MacroVoices #392 Jesse Felder: Questioning the Soft Landing Narrative

Episode Summary

Executive Summary: Macro Voices episode 392 centers on Jesse Felder’s bearish macro case: he argues the market is discounting an overly optimistic soft-landing narrative while liquidity, rates, oil, and the dollar point toward recession risk, weaker earnings, and valuation compression. In the post-game, Eric Townsend adds a bullish long-term thesis on nuclear-waste recycling and advanced/reactor technology as a potentially profitable energy-transition trade.

Main Topics: Soft landing skepticism and recession timing (Priority: 5/5): Jesse Felder argues the market is underestimating the lagged effects of tighter monetary policy, higher rates, stronger dollar, and higher oil, and that recession risk should intensify into late 2023. Liquidity hole and Treasury market supply-demand stress (Priority: 5/5): He says temporary liquidity support from the banking rescue and Treasury General Account drawdown delayed the expected liquidity drain, but that it is now reversing as Treasury issuance rises and QT continues. Valuations versus interest rates (Priority: 5/5): Felder uses the Buffett Yardstick and stock-to-bond relative strength to argue equities remain expensive relative to higher discount rates and likely need to reprice lower. Earnings recession and financial shenanigans (Priority: 4/5): He highlights a widening gap between S&P 500 reported earnings and BEA NIPA profits as a classic recession signal, suggesting companies are using accounting adjustments to prop up earnings. Crowded bullish positioning and market complacency (Priority: 4/5): Small speculators in S&P futures flipped from bearish to very long, which Felder views as evidence that traders have embraced the soft-landing story and are vulnerable to unwind. Commodity and cross-asset backdrop (Priority: 4/5): The hosts review a stronger dollar, rising yields, strong crude oil, bullish uranium, and soft gold, framing these moves as consistent with tighter financial conditions and risk-off pressure. Nuclear waste recycling and advanced nuclear as a 'trade' (Priority: 3/5): Eric Townsend outlines a conceptual, sovereign-scale trade: reprocess spent nuclear fuel, recover uranium value, monetize storage avoidance, and use burner reactors/advanced nuclear to truly eliminate high-level waste.

Key Arguments: The market is pricing a soft landing before the full effect of higher rates and tighter liquidity has hit the real economy. A recession, if it comes, should begin to show up in the next several months because monetary policy works with long and variable lags. Bridgewater-style liquidity analysis suggests 2023 got an unexpected liquidity boost from the regional banking rescue and debt-ceiling/TGA dynamics, but that boost is reversing. Treasury issuance plus QT creates a crowding-out effect that can pressure both bond and equity markets. The Buffett Yardstick implies equities are extremely expensive relative to GDP, especially given the move in the 10-year yield from near zero to over 4%. A leading indicator built from the 10-year yield, oil, and dollar has historically predicted earnings and now points toward material earnings pressure. The gap between S&P 500 earnings and NIPA profits is a recession warning and may indicate companies are inflating profits via accounting choices. Small speculators’ aggressive shift to net long S&P futures shows speculative enthusiasm for the soft-landing narrative and creates unwind risk. The Magnificent Seven are trading at about 60x free cash flow, around twice their own 10-year average, making them vulnerable if growth slows or AI capex compresses margins. High-level nuclear waste could be monetized as a service business if a buyer can credibly offer permanent disposal via reprocessing plus waste-burning reactors, especially if storage-cost savings are sold as value.

Data Points: Podcast episode: 392 - Macro Voices episode number Air date: September 7, 2023 - Episode production date SP 500 futures: down 117 basis points to 4471 - Macro scoreboard as of Sept. 6, 2023 close Dollar index: up 162 basis points to 104.80 - Macro scoreboard; near May highs and approaching January/March highs WTI crude (Oct.): up 681 basis points to 87.19 - Macro scoreboard; broke year highs Gold (Dec.): down 147 basis points to 1944 - Macro scoreboard; August rally described as oversold retracement Copper: down 130 basis points to 379 - Macro scoreboard; remained range-bound Uranium: up 328 basis points to 61.40 - Macro scoreboard; new 2023 highs and approaching 2022 highs near 64 10-year Treasury yield: up 16 basis points to 4.28% - Macro scoreboard; back near year highs Treasury yield threshold mentioned: over 4% - Felder argues higher yields pressure equity valuations Buffett Yardstick: record highs above dot-com mania peak - Used to show stock market valuations vs GDP Lead indicator horizon: 24-month lead - Composite of dollar, interest rates, and oil used to forecast recession/earnings Earnings gap: 40% gap - Difference between S&P 500 earnings and NIPA profits; cited as recessionary signal Magnificent Seven share: 25% of the S&P 500 and 50% of the Nasdaq 100 - Illustrates concentration risk Magnificent Seven valuation: 60x free cash flow - Aggregated valuation discussed by Felder Magnificent Seven historical valuation: about 30x free cash flow - Approximate 10-year average valuation Small speculators positioning: from net short $40 billion to nearly $40 billion net long - Commitment of Traders positioning in S&P futures Crude oil storage/waste concept: 250,000 metric tons - Approximate amount of high-level nuclear waste in storage around the world Recoverable uranium: 237 metric tons - Townsend’s estimate of uranium recoverable from spent fuel Recovered uranium value: about $26 billion - At current market price, per Townsend Economic break-even for reprocessing: over $600 per pound uranium - Townsend says selling recycled uranium alone is uneconomic below this level Break-even storage fee assumption: about 4 years of storage costs - Townsend’s cocktail-napkin estimate for nuclear waste disposal trade

Pivotal Quotes: "I think that they are underestimating the impact." — Jesse Felder: On the market underpricing the lagged effects of tighter monetary policy and higher rates "The liquidity hole is now materializing." — Jesse Felder: Explaining why Treasury issuance, QT, and reduced demand for Treasuries could pressure markets "You really only need about four years of storage costs from the present holder of the waste in order to break even on this trade." — Eric Townsend: Describing his proposed nuclear-waste recycling/reprocessing arbitrage

Implications: Listeners should expect continued macro volatility: higher-for-longer rates, weaker earnings, and a possible equity pullback if the soft-landing story cracks. The post-game nuclear thesis is a long-shot but highlights an emerging energy-transition theme around advanced reactors and waste disposal.