Resolve Riffs Investment Podcast

This is ReSolve Riffs – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

As governments in the U.S, Europe, Japan and elsewhere embrace aggressive fiscal stimulus measures in the wake of the global Coronavirus pandemic, investors are growing concerned that this may unleash a sustained inflationary impulse. As investors dust off their inflationary market playbooks, many are realizing portfolios may need to be significantly restructured.

This week ReSolve’s own Portfolio Managers, Mike, Rodrigo, Richard and Adam, wrestle with the underlying macro dynamics that might pave the way for inflation, and discuss how to position portfolios to manage these risks. In particular, the team focuses on how commodities are designed to preserve real wealth in inflationary environments, and how to build optimal commodity portfolios to address these risks:

• The many paths to inflation, and the role of MMT and debt monetization
• Importance of diversity and balance (or heterogeneity) in the design of commodity portfolios
• Why existing commodity indices and products are designed for capacity, but sacrifice heterogeneity and balance
• How optimal commodity portfolios may be expected to deliver a rebalancing premium to rival the equity risk premium, duration premium, and credit risk premium

This jovial discussion complements the whitepaper, “Optimal Commodities” and listeners are encouraged to download and read the paper as well.

Thank you for watching and listening. See you next week.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

In 1971, US president Nixon suspended the convertibility of the dollar to gold bullion, terminating what was known as the Bretton Woods system, which also kept other major currencies pegged to the greenback at a fixed exchange rate. Since then, the US dollar has experienced three major cycles of appreciation followed by weakening, all of which have greatly impacted asset prices around the world.

Our guest this week is Julian Brigden (‎Co-Founder & President: ‎Macro Intelligence 2 Partners), a macro strategist who is particularly focused on secular USD trend and their ramifications across global markets. Our conversation included:

• His general framework, favorite macroeconomic indicators and putting the pieces together
• Why the ISM is a fantastic metric to gauge activity
• (Portfolio) size matters – tactical vs strategic calls
• Parallels with the 1960s, financial repression and how this may impact the US dollar
• Central banks’ independence in check, and the growing role of fiscal policies
• Inflation – expectations of the coming commodity bonanza and knock-on effects across the globe
• Rates, bubbles and the outlook for equities
• Gold vs silver vs copper – portfolio hedges under secular inflation

We also discussed liquidity crunches, the role of the Fed, the wealth gap and alternative paths to overcoming the current enormous debt overhang. As long-time followers of Julian’s work, we had been looking forward to this episode for some time, and it exceeded our expectations.

Thank you for watching and listening. See you next week.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

Almost three decades since the very first launch, Exchange Traded Funds (ETFs) have grown to a multi-trillion-dollar segment of the market, with more than seven thousand spread across the world. The US market is home to approximately 30 percent of them, spanning the passive/index-tracking, actively managed and thematic categories, not to mention a handful of more exoteric niches. We drew on the expertise of our friend Eric Balchunas (Senior ETF Analyst at Bloomberg) for an update on the current state of the ETF. We discussed:

• The hottest tickets in town – the ARK family and Cathie Wood
• Soap opera drama – why haven’t crypto ETFs been allowed yet
• Why thematic ETFs are actually a closet-momentum play
• Value as the most intuitive factor – emulating Graham’s ‘Intelligent investor’
• The Beta Vortex, how passive distorts price discovery
• Biases and the narrowing gap between institutional and retail investors
• The answer to 99 out of 100 questions in markets – blame it on the Fed

Eric also gave us the breakdown in AUM for each segment of the market, as well as his estimate for the current size of the entire passive investment complex. This was a wide-ranging and very entertaining conversation, with great input from the audience (especially from our friends Brian Portnoy and Dave Nadig – thanks guys), and we also learned there is such a thing as “conversational alpha”.

Thank you for watching and listening. See you next week.

In this episode, Rodrigo Gordillo, Rafael Ortega and Ignacio Villalonga from Zona Quant discussed quantitative methods in Spanish.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

Over the last few years, the topic of mental health, once taboo, has been recognized as a crucial component of our general well-being. Yet depression, anxiety and other ailments of the mind remain largely a silent epidemic, and the last twelve months have been particularly hard because of the loneliness many have endured due to the lockdowns.

Our guest this week was Matt Zerker, former Portfolio Manager at ReSolve and now Founder & CEO of tethr. Our conversation included:

• Matt’s life journey struggling with depression, losing a close friend, finding a support group and ultimately landing on a path towards his true calling
• No man is island – we all yearn to belong
• ABC – always be compassionate
• Resisting, suppressing, blocking – it’s much healthier to let go
• Why men find it harder to admit they are struggling, especially in finance
• Physiological responses, emotional interpretations and feedback loops
• How to shorten the reaction times of negative responses and build new (and more positive) neural paths

We also discussed the role of psychedelics, Jason’s experience with Trading Tribe, and how to detach one’s ego from destructive narratives. This was a deeply personal conversation and a true homecoming for Matt, and we hope it can help to spread the word on the importance of mental health in our community.

Thank you for watching and listening. See you next week.

“I think there are a lot of people who feel a genuine frustration at how the system has behaved, and more importantly about how there has been this dynamic of privatized gains and socialised losses. The way I would resolve it is, you know that’s wrong. And yet it seems that the models or the tools that are being used give us no option to that. And at the core, what that’s telling you is that the models are a mistake…” Mike Green

In this podcast, Mike Green and I discussed political philosophy. Well, I fumbled around trying to articulate my frustrations, objections and questions and Mike managed to read between the lines and carry the show.

By way of background, I’ve been frustrated with a few things since the late 1990s. Most of my frustrations relate to how regulators, governments and central banks have repeatedly undermined the capitalist process of creative destruction by bailing out imprudent risk-takers.

We got a taste of this in 1998 when the Fed bailed on LTCM, and a belly-full of it in 2008 when they changed the rules on mark-to-market accounting and bailed out the banking sector. Since then central banks have supported asset prices at every turn, with increasingly direct intervention, culminating in direct purchases of corporate credit in March of 2020.

For the most part, Mike and I are frustrated about the same things: regulatory capture and a fundamental misalignment of political power and incentives, the compound effect of which is responsible for most of the forces that are tearing America apart from within.

However, where my experience has festered and soured, Mike has been diagnosing the problems and seeking solutions.

Viewed through the prism of Mike’s philosophical framework, our current situation is a function of decades of policy choices rooted in a misguided faith in Calvanist meritocracy, amplified by a fundamental misapprehension that goes to the very heart of economics.

These themes converge as we explore:

• How treating the economy as an ergodic system inevitably leads to accelerating boom-bust dynamics
• How central bank policy is largely motivated by a policy choice that has placed the social safety net in the hands of the corporate sector
• Why a policy of offering guaranteed, non-dischargeable loans to children to pay for higher education is criminally irresponsible, and creates a cascade of corrupt signaling mechanisms and mal-incentives, with obscene repercussions
• MMT, the Kalecki equation and how policy can be structured to narrow the wealth gap
• Ergodicity economics, the Farmer’s Fable, and the myth of meritocracy
• The importance of the Fourth Turning as a time to dismantle corrupt institutions and rebuild in a new image
• Disentangling skill from luck, and designing a redistribution policy that socializes windfall gains to support distributed entrepreneurship and economic dynamism
• Creating a system of accounting that recognizes non-monetary contributions and externalities
• How citizens will think about taxes in a modern monetary world, and whether taxes have only ever been paid at the business end of a gun
• Whether we can move past the Fourth Turning without a major catalyst, what that catalyst might look like, and how to look across the chasm with optimism about the future

This is a two-hour podcast, and I apologize in advance for meandering questions and the occasional non-sequitur. Still, this was a deeply important conversation, and I think it’s worth your time.

I think many of us who think about the state of the world know that something is very wrong. Many of us have worked to bury these frustrations and work within the game and the rules as they are. But at root we are mostly checked out.

Mike makes the case that the system is broken, but it can be fixed. And he expresses an incredibly coherent framework for a system of values, principles, and policies that just might work. I came away feeling almost hopeful. And I think some of you might too.

“Contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong.” Francisco d'Anconia, Atlas Shrugged

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

This week we had the great pleasure of hosting none other than Lyn Alden (founder of Lyn Alden Investment Strategy), one of today’s most prominent macro strategists and thinkers. Her background in both engineering and economics endows her with a diverse skillset and unique perspective, which helps her (as well as her readers and clients) make sense of the extremely challenging environment investors are currently facing. This wide-ranging conversation covered topics that included:

• Her investment framework – the integration of top-down and bottom-up
• Japanification – the good, the bad, the ugly, and some unexpected diamonds in the rough in the Land of the Rising Sun
• The weaking US dollar, its multi-year cycles and global investment implications
• Currency wars, economic tradeoffs and game theory dynamics
• NASDAQ & Bitcoin – the unbeatable portfolio of late – recency bias, and why it always pays to be diversified in the long run
• Fiscal and monetary policies, both pre- and post-pandemic, and what an end game might look like

Lyn also delved into her views on precious metals, possible inflationary outcomes and effective hedges, and of course, Bitcoin. Her ability to explain complex topics clearly and concisely was on full display, which made for a deeply enlightening and entertaining episode.

Thank you for watching and listening. See you next week.

Today’s conversation is with Razvan Remsing, Director of Investment Solutions at Aspect Capital. Aspect is a multi-billion dollar London based systematic investment manager founded by one of the original founders of AHL.

Razvan’s role is at the intersection of investment strategy research, product development, and client management, which positions him to comment on themes ranging from client engagement and communications through specific details about the underlying mechanics of Aspect’s strategies.

We start by discussing the unique challenge of communicating with clients about what to expect with systematic strategies. Razvan emphasizes the importance of helping clients gain  intuition about what’s happening inside the “black box” so that they know generally what to expect in different market environments. Ideally, clients will be sufficiently informed about the strategy they’ve invested in so that they may be disappointed with results from time to time, but never surprised.

The conversation then migrates to an exploration of what happened to Aspect’s strategies in 2020. Razvan observes that 2020 was especially interesting because we basically lived through a full market cycle in just one year (and arguably in the span of just a few weeks). He asserts that the defining factor for success or failure in 2020 was the speed of your strategy. Strategies with short forecast horizons and holding periods had the opportunity to successfully navigate the major reversals in the year, while slower moving strategies were at a major disadvantage.

We also discussed the poor performance of liquid alternatives and especially the major Style Premia products over the past few years. Razvan is unpersuaded by the view that poor performance was due to overcrowding. Rather, he attributes poor performance to an over-emphasis on classical “value” and credit type strategies, which are low Sharpe strategies to begin with. Low Sharpe strategies should be expected to endure long painful drawdowns.

The conversation also ranged into Machine Learning, the value of alternative data from capital flows, sentiment, options surface, and more esoteric sources, and how strategies informed by some of these series responded more quickly to the seismic shifts experienced in markets in 2020. Razvan shared some rare insights, for example into differences in trading and sizing exposures to commodities versus financials.

This was definitely one of our more technical conversations, with the rewards you’d expect from the ability to go deep into topics with a true craftsman.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

An almost USD 2 trillion fiscal bill is moving ahead in Congress, while breakeven rates rose above the 2 percent mark for the first time since 2018 (with no signs of relenting). It is no wonder that inflation is now top of mind for investors. Uncertainty isn’t limited to whether it reawakens after almost four decades, but how it might manifest and how investors should protect themselves. This week we riffed with Nancy Davis (Managing Partner & CIO of Quadratic Capital Management) who manages the popular IVOL ETF, covering topics such as:

• Her early days as a prop trader for Goldman Sachs, earning her stripes trading derivatives
• What is IVOL: a combination of TIPS and interest-rate options
• Using cash to manage duration
• What is implicit in the shape and slope of the yield curve
• The risk of outliving one’s means – the importance of protecting against inflation
• ‘Backing up the truck’ when volatility is so low
• Linear vs asymmetric – not all derivatives are created equally

Nancy shared her screen throughout the conversation and walked us through her general framework, including what she believes are some of the most relevant features to monitor when navigating the inflation and rates landscape.

Thank you for watching and listening. See you next week.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day.

With governments pressing on with huge fiscal and monetary expansion, fears of inflation have once again resurfaced. The spectacular rise in the price of grains and other raw materials, some by as much as 30% last year, have added fuel to these concerns. To discuss this inflationary macro backdrop we welcomed Bill Fleckenstein (President of Fleckenstein Capital & co-host of the End Game podcast series) to the show. A former dedicated short seller, this episode was particularly timely in the wake of the historic short squeezes that took place this week and the ripple effects across markets. Our conversation included:

• Running a short equity fund, adapting to shifting circumstances and ultimately returning capital to shareholders
• The role of short selling in markets and the disruptions caused by Fed policies
• r/WallStreetBets, GameStop et al – a brief anatomy of a surreal week
• Deflation and Japanification – why the Fed is cornered
• Why inflation is the most important variable to watch for in the coming months
• MMT, taxation and breaking the social contract

Bill also expressed his views on how portfolios should prepare for what he believes is an inevitable outcome, but also entertained scenarios that might cause him to change his thesis. In the end, “in a social democracy with fiat currency, all roads lead to inflation”.

Thank you for watching and listening. See you next week.