MacroVoices #305 Grant Williams: Inflation, Putin, Tesla & More

Episode Summary

Executive Summary: Macro Voices episode 305 opens 2022 with a macro debate: a hawkish Fed, rising yields, strong crude and weak gold signal a regime shift, while Grant Williams argues inflation, policy exhaustion, energy shortages, and geopolitical tensions are building into a more volatile year. Both hosts see markets less driven by fundamentals and more by liquidity, narrative, and shifting investor behavior.

Main Topics: Fed tightening, complacency, and market volatility (Priority: 5/5): Eric and Patrick discuss the sharp post-FOMC selloff, arguing the market has been overly complacent about how forcefully the Fed may taper and hike. They expect turbulence as investors reassess how much support the Fed can really provide. Inflation regime shift and the end of the disinflation trade (Priority: 5/5): Grant Williams argues the world may be entering a meaningful inflationary pulse driven by supply constraints, wage pressure, and expectations effects. He says inflation and deflation will both occur, but the sequencing matters and the short term may be inflationary. Energy markets, underinvestment, and structural oil price pressure (Priority: 5/5): The discussion highlights crude’s resilience, temporary supply disruptions from cold weather, and the broader structural case for higher energy prices due to underinvestment in fossil fuels and the mismatch between green transition rhetoric and actual supply needs. Equity market breadth weakness beneath index highs (Priority: 4/5): Grant and Patrick both emphasize that major indices are near highs, but a large share of stocks are far below their peaks. This suggests narrowing leadership, heavy dependence on mega-cap stocks, and increasing fragility under the surface. Gold, bonds, and the repricing of real assets (Priority: 4/5): Gold lost momentum after the FOMC, while Treasury yields and credit markets began breaking higher in yields/lower in price. The hosts see this as an important test of whether inflation is becoming durable enough to force repricing across fixed income and precious metals. Tesla, narrative investing, and the limits of hype (Priority: 3/5): Grant argues Tesla and similar high-profile names have long traded on narrative rather than fundamentals. He suggests the tolerance for companies that promise more than they deliver may be fading, especially with scrutiny around fraud-like claims in the tech ecosystem. Geopolitics: Russia, China, and Western strategic weakness (Priority: 4/5): Grant sees growing geopolitical risk as Russia and China move closer together and the West appears fragmented. He believes Ukraine tensions and energy leverage could reshape global power dynamics and affect markets through risk premia and supply shocks.

Key Arguments: The market’s reaction to the Fed shows extreme complacency: investors assume the Fed will always reverse course to support assets. Omicron may end the pandemic by crowding out more dangerous variants, but the economic and market effects are ambiguous because the rally has been supported by pandemic-era accommodation. Inflation can reappear quickly if expectations shift; wage gains, supply bottlenecks, and producer-price pressure can make inflation self-reinforcing. Current equity index highs mask broad distribution: many stocks remain far below their 52-week highs, implying weak breadth and narrow leadership. Crude oil appears structurally bullish because underinvestment in new supply and the energy transition mismatch are tightening the market. Gold is failing to respond the way many expected in a negative-real-rate environment, suggesting either a delayed move or a relative weakness versus other inflation trades. Rising Treasury yields and weakening credit markets may be an early warning that the bond market is repricing risk and inflation. Tesla and other “story stocks” may be vulnerable if investor tolerance for promises without delivery declines and narrative-driven buying fades. Western energy policy and ESG-driven underinvestment could create severe future supply shortages and inflationary pressure. Geopolitical fragmentation, especially around Russia/Ukraine and the Russia-China alignment, increases macro risk and could trigger market volatility.

Data Points: Episode number: 305 - Macro Voices episode identifier Recording date: January 6, 2022 - Episode recorded date SP 500 average stock distance from 52-week high (NASDAQ): 40% below - Grant cites NASDAQ constituents on average far below highs while the index is near highs SP 500 average stock distance from 52-week high (S&P): almost 12% below - Grant cites broad weakness beneath headline index levels NASDAQ index distance from 52-week high: 3.5% below - Grant compares index performance to underlying stock performance Crude oil price: temporarily above $80 - Discussed as showing ongoing strength after FOMC volatility U.S. crude inventory draw: 2.1 million barrels - Weekly U.S. inventory report mentioned during oil discussion Cushing crude inventory build: 2.6 million barrels - Cushing saw a large increase in inventories Gasoline inventory build: 10.1 million barrels - Weekly product inventory data discussed Distillates inventory build: 4.4 million barrels - Weekly product inventory data discussed Gold price area: around $1,830 then below $1,800 - Gold was near resistance before the FOMC and sold off afterward 10-year Treasury yield trigger level: 1.70% - Eric says he would focus on the bond market only above this level Dollar/yen target area: toward 117 or higher - Patrick notes the breakout could extend further Lumber peak: above 1700 - Referenced as the prior parabolic high Lumber correction low: near 500 - Referenced as the subsequent deep selloff low

Pivotal Quotes: "Everybody's assuming, yeah, whatever. You know, the Fed's eventually going to back the market up no matter what, because that's what they always do." — Eric Townsend: On market complacency after the FOMC and expectations that the Fed will always rescue assets "If people expect prices to continue to rise at 6%, well, you know what? They are going to bring purchases forward and they're going to add fuel to that fire." — Grant Williams: On inflation expectations becoming self-reinforcing "The age of the anonymous algorithmic custodian of your capital is, if not over, then it's certainly reaching the end of its short-term useful life." — Grant Williams: On the shift away from passive investing and toward more active, selective management

Implications: Listeners should prepare for a more volatile 2022 with narrower market leadership, higher inflation risk, stronger energy assets, weaker long-duration bonds, and potentially greater geopolitical shocks. Active management and risk control may matter more than passive exposure.