MacroVoices #364 Julian Brigden: On Opportunistic Disinflation

Episode Summary

Executive Summary: Macro Voices Episode 364 centers on Julian Brigden’s bearish-to-cautious macro view: inflation is likely falling but not back to pre-2020 norms, the Fed may stay restrictive for years, and bond/equity markets are still mispricing “higher for longer.” He argues recession remains likely in 2H23, volatility is rising, and war spending plus deglobalization threaten fixed income, the dollar, and risk assets. Pippa Malmgren then warns the Ukraine conflict is entering a more dangerous gray-zone nuclear escalation phase.

Main Topics: Inflation regime and Fed policy (Priority: 5/5): Julian argues inflation has peaked but is likely entering a structurally more inflationary regime than the pre-pandemic era. He says the Fed will need to maintain restrictive rates for years, not months, especially if it pursues 'opportunistic disinflation' rather than a Volcker-style hard recession. Bond market outlook and 'higher for longer' (Priority: 5/5): He is skeptical that bonds are a simple buy-the-dip trade. Even if growth slows, he stresses technical damage, foreign central bank policy reversal, and fiscal deficits as headwinds that could keep yields elevated and prevent a clean bond bull market from reasserting itself. Recession timing and equity market risk (Priority: 4/5): Julian expects recession likely in Q2 or Q3 2023, with credit and PMI indicators deteriorating. He thinks the stock market may still have another leg down, though his technical signal suggests a possible interim bottom may already be forming. War cycle, geopolitics, and market consequences (Priority: 5/5): Both Julian and Pippa frame the Ukraine conflict as part of a broader war cycle involving Russia, China, defense spending, and gray-zone warfare. They argue war spending is structurally bearish for bonds and supportive of higher inflation, while raising risks for global assets and supply chains. Precious metals and the dollar (Priority: 4/5): Julian says gold and silver should benefit from war, deficits, and reserve-currency concerns, but near-term prices are still dominated by a hawkish Fed and rising nominal yields. The dollar’s reserve status is not immediately at risk, but structural pressures could emerge over several years. Market volatility and passive investing (Priority: 4/5): Julian believes realized volatility is already rising and may signal the end of the 'Great Moderation.' He warns the market could shift to stop-go, boom-bust behavior, which would favor active management and rapid asset rotation over passive indexing.

Key Arguments: Inflation is likely topping, but that does not imply a quick return to 2%; the regime may remain more inflationary for years. The market is wrongly assuming the Fed can raise rates and then quickly cut them; if disinflation is gradual, rates must stay restrictive for a long time. A soft landing, if achievable, would take years, not quarters, and would still require labor-market weakness and slower nominal growth. Bond markets are vulnerable because other central banks (ECB, BOJ) are reversing easy policy, technical damage is severe, and fiscal spending is rising. Recession looks likely in the second half of 2023 based on PMIs and credit models, with potential onset around May/June or Q3. The stock market may not be as far from its bottom as many assume, but another downswing remains possible if recession and earnings weakness intensify. War and defense spending are not transitory; they redirect capital from private to public uses, structurally bearish for fixed income. Gold is fundamentally supported by macro/geopolitical forces, but near-term price action is still constrained by real yields and the dollar. Volatility should rise as policy becomes more stop-go and as passive investing becomes less effective in a more turbulent regime. Pippa argues Russia’s nuclear moves are intended less as immediate launch preparation and more as coercive escalation to force the West into a costlier, fear-driven posture.

Data Points: Episode number: 364 - Macro Voices episode identifier Production date: February 23, 2023 - Episode production date API crude inventory build: almost 10 million barrels - Patrick notes API reported another large crude build Oil downside technical level 1: 73.63 - 200-month moving average cited as key downside support Oil downside technical level 2: 70.08 - December cycle low cited as key downside support Oil downside technical level 3: 65.99 (~66) - 200-week moving average cited as deeper downside support SPX spot level: about 3991 / 4,000 - Nick says the market is at a key pivot around 4,000 SPX March 17 expected upside: 41.46 points - Expected move from current spot into March OpEx SPX March 17 expected downside: 38.36 points - Expected move from current spot into March OpEx SPX support levels: 3,800 / 3,700 / 3,500 - Key downside support zones on the chart deck SPX resistance levels: 4,000 / 4,120 / 4,325 - Key upside resistance areas including August highs QQQ spot level: around 296 - Current QQQ price at time of chart review QQQ expected upside move: 312 - March OpEx expected upper range QQQ expected downside move: 280 - March OpEx expected lower range VIX spot level: 21.86 - Volatility level during the market pullback VIX downside watch level: 20 / 18 - Levels where market could stabilize if VIX fades VIX upside watch level: 25 - Break above could signal broad-market decline U.S. dollar index level: 104+ - Dollar regained an important technical threshold Gold downside targets: 1800 to 1750 - Nick’s downside zones if dollar strength persists 10-year Treasury yield: approaching 4% - Yield revisiting December-January highs 2-year Treasury yield: near 4.70% - Yield back near October highs as Fed hawkishness is priced in Bond market inflation repricing: around 400 bps - Julian says the bond market is pricing a 4% collapse in inflation over two years U.S. Ukraine aid: more than $100 billion - Pippa cites cumulative U.S. support for Ukraine Russian military budget comparison: more than the entire budget of the Russian military - Used to highlight the scale of U.S. support Global bond bull cycle count: ninth real-rate depression period - Julian references Bank of England historical work

Pivotal Quotes: "The market's been laboring under that you just march rates up and then you march them immediately down again was delusional." — Julian Brigden: On why investors are mispricing the Fed’s terminal rate and future cuts "This is not a no-landing, right? There is no option for a no-landing, right? We have to have a landing, and it's either going to be a hard landing or it's going to be a soft landing." — Julian Brigden: On recession and market narratives "This is basically an escalation strategy that's designed to get the West to give up and to allow Russia to keep pieces of Ukraine that it otherwise wouldn't be militarily able to retain." — Dr. Pippa Malmgren: On Russia’s nuclear signaling and strategic intent

Implications: Expect choppier markets, persistent rate pressure, and tighter risk conditions. Investors may need to favor active management, reduce duration assumptions, and prepare for geopolitical escalation, higher volatility, and a longer inflation fight than consensus expects.