Forward Guidance Sep 18, 2026 1h 13m 52m saved
With Vincent Deluard, Director of Global Macro Strategy at StoneX
Roughly $300bn to $400bn of federal money reached American households and companies in the run-up to the midterms, on Vincent Deluard's count, and most of it does not repeat.
The standard reading of this year's profit growth is productivity and artificial intelligence. Deluard's is that a large slice of it was a transfer from the Treasury, and that the policy mix underneath it points somewhere else entirely.
"I mean we had very stagflationary policy if it hadn't been for this AI boom."
Deluard tracks the daily Treasury statement and tax withholding rather than the Bureau of Labor Statistics releases, and he spent five years arguing the opposite case, that nominal growth was strong enough to justify higher rates. He had also expected a dovish hike this week and expected the Fed chair to fumble the press conference.
The full episode is covered here so you can skip it. 73 minutes of audio, 21 minutes of reading.
Here are the 12 arguments that matter.
Key Takeaways
Deluard got both of his own calls wrong: he expected a dovish hike and a fumbled press conference
Withheld tax receipts, which strip out capital gains, have fallen from 6–7% growth to 4–5%
$300–400B of pre-midterm stimulus is running off, and some of it landed straight in corporate profits
Six straight months of negative real wage growth with the labor market still tight is the anomaly he cannot square
His view of the Fed's move is that it was a forced error, not a free one — the market left no choice
Europe is where Japan was in 2012, and the only remaining policy is currency debasement
Japan's net debt has fallen from 200% of GDP to 150%, which is why he says it has no debt crisis
Europe's version of the same trade will be clumsy rather than clean, starting with the French election in the spring
The position he holds is short euro, long yen, because the collapsed rate differential makes the carry cheap
UK pension funds cut domestic equity holdings from 50% to 5%, which he reads as the selling being finished
1. The Hike He Got Wrong
Deluard opened by marking his own forecast. He had expected a dovish hike and expected Kevin Warsh to mishandle the press conference.
He was wrong on both of his own calls
The truth is I was wrong on both counts
Vincent Deluard
The chair looked hawkish and got the market outcome he wanted
He certainly sounded and looked hawkish
Vincent Deluard
Deluard credited the performance as an improvement, with better command of the room and more spontaneity than earlier appearances, and without turning on the questioners. The hosts were more struck by the vote: unanimous, with unusually little dispersion in the committee's rate projections. One noted that pricing for October sits near 50% even though the Fed's own language says policy is not yet restrictive, and that the market is running ahead of the committee further out.
Four hikes are priced by the middle of next year
The market's currently at roughly four by mid next year.
A host
The speaker corrected himself from cuts to hikes mid-sentence. The gap between what the rate market prices and what the committee's own projections show is the point both sides of the table kept returning to.
2. Hiking Into Peak Growth
The hosts' framing was that the committee has turned hawkish at exactly the moment growth is about to turn.
The Fed has turned hawkish into peak growth
They're they're turning most hawkish into peak growth and what could be a slowdown behind this.
A host
Deluard agreed, and said the reversal in his own view is what unsettles him: for five years he argued that nominal growth was strong enough to warrant higher rates, and the idea that downturns had been engineered away has now become the committee's own base case.
The consensus he doubts is that downturns are over
Recessions are cancelled and this is kind of permanent stimulus
Vincent Deluard
His evidence for a slowdown is tax collection rather than survey data. Personal income growth started the year near 10%, some of that capital gains; withholding, which is less sensitive to capital gains, has fallen from 6–7% to 4–5%.
Tax receipts are slowing steadily, not collapsing
It's not catastrophic but it's definitely slowing and it's slowing steadily
Vincent Deluard
One host laid out the transmission argument: real rates rise across the curve, and the data turns three to six months later, so anyone deciding from the current prints is reading the past.
Real rates move first and the data follows with a lag
Real rates rise and then you see three to six months after the data starts slowing and everyone's surprised.
A host
Sticky inflation is what makes the slowdown awkward
But the problem is inflation's still sticky.
A host
He added that oil, which has been holding inflation up, will at some point start causing growth problems instead.
3. The Stealth Stimulus
One host listed four supports that ran through 2026 and are now fading: consumer refunds from the tax bill, a near-record drawdown of the Strategic Petroleum Reserve that held pump prices down, tariff refunds concentrated into a short window before the midterms, and the end of Fed repo support, which went from $40bn a month to zero. Deluard agreed and added a fourth item of his own, accelerated capital-expenditure write-offs, which he said cut corporate income tax collections by about $100bn.
He totals it at $300B to $400B
You have about three to 400 billion of let's call that the stealth midterm stimulus
Vincent Deluard
His point about profits is that some of this money did not circulate at all before landing on income statements. Deluard said a good chunk of the earnings growth now supporting the market rests on fiscal stimulus that is waning and probably will not be renewed next year.
The tariff refunds went straight to the bottom line
The tariff reimbursement that was straight into profits.
Vincent Deluard
$200B is close to a tenth of total US profits
I mean, 200 billion in terms of, you know, aggregate US profit, that's almost double digit.
Vincent Deluard
What replaces it is his concern. A divided Congress after the midterms means no political capital for another large bill.
A stimulus gap that could last
Now we have to consider a pause in a stimulus gap which may last for a long time
Vincent Deluard
4. Housing Is Already Dead
One host raised housing as the leg of the economy that normally does the work and currently cannot.
Mortgage rates back at the highs have killed housing
The housing market's effectively dead like the mortgage rates are back to highs
A host
The usual sequence is that high real rates slow the economy, long rates fall, refinancing picks up and housing recovers. His objection to that sequence is that he does not expect long rates to fall much even in a slowdown, because of the inflation problem and the supply of Treasuries, which leaves no obvious lever short of a new program.
He is trying to talk himself out of buying the dip
I almost want to say things have to get worse there before they really get better
A host
The other host's answer was that comparisons to earlier slowdowns break down because everything is now measured in nominal terms. Retail sales beat, but in nominal dollars, and after years of inflation above 2% the policy choices trade off against each other rather than lining up: 7% mortgage rates hurt housing and slow the economy at the same time.
Fixing one thing makes another worse
We're in this sort of stagflationary malaise with a few different like investment booms tacked on top to keep things afloat.
A host
5. Six Months of Wage Loss
Deluard's central puzzle is that real wages have been falling while employment is full. Real wage growth ran around 1–2% before the war with Iran and went straight down afterward, as nominal wage growth slowed and inflation rose.
Real wages have been negative for six months
So now we're looking at six months I think of negative real wage growth
Vincent Deluard
He said he is generally skeptical of the Bureau of Labor Statistics data, but that it agrees with what he sees in the daily Treasury statement, so he treats the jobs as real.
The labor market is tight and getting tighter
The labor market is really tight and probably getting tighter.
Vincent Deluard
So the question is why pay is not responding
The question is why are wages not picking up
Vincent Deluard
He gave two readings. The optimistic one is a repeat of the 1990s: fear of being replaced by a machine keeps workers from asking, the Phillips curve shifts, and the inflation turns out to be a one-off that ends when the war does. The pessimistic one, which he holds, is that the response is merely late. A rally in May left people feeling wealthy; after the summer, with savings drawn down and prices visibly higher, the pay demands arrive, and a commodity shock then passes into wages and from there into services.
He does not expect this cycle to be different
I don't think it's that different this time.
Vincent Deluard
And he is not forecasting mass job losses from AI
I'm not a big job apocalypse guy.
Vincent Deluard
One host added that all six months of falling real wages happened with the stimulus still flowing, that he expects commodity prices to worsen first, and that reduced immigration lowers the economy's capacity to absorb that kind of shock.
6. Is This a Policy Mistake?
Deluard's summary of the policy mix, setting the AI boom aside, was blunt.
Trade policy raises the cost of inputs
Objectively, we are raising the cost of our inputs with arbitrary and erratic trade policies.
Vincent Deluard
And the wars cost money for nothing
We are engaging in stupid wars that cost a lot of money and get us nothing but trouble
Vincent Deluard
He added restricted immigration and an untouched deficit to the list, and said any economist shown that menu at the end of a long expansion would forecast stagflation. What stops the forecast working, in his account, is a technological investment boom he called once-in-a-century or once-in-a-millennium.
On whether the hike itself is the error, one host declined the framing: the hike is only a mistake if every intervention that preceded it was, because left alone the market would have deflated the AI bubble through lower equity prices rather than through rate rises. He argued the yield curve is still historically inverted and that these moves flatten it further, when a steeper curve is what would discipline the spending.
He calls the Fed late rather than wrong
It's hard for me then to call it a rate a policy mistake because inflation is raging and growth is raging on and they're always late.
A host
Deluard reached the same place from a different direction.
A forced error, not a free one
If it's a mistake it was a forced mistake like the market did not leave him a choice
Vincent Deluard
He also said he has been in the camp that monetary policy barely matters here, and that ending the war is what would change the inflation, rate and equity outlook. The table then spent several minutes on the midterms, where the odds of a Democratic sweep moved from 50 to 60 in about a week; one host attributed the move to the $5,000 check backfiring, and Deluard said what unsettles him is how calm the administration looks.
7. Why the AI CEOs Agreed
One host asked why three frontier-lab chief executives who dislike each other suddenly agreed on strategy and regulation in the same weekend. Deluard reached for economic history, hedging the attribution as he went.
Three captains of industry in one room corner the market
If you put three captains of industry in the same room very rapidly a consensus will emerge to basically corner the market
Vincent Deluard
He credited the observation to Adam Smith, possibly The Wealth of Nations, and said he was not sure of the source. His practical reading is that staying on the frontier is expensive and that a coordinated slowdown would let everyone stop paying for it. He also named the prize that keeps him from turning bearish.
An Anthropic listing is a $3T prize
Anthropic IPO is just around the corner which by the way I think is an argument to keep this going right because there's a $3 trillion prize so close you can almost touch it right.
Vincent Deluard
A host offered a different account: separate incentives converging by accident. Anthropic has a listing coming and a stated safety position; OpenAI is talking about delaying its own listing, which makes its motive the least clear; and Elon Musk's model is third, so a slower frontier would let him close the gap. He added that if the slowdown is real, it is bad for the thing the economy now depends on, and that saying the quiet part out loud usually means there is a reason to.
8. Europe Is Japan in 2012
Deluard came with a report and charts comparing Europe to Japan, and framed it as a decade-long call.
He is pitching a decade-long macro call
This is going to be a big macro call that may last a decade
Vincent Deluard
And the point of one is to be early
You want to be in early on these
Vincent Deluard
Europe today is where Japan was in 2012
Europe today is very much where Japan is was in 2012
Vincent Deluard
On demographics Japan runs a decade ahead
Japan is 10 years ahead of Europe
Vincent Deluard
By the early 2010s, he said, Japan had almost three decades of deflation behind it and a run of half measures, and that is when it decided to do whatever it took. The mechanism he leaned on is the terms of trade, which he said is underappreciated because it was developed by Marxist economists in the 1970s and then displaced by productivity and total factor productivity.
China deflated export prices and inflated input prices at once
Suddenly China started massively deflating the cost of industrial exports and at the same time pushing up the price of raw material.
Vincent Deluard
An adverse terms-of-trade shock lowers living standards
As a as a nation, your standard of living just degrades when you have an adverse turn of trade shock.
Vincent Deluard
He called that the history of Latin America over two centuries, and said social policies and institutional arrangements cannot hold when a country pays more for what it buys and receives less for what it sells. His objection to Europe's answer is that it keeps naming productivity as the solution.
Europe produces a new competitiveness report every 5 years
Every five years we have a bold and brave new report
Vincent Deluard
He named the Draghi competitiveness report and the Lisbon strategy as his examples.
The inputs point the other way
You have an aging population, you have higher social spending and you have an economic model that's destroyed.
Vincent Deluard
So the question answers itself
What in the world makes you think that productivity is going to increase?
Vincent Deluard
Once the other options are removed, he said, one remains.
The only policy left is debasement
I will just debase my currency until I can get my tax collections to grow faster than my social spending.
Vincent Deluard
9. What Japan Actually Won
Deluard's case is that the Japanese version worked, and that the yen bears have missed it.
The yen went from an 80 handle to 165
We had an 80 handle on the yen at one point you know this summer when I was there it was 165 so nominally it was more than 50%.
Vincent Deluard
Adding the inflation differential takes the move close to 65%, he said, applied consistently for 15 years.
The public finances are now in balance
Like Japan fixed its house you look at the primary budget is in balance
Vincent Deluard
He put the debt question as the rate paid on debt against the growth rate of tax receipts. Where that gap runs the wrong way a country needs a primary surplus, and cutting spending to get one slows the receipts further, which is the Greek spiral. Japan, on his reading, is on the right side of it.
Net of the central bank, Japan's debt fell 50 points of GDP
The beautiful deleveraging has happened it's gone from 200% of GDP to 150 so 50 percentage point of reduction in that ratio
Vincent Deluard
France is where he thinks the arithmetic is shakiest, with growth close to zero, what growth there is coming from paying world prices for energy, and borrowing costs at 4% and rising. He was clear that Japan had advantages Europe does not: it moved first, in a period when central banks feared deflation, US shale was improving the American trade balance, the world was at peace, and Washington had strategic reasons to tolerate a cheaper yen as a counterweight to China. Japan also held large foreign assets, so debasement delivered capital gains abroad that cushioned domestic living standards. He credited the execution too, with the finance ministry, the central bank and the government aligned and drawn from a small circle.
Europe will get there badly
What Japan achieved from you know with smart policies and determination I think Europe will achieve clumsily with a sequence of nasty political crisis.
Vincent Deluard
Starting with France in the spring
The first one of which will be the French election in the spring and after that the German election
Vincent Deluard
He said he came back from Japan more optimistic about Europe than the Europeans he talks to, and that the first step is simply stopping what is not working, naming the immigration and energy agendas. Japan, he pointed out, does not have an AI industry either, and most of the technology on display there is dated; industrial exports, cars, orderly cities and tourism are all achievable at a lower exchange rate. Asked whether that makes him bullish gold in euros, he pointed at the yen precedent.
Look at what gold in yen did
Look at gold priced in yen since 2012
Vincent Deluard
On Europe's own balance-sheet capacity he made one correction: headline government debt understates it, because unfunded pension promises are not counted, and he has seen studies putting France or Italy at 500% of GDP on a net-present-value basis.
10. The ECB Is the Obstacle
One host put the policy-mistake question to the European side, arguing that with the region short of energy, hikes there bite harder than hikes in the United States, and that he cannot see more than one or two more getting through. Deluard's answer was about the institution rather than the rate.
He sees the central bank as in the way, not helping
I don't see the ECB as very helpful in what I'm describing. I see it more as an obstacle in the way
Vincent Deluard
He said his confidence in the ECB and in Christine Lagarde is far below zero, allowed that Mario Draghi was decent and that Europe was lucky to have him when it did, and contrasted both with the long, aligned tenures of Shinzo Abe and Haruhiko Kuroda in Japan. A new ECB president arrives when the current term ends, chosen by the usual bargaining over nationality and balance, and Deluard expects the institution to act only at the point where the alternative is the currency breaking up.
Politicians act last
You can count on politicians to do the right thing only after they've tried everything else.
Vincent Deluard
He attributed the line to Churchill. A host added what he called the original sin of a common currency with fragmented debt markets: the Bank of Japan can simply buy bonds, while the ECB has to weigh the spread between German and Italian paper.
Deluard's own positioning follows from all of it.
The short euro is expressed against the yen
So that's the way I structure it is mostly against the yen, right?
Vincent Deluard
He said the carry cost of short euro against long yen is very small because the rate differential has collapsed, and that in the published piece he added smaller long dollar and long Brazilian positions against the euro so the carry supports a position that can be held for a long time. Whether it works economically, he said, is too early to tell and probably needs a different US administration; his argument for why Washington might cooperate is that its currency grievance is not really with Europe, and that a Europe carved up by outside powers is worse for the United States than a cheaper euro. A host added the reshoring case: a weaker euro alongside higher European defense, energy and industrial spending would reduce the American security bill.
11. Long UK, Short Europe
Deluard's usual hedge against European trouble has been the Swiss franc, and he said he is now wary of it: a serious Franco-German rupture would push so much money into Swiss banks that the central bank would intervene, which leaves the holder owning the bonds they were trying to avoid. His replacement is the market nobody wants.
Even the English have given up on England
But the new thing is even the English hate the English.
Vincent Deluard
UK pension funds went from 50% domestic equities to 5%
They used to own 50% in UK equities. Now it's down to 5%.
Vincent Deluard
Which is why he thinks the selling is finished
When you've gone from 50 to 5 you don't go to minus 45 after that.
Vincent Deluard
The pair-trade logic is that a hedge has to be correlated with the thing it hedges and merely better than it, which platinum is not and UK equities are. The index composition happens to suit him.
The index is the three sectors he wants
You look at the index it's exactly the three sectors that I like, energy, healthcare, and then financials.
Vincent Deluard
Britain is further through the same crisis
The UK is always 10 years ahead of the continent.
Vincent Deluard
One central bank means it can act
They have a lot more policy flexibility than Europe
Vincent Deluard
He said Brexit came before Trump, so the institutional upheaval started in Britain, and that he is not claiming the country is out of it — the new central bank governor he rated as marginally better than the old one, which he said mostly indicates how bad the old one was. On flexibility he offered a first-hand comparison from his time working in and around European government: 27 delegations around a table, each speaking for two minutes on North Sea fishing rights, is an hour gone before the discussion starts. He also said the idea gets him mocked every time he raises it, which he treats as a positive sign.
Asked whether he had looked at alternatives, he named Norway as the interesting one, because it sits outside the bloc, holds a large external position and has restarted North Sea drilling in defiance of the European Commission. The signals he watches for in Europe are small and specific rather than announced: a block unfrozen for exploration, a lithium mine opened in Alsace.
12. Canada's Hedge on the US
Deluard asked the Canadian host to explain his country's position, on the grounds that how Canada handles its exposure to the United States is a template Europe will copy if it works.
He treats Canada as the test case
I view Canada as super important.
Vincent Deluard
The host said he had been constructive on Mark Carney for about a year, and that most people were still reading him as the 2020 version rather than the pragmatist he turned out to be.
The host's read is fiscal conservatism with social liberalism
He's been able to navigate this like fiscal conservatism while socially liberal balance that I think Canada's been wanting for a long time.
A host
He noted that Stephen Harper, the Conservative prime minister who appointed Carney to the Bank of Canada, speaks with him weekly and closed Carney's investment summit while running the Alberta pension fund, which he offered as the measure of how broad the agreement is.
The last decade was a real-estate bet
Our economy for the last decade was just a real estate Ponzi scheme basically
A host
And the thing that is changing is inbound capital
Our biggest issue has been foreign capital investment and that's starting to change
A host
He said environmental mandates on pension funds are effectively finished, that the country has fiscal capacity relative to peers, and that the hedging away from the United States will continue past this administration because the ground has already shifted. On American leverage, he said Washington could push Canada into a recession if it wanted, while naming potash as an export the United States needs. Deluard's response was to say he should add a long Canadian dollar leg to his short euro position, on the natural-resource argument alone.
Bonus Insights
Nobody on the panel can explain the administration's calm
I also find the quiet confidence eerie
A host
Deluard's version of the same thought was the image of everyone standing on deck watching the iceberg, and asking what they know that he does not. He raised one data point he had seen that day, credited to Louis-Vincent Gave of Gavekal, and hedged the attribution.
The unspent war chest
Trump has not spent any of his back money
Vincent Deluard
His two readings of that are that the money is being kept for litigation over the results, which would fit the rhetoric about stolen elections and redistricting, or simply that it is not being spent on other people's races. A host added a hubris explanation drawn from Iran, and said he cannot believe the administration is indifferent to the midterms given how the 2018 result constrained the rest of that term. Both hosts noted the deterioration in approval ratings, and one raised, explicitly as a low-probability idea rather than a base case, the possibility of an engineered crisis before November.
The hosts also traded observations that sat outside the main argument: a photograph of gas stations running out of diesel, the TSX's strong year, and Canada's small policy reversals on pipelines and productivity-linked tax cuts as the kind of change to watch beneath the headlines. The episode closed with the hosts saying they will rotate guests into the roundup now that one of the regulars has left.
Deluard's bottom line is that the United States is late-cycle with the fiscal support draining away, and that the trade worth holding for a decade is short euro against the yen, because Europe's only remaining answer to its terms-of-trade problem is the one Japan already used.
Products, Companies & Tools Mentioned
StoneX (Deluard's firm and the publisher of the Europe-versus-Japan report the second half of the episode is built on)
Anthropic (The listing he calls a $3 trillion prize, and his reason for not turning fully bearish on the AI trade)
OpenAI (Talking about delaying its own listing, which a host said makes its motive for endorsing a slowdown the least clear of the three)
Polymarket (Where the panel read midterm odds moving from 50 to 60 in a week)
The European Central Bank (Deluard calls it an obstacle to the devaluation he expects, and rates his confidence in it below zero)
The Bank of Japan (The contrast: aligned with the finance ministry and the government for long enough to move the currency by more than half)
The Bank of England (One central bank for one country, which is the flexibility argument behind his UK position)
Gavekal (Source of the observation about the unspent campaign money, which Deluard credited with a hedge)
Alberta Investment Management Corporation (The pension fund Stephen Harper now chairs, offered as evidence of cross-party agreement in Canada)
Books & Resources Mentioned
The Wealth of Nations – Adam Smith (Deluard's uncertain source for the line about three captains of industry in one room)
The Draghi report on European competitiveness and the Lisbon strategy (His two examples of Europe answering a terms-of-trade problem with a productivity plan)
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