MacroVoices #411 Jeroen Blokland: Inflation, Hard/Soft Landing, Geopolitics and More

Episode Summary

Executive Summary: Macro Voices episode 411 centers on a still-resilient U.S. economy but with growing risks from slowing growth, sticky-but-beneath-the-surface disinflation, political pressure on the Fed, and debt sustainability concerns. Guest Yerun Blokland argues that rate cuts are likely, debt monetization is effectively ongoing, gold should benefit over the medium term, and geopolitics may add volatility rather than a clean macro regime shift.

Main Topics: Inflation outlook and disinflation (Priority: 5/5): Blokland says inflation pressures are easing and expects U.S. inflation to move toward target later this year or early next year, though shocks from oil or supply disruptions could temporarily re-accelerate prices. Soft landing vs hard landing (Priority: 5/5): He sees the U.S. slowing from very strong growth and thinks a soft landing is possible, but recession risk remains meaningful given the yield-curve inversion and prior Fed tightening cycles. Fed policy, election-year politics, and rate cuts (Priority: 5/5): The discussion argues the Fed is likely to ease more aggressively than markets expect if needed, both to support growth and because policy is implicitly constrained by politics and debt dynamics. U.S. debt sustainability and debt monetization (Priority: 5/5): Blokland says the Fed and other central banks effectively consider debt sustainability in policy decisions, and that high debt becomes more problematic when growth slows below real interest rates. Gold and precious metals (Priority: 4/5): Gold is framed as an insurance asset benefiting from lower real rates, rising debt concerns, central bank buying, and geopolitical uncertainty; both host and guest expect a medium-term bullish trend. Geopolitics, oil, and market volatility (Priority: 4/5): The interview covers the Middle East, Russia-Ukraine, China-Russia alignment, and Taiwan. Blokland expects these issues to raise volatility, reshape supply chains, and support a more inflationary environment. Post-game technical market review (Priority: 3/5): Patrick and Nick review OpEx-driven pinning in equities, a stronger dollar, weak gold, a parabolic uranium breakout, and changing crude/nat gas/yield-curve dynamics.

Key Arguments: Inflation is not necessarily “over”; it is more likely in a lull/disinflationary phase that could be interrupted by oil or supply shocks. The U.S. economy is slowing, but the path from soft landing to hard landing remains open because yield-curve inversions and past tightening cycles historically precede recessions. The Fed is likely to cut rates more than current market pricing if growth weakens, especially in an election year when avoiding a hard landing is politically attractive. Debt sustainability is a real policy constraint even if it is not an official central-bank target; higher interest rates raise the government’s financing burden. When real GDP growth falls below real interest rates, debt sustainability concerns intensify and markets may reassess U.S. Treasuries and fiscal credibility. Gold should rise over the medium term because it acts as insurance against debt, inflation, geopolitical risk, and currency debasement; lower real rates would amplify the move. Geopolitical fragmentation and deglobalization may create higher inflation and more supply-chain volatility over time, while also increasing demand for strategic assets like gold. Oil prices are likely to remain volatile; U.S. election-year incentives may limit upside, but Middle East escalation or OPEC strain could still create major price shocks. Russia-Ukraine is becoming less market-relevant over time, but China-Russia alignment and Taiwan risk point to a longer-term shift toward rival economic blocs. Uranium’s breakout signals a potentially speculative/bubble phase, but the structural nuclear investment case remains intact over the long term.

Data Points: Macro Voices episode: 411 - Episode number of the podcast Release date: January 18, 2024 - Episode production date S&P 500 March futures: down 102 bps to 4,771 - Week-over-week move in the macro scoreboard U.S. dollar index: up 100 bps to 103.37 - Macro scoreboard; reversal of prior weakness WTI crude oil (February): up 167 bps to 72.56 - Macro scoreboard RBOB gasoline (February): up 290 bps to 213 - Macro scoreboard Gold (February): down 104 bps to 2,006 - Macro scoreboard; still above the 2,000 level Copper: down 132 bps to 373 - Macro scoreboard Uranium: up 1,280 bps to 105.75 - Macro scoreboard; described as a parabolic breakout U.S. 10-year Treasury yield: 4.10% - Macro scoreboard; up 7 bps March rate-cut odds: 80% - Opening discussion about market expectations for Fed easing Fed policy rate: 5.5% - Blokland notes the current rate and possible cuts from this level Possible rate cuts: 8 cuts of 25 bps - Blokland says the Fed could cut this much if necessary Potential post-cut rate level: 3.5% - Result of eight 25-bps cuts from 5.5% U.S. GDP growth: over 5% annualized in Q3 - Used to explain why debt sustainability worries were muted Potential GDP growth: 1.6% to 1.8% - Blokland cites estimates for U.S. potential growth Budget deficit risk: 6% to 8% of GDP - Blokland says rising interest costs could keep deficits large Gold support level: 2,000 - Technical and psychological support discussed in the post-game Gold near-term downside targets: 1,988 and 1,981 - Nick’s technical levels if selling continues SPX spot price: approximately 4,740 - Post-game equity discussion SPX call wall: 4,800 - Options positioning on expiration week SPX put wall: 4,700 - Options positioning on expiration week SPX expected move for OPEX: ±40 points - January options expiration expected move QQQ spot price: 407 - Post-game NASDAQ discussion QQQ call wall: 410 - Options positioning QQQ put wall: 400 - Options positioning QQQ expected move for OPEX: ±4 points - January options expiration expected move VIX level: nearly 15 - Volatility discussion; up from a 12-handle 2s10s yield curve: moving toward zero - Post-game chart review; bull steepening developing Gold webinar date: January 22, 2024 at 1:00 p.m. ET - Patrick’s follow-up webinar announcement Central banks buying gold: in growing numbers, including China - Used to support the bullish gold thesis

Pivotal Quotes: "I think that the Fed will have no problem to cut rates much more than markets expect and also what they expect themselves if necessary." — Yerun Blokland: On whether the Fed will ease aggressively if growth weakens "Yes, I think that this is something that the Fed literally takes into account when making monetary decisions." — Yerun Blokland: On debt sustainability as an implicit policy objective "My idea is that gold is gaining popularity because debt issues are rising." — Yerun Blokland: On the medium-term case for gold

Implications: Expect more focus on debt, real rates, and policy support than on headline disinflation. If growth slows, the Fed may cut more than priced, boosting gold and potentially altering bond and dollar trends while geopolitics keeps energy and inflation volatile.