Eurodollars and Rates: “Some Charts Are Just Sweet” (w/ Raoul Pal & Peter Brandt)
RAOUL PAL: Let's talk about fixed income because you and I were swapping notes about that. I think there are some amazing charts currently. They're slightly shorter term than the big picture of charts you've been looking at, but they look really interesting. What's your thoughts? PETER BRANDT: There are longer term charts and there are shorter term charts, but then there are just some asymmetric trades that are just sweet. You can give me that off of a monthly chart or you can give me that off a $6 chart, but asymmetrical is asymmetrical. The charts indicate to me and they've indicated to me for a very long time that the US is going to join Western Europe with negative interest rates. That's the stories the charts told me. When I look at 5-year yield charts, when I look at 10-year yield charts, when I look at Eurodollar charts, it's telling me we're going to minus 20 to minus 30 basis points. They all target that area. That's where I think we're going. We'll flatten out the yield curve, but perhaps the tail end of the long end will retain some yield to it. Generally speaking, I want to be long 5-year notes. Futures, I'm talking futures now, I want to play the long the 10-year, I want to be long the ultra-notes, I got a buy signal today in the bonds, went with it. We're going to get buy signals in the euro. Again, it's a shorter term play, but hey, I'll take money when they put on the table, whether I have to reach my hand and keep it there for a year or I can put it on the table, grab the money and remove it immediately. RAOUL PAL: Because, look, in simple terms, I see that same, the long term tops don't look like they're going to negative rates. We know that the Fed desperately needs rates to get to zero. They've been a little bit sticky recently after the first bout of stuff and the illiquidity in the system. When I'm looking at the 5-year, it's a perfect chart plan here and it fits the narrative what of the Fed want. The Fed is in your favor here, it's not like shorting stocks where the Fed are trying to do the opposite to you, the Feds are in your favor. We've gone through all of these charts about the potential disinflationary pressures and stuff like the dollar. It just looks like it's an amazing setup. PETER BRANDT: It does, it looks a little bit like it did back in mid-January. We had some wonderful buy signals in the Treasury futures back mid-January. There were extremely low risk spots to get in, there was some significant upside targets that we're looking at. It was an easy play, and then again, in mid-February, we had an easy play, it was a layup. They were layups. You call the euro just wonderfully well in all of the interest rates. Well, I think we have a pretty similar thing right now and we have a lot of people that don't want to believe it. That's what I like about it, you go and put out on Twitter that the charts all look like, we're going to negative interest rate policy in the US. You'll get trolled like crazy. RAOUL PAL: I did exactly that, and I got trolled like crazy. It wasn't, can't you see it's hyperinflation. I'm like, I understand your narrative, but the charts don't tell me that, nor does the dollar, nor do commodity markets, nor does anything, nor does the equity market. I understand why you might think it's hyperinflation, but I don't see it in the charts. It looks like we're going to deflation. PETER BRANDT: Well, it does. I always come back to something I once heard Paul Tudor Jones talk about that is that last leg of the market, where it's easiest to pick up on it, it's that last thrust, and so yeah, they may be right that all of this printing press money is going to eventually take us to higher rates in the future, higher yields in the future. That may be true, but sometimes when you're too early with an idea, the market will punish you. Also, in the back of my mind is the fact that this could be that everyone has talked about the big blow-off, we've been in the big blow-off since the early 1980s toward lower yields and maybe this is now finally the blow-off that takes us from where interest rates were back in '82, '83, '84 to now, finally, where they go with negative interest rates, but the charts all indicate to me that in the short term, the risk is in being short Treasury futures, not in being long Treasury futures.