Macro Hive Podcast Playlist: Yield Curve Myths / Repo Carnage / System Risks

We have a diverse set of excellent podcasts this week. Hedge fund manager Alex Gurevich deconstructs various market myths such as the inverse correlation of gold and the dollar and the usefulness of the yield curve in predicting recessions. We have the Indiana Jones of archaeology, Professor Demarest, discuss what businesses can learn from the collapse of civilisations. And rates expert Jim Grant and market analyst Jim Bianco talk repo carnage.

We also feature an interview of private equity legend and founder of Blackstone, Stephen Schwarzman. Then we have an insightful podcast from Deutsche Bank on how firms sensitive to climate change tend to outperform.

Finally, my latest podcast discusses how to develop the right five mindsets for the future – from the creative mind to the respectful mind.

Enjoy!

‎Hot Topic #3 Alex Gurevich: Follow-up from the Grant Williams Interview (Macro Voices, 24 min listen) Gurevich believes that it’s an urban legend that gold and the dollar are fundamentally negatively correlated. Instead, he argues that the apparent correlation is simply an illusion caused by gold being priced in dollars, which brings a mechanical link to the dollar. Gurevich is bullish on both gold and the dollar on market liquidity dynamics. He likes trades like long gold and short Australian dollar. He breaks apart some other myths, too. Gurevich doesn’t think the real estate market and equity markets always crash together, notwithstanding what we saw in 2008. Given low interest rates, he is more bullish real estate than equities. Finally, he pours cold water on the notion that yield curve inversions have any predictive power for recessions. He finds much circularity in the reasoning for the link between the two. For example, the Fed will cut rates because it fears a recession, these cuts invert the curve. The fed sees the inversion and cut more, etc.

Why does this matter? Investors often become lazy with their heuristics. Sometimes a simple bit of logical thinking can break open the common links that investors make. The crucial dynamic in markets are coming low interest rates. Start with that, and then make your investment decisions.

What Businesses Can Learn from Ancient Archaeology (Bloomberg Markets Odd Lots, 44 min listen) A fascinating interview with Vanderbilt University archaeologist Arthur Demarest on parallels between civilisation and business collapses. Using Mayan history as the case study, his thesis is that civilisations’ political and economic networks have parallels with trading blocs and businesses today.  He argues that when the Mayan civilisation started to fail, certain city-states broke away to form new trading relations with external city-states. Such pivots were high risk but often very successful. Through these new interactions, the economy would develop and so too did culture. At times, the culture change was too rapid, however, which brought domestic discontent. A key lesson from past collapses was that a reluctance to recognise the possibility of collapse was fatal. Moreover, small changes that impacted the medium-term were the most effective strategies to employ. The professor’s biggest fear today is the hyper-connectedness of the world, whether one thinks economics, transport, or medical systems. This introduces greater risk of system-wide failure.

Why does this matter? With global trade arrangements under threat and poor global debt dynamics, this podcast provides a timely reminder that existential challenges facing countries and businesses have been experienced before. The lesson from history is that recognition of possible failure is essential and to not get caught up in big ideas that will not be implemented.

Two for the Price of One (Grant’s Current Yield Podcast, 30 min listen) In this episode, podcast anchor Jim Bianco and his crew investigate last week’s key market activities. Why didn’t banks step into the market and arbitrage the temporary repo rate surge? They simply didn’t have the money. Post-2008 regulations had restricted banks’ ability to participate in the markets unless they had enough reserves. Additionally, there hadn’t been a lot of activities in the repo market, so the size of the market was not enough for banks to get fully involved, either. The anchors then discussed the US’s $1.3 trillion excess reserves. Tightened regulations following 2008 have established a system where $1.3 trillion is not enough, and the anchors suggest another round of QE would be an alternative to address this problem. Another trend in the US economy was an increasing level of concentration across different sectors, and the anchors believed it was due to strong incumbents and extensive lobbying. Finally, European indices were seen as ‘performing poorly’ because they tend to be overweighing banks and utilities into the mix.

Why does this matter? The inability of financial institutions to get more involved in the market left some spaces for speculation regarding what central banks would be doing next. A greater degree of cartelisation within the US economy seems to be an irreversible trend, so it appears that there’s still growth potential for investors by simply going after the ‘big names.’

‎Businessweek Extra – Blackstone’s Steve Schwarzman (Bloomberg Businessweek, 28 min listen) In this podcast, Stephen Schwarzman, CEO of private equity firm Blackstone, discusses his new book Lessons In the Pursuit Of Excellence. He discusses his early days at Lehmans, describing its cutthroat culture. He was told ‘you don’t get stabbed in the back…you get stabbed in the front’ – a harbinger of what was to come in 2008. Schwarzman spend most of the podcast discussing the business lessons from running one of the largest private equity firms in the world: how over 500 contacts ignored his letters when started out; how you need to be irrationally confident about success given that nine out of ten firms fail; and, crucially, how you need some lucky breaks early on. He also believes that you can learn to be a manager, but you can’t learn to be an entrepreneur. He also touches on US-China relations – as someone with close ties to China, it’s interesting to hear him give an optimistic view.

Why does this matter? Schwarzman is a heavyweight in the financial industry and his advice is useful for any entrepreneurs. A cynic may also say that by publishing a book – he is soon to retire.

Climate Change and Corporates: Past the Tipping Point with Customers and Stock Markets (Podzept – with Deutsche Bank Research, 13 min listen) In this episode, Deutsche Bank used artificial intelligence to detect whether being environmentally aware affects a company’s financial performances. It turned out that over the last 12 years, MSCI World Index companies that experienced more positive climate change news published about them outperformed the index average. Furthermore, investors, it seems, are more conscious of bad climate change news when markets are growing, but less so when they’re falling. Additionally, technology and consumer staples were more vulnerable to this ‘environmental factor’ than the power and utility sectors. According to another survey on consumers, more people recognised their personal responsibilities in regard to climate change and those who prioritise cost and those who prioritise quality are equally likely to take climate changes into account when purchasing. Finally, DB argued that environmental issues would remain in public minds for longer, so it was critical for companies to display their environmental awareness to different demographics.

Why does this matter? With Greta Thunberg kicking up a storm at the UN climate change summit, this timely podcast shows how markets may reward greater sensitivity to the subject .Also, there is more evidence that  consumers are increasingly aware of the ecologic consequences of their purchases.

(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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