11min chapter

Thematic Investors cover image

Thematic Investors: Scott Bessent a Global Macro Veteran on the Path Ahead

Thematic Investors

CHAPTER

Exploring Macro Investing and Political Implications

Dive into the world of macro investing, discussing its challenges, opportunities, and the importance of diversification in a low-volatility, centrally intervened market. Gain insights into the upcoming US election and its financial impacts, exploring various political scenarios and market implications. Delve into trading strategies, risk management, and the significance of passion and dedication in the investment industry.

00:00
Speaker 2
Yeah, rearming everything, right? Well, there are a lot of things. I would love to walk through macro investing too. You know, it's kind of gotten a bad. It's how to I feel like a 10 year, a bit of a headwind and the S&P has just been a rocket. So why do you need to diversify? And I think sometimes, you know, one of the reasons we engage in macro investing is you can get such asymmetry. You can if you're right, you can get such a big return. I was just looking at a guy that we like quite a bit mutually discovery. Capital's having a great run here in the last 18 months after five years of tough run. What do you think? What do you think about macro now on a go forward? And maybe why it hasn't thrived in the last 10?
Speaker 1
There were things to do, but they were mostly up beta trade for a long time. You could have gotten Japan right. You know, some macro funds did invest in tech and did very well. When you and I were at S of M, we did. But in general, the best times for macro are not when there's a lot of equanimity in markets. And if the central banks are kind of doing able to do a smoothing function, which they have then or which they were able to, then there's not much volatility. There are not many surprises. I would say that one of the things that macro people are good at, we have good imaginations. We've seen a lot. We're looking at what markets give us in terms of asymmetry. We're looking at options markets. We're looking at futures curves and that when things don't go as planned or when they're surprises, when there are jolts, then that's when we tend to do better.
Speaker 2
Yeah, I mean, a quick aside on the imagination for one. I found a fascinating, I learned a bit about your background and other macro investors. They really do have a strong liberal arts background. Honestly, some of the best guys out there are historically taxed in tutor and others. Magic can't trade. You got to be able to do the math, but boy, can't trade imagination for in this space.
Speaker 1
Yeah, let's stand record more as an English and an econ major.
Speaker 2
God bless
Speaker 1
George Soros. I think was a philosophy. Yeah.
Speaker 2
Like, thank God he wasn't a great philosopher. He wasn't a great, great, great, stick. Could you talk about the US election coming up from my investing standpoint? I know you've been very active politically. So just from my, because you've talked about the debt and there are many things going on the US, but it does feel like the stakes are extremely high in this election. And could you talk about that a little bit?
Speaker 1
I can talk about it from a financial point of view and if you'd like from a political point of view, but from a financial point of view, I think if we step back and frame it, since 1952, you've never had a down year, never had a down year when an incumbent is running for president. Why is that? Because thus far his political apparatus and economic apparatus is pumping in a lot of fiscal spending, a lot of liquidity into via the banking system via the Fed into markets and they're quite buoyant. So I would expect that we would see the same thing this year and indeed Jerome Powell has been very surprisingly accommodative. And Janet Yellen has been brutally political and turning the dials and the knobs as quickly as she can to try to influence the election. And my guess is that the more we see Donald Trump ahead in the polls, the more she will be doing that. And then on the other side, in general, I think markets are more drawn to the Trump's policies. So Trump tax cuts expire in 2025. I would expect that if he wins, they will be extended or made permanent. We would see much lighter touch regulation and a little less of the off the wall regulatory edicts that we see issued just generally more market friendly. I think we see lower energy cost and much more drilling in America. And my differentiated view is that I think we would also see President Trump try to tackle the debt, which is very at odds with the market view that he would be a prolific good spender.
Speaker 2
Sounds like there's some politics in there, but would you add anything on your own politics side?
Speaker 1
Yeah, look, I think there's a decision now and well-branded former vice chair of the Fed, the only senior member of the Fed ever to make a political donation, which he made to Hillary Clinton in 2016. The is now in the right place. She runs Joe Biden's economic team in the West Wing. She's chair of the National Economic Council and she delivered a speech at the Economic Club of New York last summer where she said, look, we're going to keep spending. We're going to let most of the Trump tax cuts expire and we are going to raise taxes in 2025. And that is one way to do it. That is a different view and that is a view that I'm not sure the market, the stock market will love. I think that there is still the opportunity if an administration, preferably a Republican, were to freeze spending. You don't have to cut spending. You need to freeze it. I think if we do that, then interest rates would start coming down and the market would start being attracted by this idea that deficits, maybe the deficit could be cut in half over four years. But that, Karen, that was a long way of saying that no matter who wins in November, 2025 is going to be a mess. There is a debt ceiling in January. So I can't remember. It seems like it's January 25th, in all the rations on the 20th. So there's going to be a lot of towing and throwing going into that. And I'm also open to the idea that just as the market sold off and then recovered when Trump won in 2016, that maybe it just gets very ahead of itself going into the election. And maybe there's some kind of crescendo on election night. And the lame duck session for two months is very choppy.
Speaker 2
Well, I shifted back to risk taking if you don't mind, just for a minute. You've assembled a really great team of people I've gotten to know over the years. But you're not a big screen person yourself, right? I don't think you have a Bloomberg on your desk. Yeah, Bloomberg.com, which I think is
Speaker 1
$40 a month. And you have to activate it. It doesn't take all the time. For me, for some people, there's information value in watching prices go from green to red to yellow during the day. And for me, I find it's just a distraction. And that goes back to what I told the cadets and the audience said the sitter the other day. You just really got to find what you're good at. And there's some people who can sit and trade every day. Paul Jones, Stendruckamore are incredible at that. There are other people that I'll put myself in this who kind of have a view. We're going on a trip from A to B and I just need to manage the volatility in between. And I can't add very much value in my trading. I can add value in my structuring.
Speaker 2
Yeah,
Speaker 1
is if I construct things to keep me in the trade.
Speaker 2
Yeah, I think it took me a couple years to understand. I think you said something like, let's remember that the main thing is the main thing.
Speaker 1
Yeah, but that's from basketball, coaching legend Pat Riley. Keep the main thing, the main thing. And if you think if I think the NIKA is going to go from 40,000 to 60,000, they're going to be some squiggles in between. The same thing. If I think there's a chance that we could at a point go parabolic in gold, then a little less worried about small pullbacks.
Speaker 2
Well, last thing I want to end on was that, you know, one thing I've noticed is you've been doing this for quite a while. You've seen a lot of different interesting markets, but you seem to really enjoy it. You really do. You seem to have a passion for it. You like it. It's the intellectual pursuit. Is that the kind of thing that drives good firms, do you think?
Speaker 1
Yes, it is. I think I mentioned to you before, my sister always tells me she's jealous because what I love doing pays a lot. And I'm very fortunate in that. But I is that I was just talking to someone at a big firm who had just joined a few years ago and he said, you know, what's interesting here is no one has any hobbies is they're just interested in the work. And look, I think it's great to have hobbies and I have hobbies. But when I'm interviewing, I think that the greatest employees I've ever had are the ones who dream about the game is do you wake up in the middle of the night and Karen, I know you do because I've got emails from you early in the morning, late at night on weekends and it's aha. I've been the this jumbles been going around in my head and it just clicked and locked and loaded and this is the answer. And you really have to have that commitment that it's a grueling business is stand. And Ruck and Miller was great because it always is great because he would always say the when you're at your peak, watch out, you're probably cruising for bruising. And then when you were down, smart people don't get stupid overnight. I still got a lot of confidence in you. So you really have to enjoy it. If you're headed for the money, then there are a lot of other things you make money.

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