Francois Trahan and Martin Roberge Presentations at the ANEB Luncheon

Canaccord Genuity's Martin Roberge and Francois Trahan of Trahan Macro Research presented their views at a luncheon yesterday at the St-James Club in Montreal to raise money for ANEB Quebec, an organization that provides support for people suffering from eating disorders.

Even though my back has been killing me the last couple of weeks (I have to write about the ups and downs of spinal fusion surgery), I got out of my bubble and attended the event and was very happy I did as it's a great cause and these are my two favourite strategists.

I asked both gentlemen to provide me with their presentations afterwards and they were kind enough to oblige.

Francois was up first, presenting the bearish case.

I am not going to go through his whole presentation but provide you with some key points and slides.

He began by noting there was an unusual amount of Fed tightening for today's investor:

And then stated the last 5 recessions began when the yield curve started steepening:

This is important to understand. The Fed rate hikes take a full two years after commencing to start hitting the economy and when the Fed starts easing, the front end of the curve rallies more than the long end and the curve starts steepening.

This typically occurs at the start of the recession but since the NBER doesn't officially mark recession dates till after they occur, we will have to wait for official confirmation.

What Francois said yesterday is despite what many economic forecasters have said about the yield curve, it's still one of the best recession indicators and it's not when the yield curve is inverted that you need to worry, it's when it un-inverts and starts steepening:

So many people get this wrong, they a) don't understand the big lag between monetary policy and the economy and b) they don't understand how the yield curve reacts at the start of a recession.

For me, the only reason we have averted a recession thus far is insane fiscal profligacy and both Francois and Martin touched upon this.

Anyway, back to Francois's presentation.

He notes the yield curve and rates still point to tight policy settings:

This just means the Fed has room to start cutting more aggressively if things get a lot worse, something Martin Roberge also stated in his presentation.

Francois then explained why it's a fairly normal peak in the Fed funds rate from the market's perspective:

The change in stock leadership since Q2 is noteworthy:


Of course, a lot of this is driven by the long bond yield, when it goes down, utilities, tech, real estate and staples rally, when it creeps back up, they get hit.

Francois did note that stocks and bond yields are increasingly positively correlated, which is what you'd expect at this stage of the economic cycle:


And he was also clear that earnings will weaken and that will usher in a bear market:

He also warned not that it's normal that consensus believes we are headed for a soft landing:

But the forecasting record of Wall Street and the Fed is terrible at this juncture of the cycle:

And with a recession, layoffs mount and earnings get hit:

Still, people don't see it, they're glued to their screens, Netflix hit an all-time high today, Nvidia is on fire lately, bank stocks are soaring, so it's hard for them to comprehend that this is the top of the market.

But if you believe the recession is just getting underway, earnings will be hit and a bear market is coming:

Worse still, Francois warns a US slowdown is even more dire for the Chinese economy now because their housing woes limit fiscal stimulus and they're heavily reliant on exports:


Add to this a global slowdown and how it will impact China and you start to understand why the Big China Long I wrote about recently fizzled out fast.

I worry a lot about a significant slowdown in China because it's deflationary and will clobber risk assets.

Martin Roberge's Presentation

Alright, let me move quickly to Martin's presentation.

He shared his key takeaways with me:

The key takeaway is that the biggest two economies in the world, the US and China, are in a hyper reflation mode with projections of further stimulus even if economic or credit imbalances seem not on the horizon. This over easy policy is likely to allow inexpensive assets such as non-US equities and smaller capitalization stocks to close some of the performance gap with US stocks. 

That being said, the global economy is still slowing down but just not in a linear fashion. The real test for stocks will be whether central banks can accelerate the pace of easing in 2025 if labour market conditions weaken in a more significant fashion as we believe. Our inflation models are signaling a re-acceleration in 2025 which could tie the hands of world central banks.  

But until or before we get to the decision to protect growth or quell inflation, central banks are likely to rush rate cuts which could lead to a late-cycle liquidity melt-up in “lagging” risk assets. In other words, risk of a speculative bubble seems higher than the risk of a recession over the next 3 to 6 months.  

His presentation was supposed to be the "bullish scenario" but as he explained, we are at the end of the cycle, it's just that he thinks it can last a little bit longer because the fiscal backdrop remains very accommodating:

He also thinks as global central banks slash rates, the global economy should pick up in the second half of next year:

Here I beg to differ because it takes a while before rate cuts feed into the economy and that means the recovery might not materialize to the second half of 2026!

Remember the chart above Francois showed, the fed funds rate remains restrictive, something Martin also acknowledged:

Martin also warned that white collar jobs are at risk when the downturn hits:

On markets, he said that bond yields always back up after the first Fed rate cut and then sink again as the economy slows and inflation expectations decline:


Remember what I told you above, the long bond rate goes down, utilities, real estate, staples and high dividend stocks rally as do tech stocks. This is normal. The opposite happens when rates back up.

Interestingly, Martin said he sees utilities continuing to rally because of the insatiable energy demands from data centers and they will "decouple" from rates eventually (if that happens, will be interesting).

He talked about oil and copper but it's this chart on gold that caught my attention:

On US stocks, he thinks they're fully valued compared to Canadian and international stocks but said they should rally till we hit the recession cliff:

Martin also warned you cannot rule out the 1998-99 playbook:

I think Francois touched upon this too but he thinks there is little fiscal room to manoeuvre and it's unlikely we see this play out.

If I can sum up the biggest difference between Martin and Francois's presentation is the former thinks the pain trade is still up whereas the latter thinks it's down. 

Martin told me after he sees FOMO kicking into high gear as we close out the year and he might be right about that. 

He ended his presentation on why he thinks non-US equities offer more attractive upside and stated Canadian companies in the TSX (not the general economy) are seeing a productivity boom which will support margins.

In terms of sectors, he likes utilities (XLU), medical equipment (IHI) and thinks there remains upside in gold shares (GDX) as free cash flows swell translating into higher dividends.

I'm not a huge fan of Canadian stocks but there are a few great companies to invest in as the economy slows.

Lastly, my stock of the week:

It was a little over a dollar last week and hit a high of $79 today before coming back down.

The amount of speculative nonsense, biotech pump and dumps and other dumb meme stock moves I see, sometimes I wish the Fed hiked rates back up to 20% and just create a depression.

The only thing I know is when the real bear market strikes, all this nonsense will come to a screeching end.

Hope you enjoyed my recap, remember to support my work financially through the PayPal on the top left-hand side under my picture. I thank all of you who support my work.

Below,Tom Lee, Fundstrat co-founder, and David Zervos, Jefferies chief market strategist, joins 'Closing Bell Overtime' to talk the day's record market action.

Next, Trivariate’s Adam Parker and Morgan Stanley’s Ellen Zentner, join 'Closing Bell' to discuss markets, election uncertainty in the market and earnings season.

Third, Eric Johnston, Cantor Fitzgerald chief equity and macro strategist, joins 'Closing Bell' to discuss the bullish case for small caps.

Lastly, Duquesne Family Office Chair and CEO Stanley Druckenmiller says Donald Trump is the favorite to win the presidential election. 

I agree with Druck and think Trump will trounce Harris on November 5th. Be prepared for anything but that's what I am anticipating.

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