By Bilal Hafeez 13-08-2019
In: post, Newsletter

Macro Hive Podcast Playlist: Equity Bull Case / Peak Oil / Meritocracy Myth


(total reading time: 8 mins)

Markets have started with the week with a clear negative tone, thanks in part to election results in Argentina and further protests in HK. We published two pieces on Argentina (by Gary Licht and Miguel Ovalle) to bring our readers up to speed on this less followed market. As for our choice of podcasts, we thought we’d go against the pessimistic tone that is pervading most analysis this week.

We feature mega-fund manager Ken Fisher giving his bullish view on the world – he doesn’t see a recession in sight. In our second podcast, Eric Stein, Co-Director of Global Fixed Income at Eaton Vance, shares a similar sentiment and is looking for Emerging Markets to benefit from the Fed rate cuts.

Following up on our featured piece on oil last week, McKinsey discusses stagnating global energy demand. On renewables, they argue that although it has become cheaper in most places, China is not a believer yet – it just rolled out 200 new coal plants.

Elsewhere, we are sharing the story of a venture backed by Softbank that brings autonomous driving to the home delivery business. We also have a podcast on inequality and class privilege. Boris Johnson is the 20th PM to have attended Eton, the podcast question what policies are necessary to make the UK more meritocratic.

And if you’ve wondered what’s the optimal diet to follow based on real science, I explore the simpler ‘longevity’ eating research of Professor Valter Longo in my latest podcast – find it here.

Enjoy!

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Billionaire Ken Fisher on Investing Principles (We Study Billionaires – The Investors Podcast, 35 mins) An insightful interview with Ken Fisher who talks about fostering the $100bn megafund, Fisher Investments. He’s a proponent of narrowness when it comes to investing and his philosophy is to avoid picking stocks based on ‘value vs. growth’ or ‘tech vs. healthcare’ – in the long term they all end up with similar equity returns. Most investors have migrated to the US as it’s a top performer of recent decades, but if we remove the tech sector from the story its performance is essentially similar, if not the same, to other regions. Fisher is a believer in tech’s intrinsic importance in driving innovation, but he says the high returns and alluring narrative largely appeal to late-stage bull market buyers. Instead, he favours small-cap, riskier stocks when on emergence from a bear market. At 30 mins, Fisher reveals his optimistic, ‘mostly bullish’ mindset. Towards the end, Fisher examines the current GDP trend globally, nominally growing at c.4% (which equates to a $3tn expansion yearly), he believes that only a very unlikely, hugely negative shock could counteract it and cause a recession.

 Why does this matter? Amidst constant talks of an impending recession, it’s refreshing to hear an optimistic outlook on investing and the global economy, and this podcast pairs well with an article that Fisher recently published explaining his strong favouring of healthcare stocks and their similarities to big tech. Beware the current stage of the cycle, though, he believes sectors driving one bull market might not necessarily drive the next.

More Fed Rate Cuts Will Help EM Assets (P&L With Paul Sweeney and Lisa Abramowicz) Eric Stein, Co-Director of Global Fixed Income at Eaton Vance, says the overall US economy is generally healthy part from weak investment levels. He adheres to the common view that inflation expectations matter even more than the trade war when it comes to Fed rate decisions and he predicts further easing. Stein sees EMs as the key beneficiaries of the Western interest rate race to the bottom – he will be looking at New Zealand and Thai inflation-linked bonds. Homebuyers are also enjoying the low rates, as Logan Mohtashami, a seasoned financial writer, explains. The 30-year mortgage rate as measured by the mortgage loan company Freddie Mac has hit its lowest levels since 2016, helping boost the sale of homes. Mohtashami sees a very high lending quality in the current cycle and if a new recession hits we won’t see a wave of defaults. Nearing the end of the podcast, the conversation turns to the woes of conglomerates whose hefty business model isn’t suited for today’s market environment. Kraft-Heinz’s dismal earnings report last week is a good example – now Fitch is warning their bonds might go to junk.

Why does this matter? Despite all the pessimistic views on the recent rate cuts there might yet be some winners among emerging markets. The Fed’s 25bps cut gives emerging economies welcome breathing space to ease their own interest rates and get back on a path to higher growth, but the unexpected stronger dollar was bad news.

 Peak energy, peak oil, and the rise of renewables: An executive’s guide to the global energy system (The McKinsey Podcast, 31 mins) This podcast continues the discussion around oil that we initiated last week, with McKinsey Partners examining the deceleration in conventional energy demand. The composition of GDP is changing – services will overtake manufacturing, which will then consume less energy. We are also becoming more efficient in our use, with smarter appliances and electric vehicles driving energy demand down. At the same time, however, they predict rapid electrification globally, with dependence on electricity ever-present (we clearly saw this last week, when a nine-hour power cut left everyone crippled) – but this will be fuelled by renewables. As such, energy demand will fall behind GDP growth. They make the optimistic projection that 75% of electricity will come from solar and wind by 2050, driven by their lowering cost. At 15 mins into the podcast they turn to oil, which they still see growing by 10m barrels a day for the next 10-15 years, peaking in 2033 (much earlier than previous models). Eventually, however, it will be eventually phased out.

Why does this matter? Renewables are becoming the sensible economic choice for anyone building new capacity – for example, India’s solar power market is becoming so competitive that the country is cutting their coal capacity significantly. However, it’s not all so straightforward, especially given that China is currently building 200 new coal plants. Renewables are not always reliable, and governments will always need to maintain an ‘emergency’ energy base of coal and gas.

How Robots Will Feed Our On-Demand Culture (The Future of Everything by the WSJ, 14 mins) Nuro is a start-up aiming to bring autonomous vehicles into home delivery, and it’s backed a $1bn investment from Softbank’s Vision Fund. In this short interview, the founder, Dave Ferguson, who is an ex-Google self-driving engineer, explains that the vehicles Nuro use only reach 25mph and are designed to be very cautious, at times rapidly hitting their breaks. They’re about half as wide and shorter than most cars and have no room inside for human passengers or drivers (robotics and human travel have so far been a logistical and regulatory challenge to bring together). But Ferguson hopes that unmanned transport safety will soon improve significantly, allowing autonomous vehicles to turn into living spaces where people are happy to spend their long commutes. Their aim – very far in the future – is to have only autonomous vehicles on the streets, which won’t need any traffic management and which would minimise accidents.

Why does this matter? The $940 million that Softbank injected into Nuro is just their latest major investment in autonomous vehicles – last year they invested $2.25bn in General Motor’s self-driving unit. And they aren’t alone in investing. Earlier this year, Aurora Innovation, a self-driving start-up, also received $0.5bn from investors including Amazon. Robotics are slowly but inevitably taking over the more manual daily tasks, and start-ups that can successfully ride this new wave are well rewarded. All this, of course, is heavily dependent on regulation and that so far remains an uncertainty.

The Myth of Meritocracy (Weekly Economics Podcast, 29 mins) With Boris Johnson making the 20th Prime Minister to have attended Eton (considered the most prestigious private school in the UK), concerns are heightening around stagnating social mobility and class privilege. Data shows that students with a privileged background but a 2:2 degree end up with better jobs than their ethnic minority peers who achieve a 1st .  It’s not just class – indirect discrimination based on race and gender is just as prevalent. Further, the labour market often unduly rewards things that have very little to do with the ability to do a job well – accent, dress, self-presentation. In the podcast, Jo Littler, a reader in sociology at City University of London and Sam Friedman, Sociology Professor at LSE, discuss potential solutions. They both support the idea of abolishing private schools altogether but recommend small steps first – ban unpaid internships, and introduce free childcare and a more transparent admissions process.

Why does this matter? The class ceiling is the new glass ceiling – with social mobility stagnant since 2014 in the UK, key talent might be missed out. Whilst this is unlikely to have a noticeable impact anytime soon, we could see this issue begin to affect output and innovation if it isn’t politically addressed. Theresa May’s statement that Britain must become ‘the world’s greatest meritocracy’ seems unrealistic for now.

 

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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