PodcastThe Monetary Matters NetworkAndrew Perry

Warning: Don’t Sell Blow-Offs in Stock Market, Veteran Macro Investor Andrew Perry Says

Policy shifts and geopolitics—from Australia's CGT shock to an expected Xi–Trump agricultural announcement and FX/curve interventions—are driving regional relative trades and influencing yield and equity positioning. The team sees tangible earnings and capex tailwinds from semiconductors and AI, supported by lingering post‑2020 liquidity dynamics and Treasury issuance mechanics, yet warns that MOVE‑driven volatility and one‑sided positioning could still produce large US drawdowns. Tactically they favor US (Russell) exposure and agricultural longs against European shorts, while strict risk limits govern position sizing despite large measured‑move upside scenarios.

Risk ManagementMarket VolatilityInterest RatesGeopolitical RiskTechnology StocksCommodities

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Key Takeaways

The extraordinary liquidity cushion created in 2020–21 (roughly $500–600bn of extra official liquidity) plus Treasury issuance mix shifts (shorter duration and bill-heavy issuance) have been structural market supports, but these same plumbing dynamics make markets vulnerable to rapid volatility‑driven deleveraging when MOVE and realized volatility spike, often forcing policy backstops.

Despite the team's recognition of very large measured technical upside (e.g., Russell 30,000; S&P 77,800), one‑sided positioning (CTAs record long), shallow liquidity and model swings create a meaningful tail risk of large US drawdowns (they cite 20–40% scenarios), so strict risk limits and drawdown controls govern sizing.

Regional pair trades are being driven by energy exposure and idiosyncratic policy: Australia is being shorted on a mix of a proposed CGT jump (shares taxation moving from ~23% to ~40%), high energy import vulnerability and rising domestic inflation toward 4–5%, while the US (and energy‑surplus/AI‑exposed markets) is favored long.

The team is positioned long agriculture into an anticipated Xi–Trump agricultural purchase announcement, and that bullish stance is reinforced by fertilizer stress, diesel supply issues and oil volatility that threaten production/logistics; they express this tactically as a long corn/wheat/soy vs short DAX pair with a March 2 hard stop and an expected remaining edge of ~20–30%.

GEO-POLITICS

Australian CGT — Australia raised the capital gains tax on shares from about 23% to roughly 40%, and together with the country's energy import vulnerabilities this policy shock prompted a directional trade: short Australian equities and long US equities. The tax hike and energy exposure are cited as the core rationale for that position.

“I'm looking at a trade at the moment in Australia where we're short Australian stocks and long the US stocks.”—

Agriculture Deal — The anticipated Xi–Trump engagement is expected to announce Chinese purchases of agricultural commodities, which the team views as a near‑term bullish catalyst for crops and sensitive items such as eggs. The group has already added positions ahead of the anticipated announcement.

“The other major the other major factor rich which I was remissed to discuss about is obviously the Xi and Trump meeting this week. Now that China meeting is significant…”—

TECHNOLOGY

Chip Capex — The team is bullish on semiconductors, citing concrete earnings upgrades and profit upside in names like Nvidia. They argue AI capital expenditure is translating into real‑economy investment and materially supporting activity, making tech capex a substantive earnings driver versus vaguer narratives such as crypto debasement.

“For stocks, I think it's quite clear to me just the earnings upgrades, particularly in the semiconductor…”—

ECONOMY

Liquidity Cushion — Post‑2020 fiscal support surged (US fiscal shifted roughly from -3 to +17) and global policy actions expanded balance sheets and cut rates, producing extraordinary liquidity that kept markets functioning despite shutdowns. Official operations, including Fed reserve management purchases and Treasury buybacks, injected roughly $500–600 billion of extra liquidity that has supported markets but is now being drawn down.

“I wasn't really looking I don't think anyone at the time was really looking at liquidity as in terms of it its holistic levels you know through fiscal through through…”—

Issuance Mix — Shifts in the Treasury maturity mix—shortening duration in 2023 and moving issuance toward bills—create repeatable liquidity impulses tied to quarterly refunding because bills are more liquid than long coupon issuance. Benson's recent pause on re‑terming was liquidity‑supportive.

“Actually Janet Yellen shortened the duration in 23…”—

MARKETS

MOVE Dynamics — The MOVE index is treated as the critical volatility metric because bond‑implied volatility affects collateral and VAR‑driven deleveraging; spikes force leverage reductions and forced sales. Rapid regime changes have triggered major sell‑offs, prompted Fed/Treasury interventions (including roughly $40bn in actions), and amplified cross‑asset shocks while FX can remain deceptively low‑vol until sudden interventions.

“We run that and we gives it gives us a rate of change in our models as to say okay are we running on really strong liquidity or are we…”—

Positioning Risk — Extremely one‑sided positioning—CTAs were record long—combined with shallow liquidity and regime swings increases reversal risk; the team warns US equities could still suffer 20–40% drawdowns. They emphasize liquidity is insufficient to confidently dismiss blow‑off/bubble comparisons to 1999–2000.

“When you get momentum and confidence and earnings liquidity is not there, but you don't sit there and start trying to sell tops on momentum at the moment…”—

Energy Pairs — Following an extended war scenario, the team focused on energy‑dependent countries and positioned short Australia/Europe and long the US; markets exposed to higher oil prices (Europe, India, Australia, Germany) struggle and make attractive relative shorts versus energy‑surplus or AI‑exposed markets. Energy dependence underpins their regional pair trades and currency views.

“The US obviously generally was in in a good position, Europe in a bad position. Ironically, Australia was in a very bad position…”—

FORECASTS

Measured Targets — Measured‑move technicals imply very large upside targets (e.g., Russell 30,000; S&P 77,800), but the team enforces strict drawdown rules and will not tolerate 20–50% losses. As a result, they balance recognition of these upside scenarios with disciplined position limits.

“The targets I could run through some targets now. Russell 30,000 S&P easily 77,800 just just purely on a measured move on a tech from a technical perspective.”—

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Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

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