Please click on this link for the replay of 22V’s inaugural Macro Conference. I hosted a panel with Abhijit Chakrabortti (Sr. Strategist at Brevan Howard; starting @ 41:45) in which I asked him the following questions. Please follow along by paging through the charts (found here) and listening to his answers. Thanks a lot.
Eyes Wide Shut
Time for Regime Change
This environment reminds me of the Ernest Hemingway line from his book, “The Sun Also Rises.” The character Mike Campbell in the 1926 novel was asked about his money troubles and responded with a vivid description embracing self-contradiction:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
To analogize Hemingway’s line to today’s market environment are we witnessing sudden regime change across asset classes, geographies, and philosophies?
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Do you believe that there is a regime change occurring whereby the 12-year equity leadership of the US is shifting to non-US equities? [3]
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The last EM cycle was dominated by China. Which country or countries do you believe will dominate an EM-led cycle?
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Would you say that the EM countries have – in general – acted responsibly in recent years? If so, how?
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A subset of a shift from US to non-US equities is a period of underperformance for NASDAQ / tech with respect to the S&P and DJIA and Non-Growth sectors. To use your phrase, is it easier to think of it as a move from “momentum to anti-momentum?” Can you elaborate? [4,5,6,7,8,9,10,11]
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The Big 7 – AAPL, AMZN, FB, GOOGL, NVDA, MSFT & TSLA – are, as a whole, weakening with FB being the most prominent example. The great powerlifter, Ed Coan, was once asked about the injuries he sustained over a career of setting 71 powerlifting records. He said, “My greatest strength has now become my biggest weakness.” Can we use Ed Coan’s quote and apply it to the Big 7 and the major indexes? [12]
[Beyond the implications for portfolios is the fact that there are not seven stocks anywhere in the world more widely held than the Big 7. You know where your portfolios stand, but here’s how these stocks are distributed via ETFs: AAPL 155, AMZN 142, FB 138, GOOGL 118, MSFT 175, NVDA 153, and TSLA 134. The combined market value of these stocks in the 1,105 ETFs is $1.034T.]
- As it pertains to FB – Do you find it remarkable that FB lost ¼ of a trillion dollars in market cap in a single day while market participants have generally responded with their shoulders shrugged as if to say, “The bad news is behind it.” Would you say that you’ve ever seen a more a glaring example of investor complacency? And, how can we be left with a healthy market if a stock can lose $250 billion dollars in one day? [13]
- Are we also witnessing a regime change of low inflation to a period of persistently higher inflation? [14, 15]
- As an important follow-up, are we eyeing a regime change of low yields to persistently higher yields? [16 – 22]
- With respect to both inflation and yields, I’d be remiss if I didn’t ask you a question about the Fed – Do you think history will judge this Fed kindly? [23; the chart pokes a litte fun at the Fed] Or the ECB, for that matter? {As an aside, ECB President Christine LaGarde said today, …”our monetary policy cannot fill pipelines with gas.” It seemed a bit uncharacteristically self-effacing of her to admit that.}
- Are we watching the US$ slowly peak? [24]
- We’ve been witnessing a commodity bull market. In your estimation, has the industry participated? And, if not, what will it take to get investors interested? Are commodities benefiting due to unintended consequences of the ESG mandate? [25 – 39]
- We’ve all heard that gold is archaic, old-fashioned, and some might say it is an anachronism in that it doesn’t even belong to this period or era. Would you say that, perhaps, gold is as unloved or – perhaps undervalued – as it was in 1971 when it traded @ $35 and in 2001 when it traded less than $300? [40 – 41] {Can gold co-exist with Bitcoin?}
- We started out with Hemingway, and it might be appropriate to close out with a little Guns N’ Roses. In their song, Coma, we hear, paradoxically…
There were always ample warnings
There were always subtle signs
And you would have seen it coming
But we gave you too much time
What’s the chance that the “rotation” aspect of the market is merely a short-term interlude in that – ultimately – if we’re going to experience a proper bear market then everything will get hit? [43]
