This Is the Macro Picture Going Into 2021

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

Tracy, so obviously markets continuing to have an extraordinary year, at least risk assets.

For the most part, stocks continue to power to new all-time highs all around the world, optimism breaking out. But I'd say like the nature of the stock market rally, or the nature of the market rally in general has sort of taken on a different complexion lately.

Tracy Alloway (0:42)

I think people have been nervous about valuations for some time and the idea that even though we've had the biggest pandemic in over 100 years, which has really eaten into economic activity, we still have stocks at a record. People sort of naturally feel a little bit nervous about that.

And then recently we had the sell-off in US treasuries as well, and a little bit of a pickup in inflation expectations, which might be the beginning of, well, some people are talking about it being the beginning of a bigger change for the market.

Joe Weisenthal (1:17)

And this would be a good time actually to mention that we were recording this on Thursday, December 3rd, 9 a.m. The usual 2020 caveat. Yeah, that the whole world may have changed by the time anyone actually listens to this episode. But yeah, we have seen a little bit of an uptick in treasury yields, market-based measures of inflation, actually higher than they were pre-crisis. Some measures back to levels not seen since 2019

And also, if you look at some of the really hot stocks lately and some of the real like sort of back to normal, unsexy stuff out there. So it's like airlines and physical retail. I think like shares of Macy's were up like 75% in November.

Steel, steel company, absolute wild chart if you take a look at that. Sure as in the beginning of this rally and thinking back to the spring, it was very much like tech and the stay at home trade. We were starting to see it broaden out. And so people like buying energy, another area, oil doing very well. So these areas that did not participate in the first part of the recovery or for several months into this have been getting a lot of excitement lately or enthusiasm.

Tracy Alloway (2:31)

Yeah, that's right. And of course we have talk about another sort of great rotation coming up.

Joe Weisenthal (2:37)

Yeah, right. And of course, every time we talk about these rotations, there's the question is like, is this another head fake? Is everyone just gonna go back to buying Fang and Microsoft and of course Treasuries in a couple of weeks?

Or is this something new? So lots to think about as we close out 2020 from a macro perspective, all kinds of different moving parts going into 2021

Tracy Alloway (3:03)

Yeah, and I think there's clearly a lot going on, but 2021 is gonna be an interesting year, right? If you just look at the market currently at all time highs, you have that broadening of the rally. The big question is whether or not it's going to keep going. And then you have all these idiosyncratic events like what happens with the vaccine.

And of course, how do central banks respond to that? If we get a vaccine and the economy really starts to recover, then could you finally, finally get inflation, which could unsettle the market in one way or another? So I think you're right. There are these turning points that you can sort of see on the horizon, but the big question is whether or not we're just going to be talking about them or actually experiencing them. Whether or not it's another head fake, yes.

Joe Weisenthal (3:53)

Yeah, it's going to be a really interesting year. Hopefully it's not as interesting as 2020, but for our sakes, from a stuff to talk about standpoint, we hope it's at least somewhat interesting. Anyway, macro. So yeah, to talk about the outlook, I thought we'd bring on two of the smartest people we know who discuss macro from both a pure econ perspective and a markets perspective. Both have previously been on the show. I want to bring on Naufal Sanaullah. He's a macro strategist and portfolio manager at EIA All Weather Alpha Partners and Jon Turek. He's the author of the Cheap Convexity Blog, which has been a must read all year for people in the know on macro and markets, sort of tying together both the price action and the bigger economic themes of the year. So Naufal and Jon, thank you so much for joining us.