and the idea that inflation-related assets may be in a cyclical holding pattern rather than a structural reversal. Post-GFC policy regime and muted market transmission (Priority: 4/5): Achuthan and Townsend note that post-2008 central bank intervention has altered how economic slowdowns affect equities, turning classic recessions into more frequent corrections instead of prolonged bear markets. No recession call, but higher correction risk (Priority: 5/5): Achuthan is explicit that ECRI is not calling a recession, only a cyclical slowdown. Still, he says the risk of a double-digit equity correction has risen materially. Digital currency, CBDCs, and the future of money (Priority: 5/5): In the Grant Williams post-game, the discussion pivots to how central bank digital currencies or tech-enabled digital money could re-engineer payments, credit creation, privacy, and government power. Gold as a long-term store of value versus a trading vehicle (Priority: 3/5): Williams argues that gold’s recent weakness matters mainly to traders; long-term holders should judge it as purchasing-power insurance rather than by short-term price action.

Key Arguments: ECRI’s framework shows sequential confirmation of a downturn: long-leading indicators roll over first, then short-leading indicators, then coincident data. The current slowdown is not just a base-effect story or a Delta-variant story; the cyclical turn began before those headlines dominated markets. Global industrial growth downturns have the clearest and earliest transmission into industrial commodity prices. U.S. growth downturns historically have been associated with stock-market corrections; post-GFC these are often shorter and less persistent but still meaningful. Real rates have collapsed in line with the growth slowdown, supporting the view that fixed income and inflation expectations are in a major cyclical transition. Gold’s weakness is interpreted more as a short-term technical/speculative event than a fundamental breakdown in its long-run role. The future monetary battleground is likely digital money, not just cryptocurrencies; CBDCs and/or big-tech payment systems could materially increase state or platform control over money and identity. Grant Williams argues that banks and Silicon Valley represent different risks: banks are dangerous on money, while tech firms may be more dangerous on social control and censorship. Achuthan stresses that cycles matter even in structurally changing environments, but only within the time horizon where indicators can reliably forecast, roughly up to about a year.

Data Points: Macro Voices episode: 284 - Episode identifier stated at the top of the transcript. Recording date: August 12, 2021 - Episode was recorded on this date. Gold price drop: from around $1,800 to $1,680 - Townsend describes the Sunday-night selloff in gold after a break of support. Gold support level: $1,800 - Townsend says a daily close below this level could accelerate downside. Crude oil price: around $69-$70 per barrel - Host commentary during market wrap on the recent pullback in crude. U.S. crude inventory change: draw of 447,000 barrels - Townsend cites the weekly inventory number as evidence of a near-flat crude balance. Cushing crude inventory change: draw of 325,000 barrels - Weekly inventory detail discussed during the market wrap. Gasoline inventory change: draw of 1.4 million barrels - Weekly gasoline stock draw noted in the crude oil discussion. Distillates inventory change: build of 1.8 million barrels - Offsetting build that left the overall crude complex roughly flat. U.S. oil production: 11.3 million barrels per day - Townsend says U.S. production ticked up by 100,000 barrels per day. 10-year Treasury yield: 1.36% - Discussed as being back up from recent lows after bouncing from around 1.15%. 10-year Treasury low point: 1.15% - Referenced as the recent yield low before the rebound. Important yield level: 1.34% - Achuthan/Townsend discuss this level as not especially decisive. Yield level of potential market freakout: 1.75% - Townsend says this is the level that would likely trigger stronger bond-market concern. Global industrial growth coverage: 22 economies - Achuthan describes the scope of ECRI’s global industrial production growth index. U.S. coincident growth peak: almost 20% - Achuthan says the U.S. coincident index growth rate had risen to very high levels before rolling over. U.S. coincident growth current pace: just below 5% - Achuthan describes the slowdown from prior highs. Market correction threshold: double-digit percentage decline - Achuthan characterizes the likely equity risk from the growth downturn as a correction of more than 10%. Post-GFC sample count: about 4 growth-rate cycle downturns in 10+ years - Achuthan notes the limited sample size for post-crisis market behavior. 2010 market correction: 16% - Achuthan cites a correction beginning in April 2010 after an earlier downturn call. Inflation forward gauge peak: April 2021 - Achuthan says the highest reading in the future inflation gauge was around April and has since gone sideways. Time horizon for useful cycle forecasting: about 1 year - Achuthan says ECRI cannot usefully forecast much farther out than that.

Pivotal Quotes: "Knowing what to do isn't that hard. Knowing how to do it isn't that hard. Knowing when to do it is really hard." — Eric Townsend quoting Jeff Immelt: Used to frame ECRI’s focus on timing cyclical turns rather than just identifying trends. "We have conviction on the global industrial growth downturn." — Lakshman Achuthan: Central statement of the interview’s macro thesis. "We don't see a recession. We don't see a recession." — Lakshman Achuthan: Clarifies that ECRI is calling a slowdown and correction risk, not a full recession.

Implications: Listeners should expect more evidence of cyclical slowing in growth and commodities, with higher odds of an equity correction but not necessarily a recession. Longer term, the much bigger structural issue is the redesign of money itself through CBDCs or platform-based digital currency.