Ro'Macro #1
Ro’Macro #1: Michael Green & Harley Bassman on RealVision.
Since I picked up a great interest in macro, I wanted to share what I find and some great content I come across during my journey in the financial world.
Here is a great podcast I listened to today from Real Vision and notes I've taken on the main topics they were discussing.
It is a conversation between Michael Green, Strategist and PM at Logica Invest and Harley Bassman who is the creator of the MOVE Index and basically the master of convexity.
It is the first time I do something like this so do not hesitate to give me feedback or ask for content about a specific topic that I could look into. Let's go Ro'Macro #1 !
Link to the podcast : https://lnkd.in/dc5yYNG
Link to the slide deck : https://rvtv.io/3cai4CR
Before crisis we have signs of the problems: industrial production lower, housing prices doesn’t rise as fast as usual, commodity prices, but until equity market crashes, the crisis doesn’t really materialize.
The FED through its asset purchase program buys a lot of MBS which are the worst quality, as the banks keeps the higher quality for themselves.
The FED will probably keep the short end low but can let the back end of the curve run higher because it helps the banking systems which is the plumbing of the financial economy.
A higher long end also helps the pension funds and insurance companies who are the investors with the longest-term view.
Inflation is a way to taxes everybody, silently, and that is something politicians doesn’t vote on.
Demographic shift: Exit Boomers / coming Millenials, first child average in early 30s now instead of 23 back in the 20th century. There are more millennials than boomers in number, it will help the demand to pick-up
Immigration is a great thing for economy, it brings people who work effectively, grows the workforce. Some people say immigrants doesn’t pay taxes, but they pay everything else (equipment, housing to a landlord who will pay taxes in the end)
The FED robbed everybody of price signals and will continue to do so until it stops to step in.
For the last decade the correlation between stock and bonds was negative, that was great for people with risk parity portfolio. As we saw last year, during stressed times, they tend to go down together and that is a problem.
Long volatility is the ultimate hedge, even more the long-dated option, are 1y options doesn’t move that much with a 10% volatility move, but the same move on a 7y option is not neutral at all.
Inflation doesn’t help redistribution. Some kind of taxes from ultra-wealthy to modest people could become a reality.
Being short options can be a very dangerous thing it brough death to a lot of people in the past: 1987, LTCM, etc
In the meantime, tell your friends!