MacroVoices #307 Viktor Shvets: Inflation is still a pendulum but will eventually yield to disinflation

Episode Summary

Executive Summary: Macro Voices Episode 307 centers on the tension between a still-strong reflation/inflation backdrop and the risk that markets are nearing a policy/liquidity inflection point. Eric Townsend frames equities as being at a make-or-break technical level, while Victor Schwetz argues inflation should ease as supply chains normalize and fiscal/monetary support fades. Oil, gold, and yields are all discussed as signals of tightening conditions and shifting macro regimes.

Main Topics: Equities at a Critical Technical Inflection (Priority: 5/5): Eric and Patrick debate whether the S&P 500’s break below the 100-day moving average signals another buy-the-dip opportunity or the start of a more meaningful correction. The Nasdaq and Russell 2000 also sit at important technical levels, suggesting broader market fragility. Inflation as a Demand-Supply Rebalancing Story (Priority: 5/5): Victor Schwetz argues inflation is primarily the result of an unusual post-COVID shift from services to goods, creating supply bottlenecks rather than true demand overheating. He expects these pressures to ease as supply chains normalize and demand rotates back toward services. Central Banks, Real Rates, and Liquidity Limits (Priority: 5/5): The discussion emphasizes that rising real rates and tighter liquidity may eventually force central banks to reverse course. Victor argues markets remain highly leveraged and financialized, so policy room is narrow and asset prices are highly sensitive to tightening. Crude Oil Tightness and Cushing Inventory Risk (Priority: 5/5): Oil is portrayed as a market driven less by ordinary fundamentals and more by fear of running short physical inventory at Cushing, Oklahoma, ahead of contract settlement. Time spreads are highlighted as evidence of a supply squeeze supporting prices. Gold, Real Rates, and Geopolitical Risk (Priority: 4/5): Gold is breaking higher, but both hosts remain cautious about confirming a durable trend. Victor says gold has lagged because markets are still focused on recovery and cyclicality rather than inflation, geopolitics, and social dislocation. Geopolitics as an Underpriced Macro Variable (Priority: 4/5): Victor argues that markets are underweight geopolitical risks such as Russia-Ukraine, Taiwan, and broader U.S.-China competition. He sees these as increasingly important drivers of commodity prices, state intervention, and long-term system reshaping. Investment Style: New Economy, Thematics, and Quality Growth (Priority: 4/5): Victor recommends focusing on thematic growth, technology, automation, new energy, commodities needed for the transition, and existing companies adapting well. He is skeptical of broad value/cyclical rotation unless those assets are extremely distressed.

Key Arguments: Equities may be at a major decision point: repeated prior closes below the S&P 100-day moving average were bought, but this time could be different if policy tightening and the pandemic-to-endemic transition change market behavior. Inflation is not necessarily a demand boom; it is mostly a mismatch between goods and services demand after COVID, with goods demand up and services demand down relative to pre-COVID patterns. Supply-chain pressure appears to have peaked around October/November 2021 and should ease through 2022, with many goods markets moving into surplus by late 2022 or early 2023. Fiscal support has already peaked and is rolling off, and monetary support is also set to decline, creating a negative fiscal/monetary delta that should slow both growth and inflation. The Fed has room to tighten only modestly because the economy is highly leveraged and asset prices depend on liquidity; stress will likely show first in repo/interbank markets, then high yield, EM, and equities. Oil’s rally is driven by physical tightness fears, especially around Cushing inventories and settlement risk for the March contract, not just by general macro optimism. Gold’s inability to rally in the face of negative real rates reflects the market’s focus on recovery and cyclicality, not because gold’s macro case is invalid. Geopolitical tension is likely to rise as major powers try to reshape globalization rather than dismantle it, and investors are not pricing that adequately. A return to endemic conditions may ease supply-chain distortions and reduce inflation, but it does not by itself create a strong enough private-sector growth engine to replace public-sector support. Victor favors a portfolio built around quality sustainable growth and themes such as automation, new energy, semiconductors, and infrastructure for a new economic regime.

Data Points: Episode number: 307 - Macro Voices episode identification Recording date: January 20, 2022 - Episode metadata SP 500 decline from highs: almost 300 points - Eric/Patrick discussion of recent equity weakness S&P 100-day moving average: critical technical level - Used as the main signal for whether the selloff is a buy-the-dip opportunity or a breakdown Dixie (Dollar Index) level: 95-97 range - Eric says the dollar has been consolidating in this range Crude oil EIA crude inventory change: +0.5 million barrels - Weekly U.S. crude inventory report Cushing crude inventory change: -1.3 million barrels - Key location for physical settlement risk Gasoline inventory change: +5.9 million barrels - Weekly EIA data Distillates inventory change: -1.4 million barrels - Weekly EIA data U.S. crude production: 11.7 million barrels/day - Weekly EIA data, unchanged Key crude resistance / prior high: about $85.40-$85.50 - Level crude sliced through without pause Gold resistance level: 1830 - Threshold Eric says needs to hold for breakout confirmation Gold confirmation level: 1880 - Eric says above this level would confirm a stronger bull market 10-year Treasury yield: above 1.80%, briefly near 1.85%-1.90% - Discussed as a danger zone / multi-year high region Inflation peak estimate (Victor): about 4.5% - Victor’s G5 inflation peak view for late 2021/early 2022 Core inflation estimate: about 3% - Victor expects a modest further rise before easing G5 inflation year-end 2022 estimate: around 2% - Victor’s projected end-2022 inflation level U.S./UK inflation decline expectation: 300-400 basis points lower - Victor expects sizable disinflation later in 2022 G5 fiscal deficit peak: 11%-12% in 2021 - Victor says deficits peaked there G5 fiscal deficit estimate for 2022: about 6% - Expected fiscal contraction G5 fiscal deficit estimate for 2023: closer to 5% - Continued fiscal tightening 5x30 yield curve: around 50 bps - Victor cites an unusually flat long-end curve NASDAQ valuation: about 30x earnings - Victor contrasts current Nasdaq with the dot-com era VIX level in recent selloff: 22-24 - Patrick notes fear has not risen to typical panic levels near 30 Russell 2000 key support: around 2100 - Page 5 chart deck support break Oil move: from $65 to $85 in about a month - Patrick highlights the sharp rally in crude Gold miner bullish percentage index: oversold / bottom of 5-year range - Patrick notes miners may have room to rebound Energy sector bullish percentage index: near 100% - Signals extreme overbought conditions in energy stocks Junk bond spread benchmark: about 10%-11% normal in a normal market - Patrick argues spreads are abnormally tight relative to historical norms

Pivotal Quotes: "if you think that buy the dip is the thing to do, you got your buy-the-dip signal. It was this morning." — Eric Townsend: On the S&P 500 closing below the 100-day moving average and whether that marks a tradable low "I think the market somehow believes that there is real growth coming through, because what we have seen is a rise in real rates." — Victor Schwitz: On why higher Treasury yields may reflect growth expectations more than pure inflation "What those countries are trying to do is to hijack them and basically refashion them in a different mold that is much more suitable to absolute national sovereignty." — Victor Schwitz: On geopolitics and how major powers may try to reshape global institutions rather than abandon them

Implications: Listeners should view 2022 as a regime-change year: policy support is fading, liquidity is tightening, and technical inflection points in equities, oil, gold, and yields may signal bigger moves ahead. Geopolitics and supply shocks could matter more than markets currently price.