Vincent Deluard: "There's an India-sized economy hiding in plain sight in the US"
A weakening post-election rally, Trump's 3 mandates, the deux ex machina taking over X, and the hidden engine of the US economy
“For a long time now, I've been a somewhat reluctant, but at least consistent bull on the stock market and on nominal growth… [but] I’m starting to feel anxious and nervous.” - Vincent Deluard
Vincent Deluard, StoneX Group’s Director of Global Macro Strategy, joined me on Talking Markets yesterday to discuss how his long-term reluctantly bullish thesis is changing. As ever, he brought out-of-the-box thinking to Talking Markets, so let’s get into it…
Closer to the End Than the Start of the Post-Election Rally?
Vincent has consistently if reluctantly been bullish on the stock market and nominal growth for a long time. However, that thesis is changing. “I’m starting to worry that since the Trump election, my views have become very consensus,” he said. “We started to see a sudden, and I think overdue readjustment in growth expectations. And we started to see a lot of silly stuff in the stock market, which suggests to me that we may be closer to the end of the post-election than the beginning. I am nervous.”
However, Vincent thinks it’s “probably too early to go against it,” in part because we’ll have positive holiday seasonality, and he thinks the economy is still good. “But I think, Trump starts on January 20 - I think that might be a good time to revisit your portfolio.”
💡In other words, as
said in our recent conversation, “Enjoy the party but dance close to the door.”The 3 Mandates of President-Elect Trump
Broadly speaking, Vincent says President-elect Trump has 3 mandates:
Bring manufacturing jobs back - the “Make America Great Again” mandate
Tackle inflation
Close the border/clamp down on immigration.
And the job is to achieve those 3 things, and keep the bull market alive. “Achieving all these things at the same time seems extremely difficult to me and probably harder than it was back in 2016,” Vincent says. “I think there are going to be trade-offs and the trade-offs are going to be very unpleasant.”
But Wait! A Deus Ex Machina! Or Maybe Not…
Here’s how ChatGPT’s defines a deus ex machina:
“Deus ex machina is when a plot gets stuck in the mud, and then—boom!—some wildly convenient solution drops out of nowhere to save the day, making you roll your eyes so hard you can see your brain. Think Game of Thrones: Jon Snow and crew are cornered by the White Walkers on a frozen lake, no escape in sight, and then—cue dragon airstrike! Plot hole patched, but credibility? Torched.”
Vincent says that right now on X, “People are realizing there is no way we’re gonna cut the deficit, increase growth, get inflation back on target, get the stock market above 6,000, and somehow re-industrialize the Midwest. We can pick 2 or 3 of those things, but certainly not 4 or 5.”
So, he continues, “There’s this temptation to look at something else that will solve it, and [what people are looking at] is Elon Musk. Elon Musk has the touch of Midas! Everything he turns to gold! He fired 75% of Twitter and the website is still up. Why doesn’t he do the same thing with the US government? Well, because the US government is not Twitter, is the answer.”
Still, Vincent thinks “maybe we can keep floating around in this fairytale world for a couple of months,” pointing to the confidence boost in the economy, and cash on the sidelines, and a hidden growth engine in the US economy (more below). But, he adds, “I’m not worried about the next 2-3 months, I’m worried about the next 2-3 years.”
The Hidden Engine of the US Economy
“There’s an India-sized economy that's growing at peak China growth rate hiding in plain sight in the US economy.”
Vincent is talking about the gig economy, which he says is enormous but hard to quantify precisely because of its nature - not all side hustles get reported. But his best estimates point to the gig economy being worth $6 trillion - twice the economy of Brazil - and growing at more than 10% a year.
And it’s pretty much hiding in plain sight. In fact, Vincent says, the gig economy may well be the answer to these questions:
Why didn’t we have a recession when the COVID stimulus ended?
Why did we not have a recession when the Fed hiked rates?
Why was Silicon Valley Bank a storm in a teacup?
“You can almost think of it as a two cylinder engine - when the formal economy goes down, the gig economy takes up some of the slack,” he said. “And the tools that we rely on [to track labor], the household survey for example, are completely missing this. So the Fed is increasingly relying on tools that just don't capture the growth of the US economy.”
The Dollar Wrecking Ball
When asked about the dollar decimating everything in its path, Vincent said: “We also have a very weak euro, I think that’s what a lot of that strong dollar is.”
“Europe now is a poor continent,” he said. “And so we’re not going to be able to re-industrialize with with a dollar index around 107.”
Vincent says that “probably the only path” for Trump to achieve his 3 mandates is to “get everybody around the table and say, ‘Hey, we need a higher yen, euro, and yuan, and in exchange, we won’t do tariffs and you’ll invest in the US.”
Of course, Trump could also go the “Fortress America” protectionist route, but Vincent says (and he expanded on this much further in his note to subscribers), that this would be inflationary, bad for American jobs, and bad for the stock market.
Positioning for the Unknowns
Vincent says it might be time to get some gold again, to hedge on some of the stuff he sees building.
He also likes the long financials Trump trade, as it’s “the biggest beneficiary of deregulation.
And on the short side, he’s looking at home builders. He sees “a perfect negative storm for home builders,” with higher costs, and shrinking business as home completions now exceed home starts.
Ukraine and Europe
“I generally buy the idea that we’re going to wrap this war up, one way or another,” Vincent said. “The frontline is moving the wrong way, the Ukrainians are running out of money. It seems to me that Trump is going to push for a deal because he promised one, and Germany is going to push for a deal. China is not happy about this war. Russia will basically name its terms and will have to face that.”
A resolution to the war “would be quite bullish for Europe if it’s made on terms that are favorable to Germany,” he said. “ If Germany somehow finds a way to buy Russian gas again, then my God, it’s going to be a buy the DAX with both hands [situation], because a lot of these names trade at 3-4 times earnings.”
To watch the full episode, right this way.
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and determine if an allocation to oil aligns with your overall financial plan.