Resolve Riffs Investment Podcast

Our guest this week was Jeremy Schwartz, Global CIO of WisdomTree ETFs, a global ETF manager with over $70 billion in AUM. Our conversation covered: Why it is important to consider refinancing your house at a lower interest rate and to move your excess cash to higher-yielding accounts How managing your savings has become more crucial in the current low interest rate environment Why your checking account is costing you money and what you can do to avoid it How the recent surge in money supply and inflationary pressures may impact the economy and investments Why there is still a structural shift in the labor market and how it could affect real wages How the divergence between equities and rates markets may impact investors and the Fed's policies Why it is important to diversify your equity portfolio with lower duration, higher quality and lower valuation companies How alternatives and inflation hedges can play a significant role in asset allocation and provide return stacking opportunities Why commodities can be a useful diversifier to stocks and bonds, particularly in an inflationary environment How passive commodity exposure can act as a direct hedge against inflationary environments and provide balance to a portfolio Why investors should consider a stock-bond capital efficient portfolio, and how does it work? Why is a leveraged 60-40 portfolio a good combination for taxable investors, and why did WisdomTree choose equity underlying and futures on top of it for a leveraged 60-40 position  How investors can outperform cash with a third of the portfolio that is available for investment in diversifiers, and what are some examples of diversifiers  How adding managed futures to a stock-bond portfolio provides diversification and protection during inflationary shocks  What companies are under the hood of an AI portfolio, and how are they selected   And much more. This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc. *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.

Adam and Rodrigo had the opportunity to chat with engineer and business owner Alonso Gonzalez about his upcoming book, and in particular his research on the transition from a dirty, inefficient fossil fuel economy predicated on scarce energy to a new energy economy founded on effectively infinite, distributed clean energy from the sun.   Alonso shared a presentation that introduced a variety of novel concepts and assertions that makes a compelling case for a complete overhaul of earth’s energy sources and infrastructure, much of which will be quite noticeable and impactful within the next five to seven years. Topics covered include:   Impacts of the exponential age of knowledge Megatrends of energy abundance and digitization Uncertainty as the source of anxiety From linear to exponential growth and how the past is no longer useful in understanding the future Difference between innovation and disruption and the phases and timeline of disruption Understanding general terms about energy Understanding current energy production and consumption  Visualizing a chronological road map of the transition from fossil fuels to renewable energy in the near future Consequences of energy abundance   We hope you enjoy our conversation with Alonso Gonzalez!   Hosted by Adam Butler and Rodrigo Gordillo of ReSolve Global*   *ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

This week we welcomed back Andy Constan (CEO / CIO of Damped Spring Advisors) and thought-provoking commentator on financial markets. His deep understanding of the global macro landscape and structure of markets, as always, made for a fascinating conversation that covered: A disciple of two completely different and complimentary schools of global macro excellence Navigating his portfolio in 2022 through the Twitter looking glass Listening between the lines and hearing the drumbeat of quantitative tightening (QT) early on In the old days, understanding inflation and growth was enough for capital allocation The game is now mostly about policymakers’ toolkit, stimuli, and their impact on flows The driving force of equity derivatives and their huge impact in the second half of last year Under normal circumstances, commercial banks account for the lion’s share of money creation and liquidity Issuance, roll-offs, and duration management – the mechanics behind the Fed’s balance sheet Credit and leverage as a function of banks’ ability and willingness to expand their own balance sheets The role of duration in the Fed’s balance sheet activity Why Japan, the original QE trailblazer, was ineffective in its efforts to support asset prices for many years Compression of risk premia, asset inflation, and a weak transmission mechanism towards wealth effects and increased consumption Valuation multiples as the inverse of risk premia Multiples expansion as the primary mechanism for QE-driven asset bubbles Debt monetization as the medium-term bogey on the radar How the Fed relinquished control of QT duration to the Treasury And so much more This is “ReSolve Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc.   *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.      

Our guest this week was David Cervantes, founder of Pine Brook Capital Management. With a rich and diverse background within the investment industry, in the last few years David has dedicated his time to managing his family office and has been developing a macroeconomic framework that considers the objectives and incentives of policymakers as the primary economic drivers. Our conversation included topics such as: Empirical economic analyses and insights from the ‘school of hard knocks’ Fundamentally, a process of elimination – determining first what not to do Less theory, more data Where his approach materially diverges from traditional economics Cognitive Perspective – treating models with respect, but never reverence Macroeconomics is basically ‘political economy in drag’ A dynamic process of incentives and decisions made by political actors The role of ‘timing luck’ (or misfortune) A stroll down history lane – from WWII and the Great Society to the present A closer look at the gargantuan US federal budget deficit Current backdrop – an ‘inflationary supernova’ fueled by fiscal impulse The Fed’s current reaction function Home prices, OER and how they affect CPI Why interest rate volatility matters significantly more than absolute levels How interest rate vol spills over into the risk premia continuum And much more This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc. *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority. 

This week we had the pleasure of speaking with Bob Elliot (who can be found on Twitter @BobEUnlimited), CIO at Unlimited, a new investment firm that launched a hedge fund replication strategy in ETF format. Our conversation included: Bob’s career and especially his years at Bridgewater Associates The synergies between macro research and systematic investing Systems that create discipline and leverage (the non-financial kind) A better sense-making process within an investment framework Why most intuitions are inaccurate Identifying inconsistencies between one’s framework and new data How the signaling power and precision of any variable can change over time Dealing with the scarcity of macro data points within a systematic approach Why there is no such thing as a single most important variable in macro investing No certainty, just a probabilistic range of outcomes Why diversification is one of the fundamental laws of asset management The importance of maximizing the number of independent bets in low signal-to-noise domains Why the starting point for Bob’s personal portfolio is Risk Parity The folly of singularly focusing on the S&P500 Avoid going “all-in” into any single scenario, no matter how compelling the narrative And so much more This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc.   *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.

For the opening episode of the new year we had the pleasure of speaking with Aahan Menon, founder and CEO of Prometheus Research, which seeks to democratize access to elite financial research to the general public. This great conversation covered several topics, including: A macro framework focused on the interplay between the real and financial economies, and the business cycle The main driving forces in markets and the economy: growth, inflation and liquidity Key variables for measuring liquidity Creating the condition for potential asymmetric returns How the increase in the stock of assets facilitates other activities The original aim of quantitative easing The contest between the ‘Dot Plot’ and the yield curve The signaling mechanism of price levels The biases and shortcomings of the CPI Cyclical vs secular inflation How economies have evolved in the last few decades Why inflation volatility may be asymmetric The false diversification of the 60/40 Why increased uncertainty usually signals a turning point Updating priors – a ‘burden of evidence’ approach Fluctuating edges and the challenges of volatility targeting And much more This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc. *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.

Our guest this week was Dr. Andrew Butler, Chief Investment Officer here at ReSolve. He has an Honors B.Sc. in Applied Mathematics & Physics from Memorial University, an M.A. in Applied Mathematics & Statistics, Financial Engineering from York University, and a PhD from the University of Toronto, Department of Mechanical & Industrial Engineering. Our conversation covered:   Mentors, studying optimization, machine learning and emulating similarities Comparing methodologies used in calculating oil reserves, with empirical finance Mathematics, known truths, soft axioms and assumptions Data science, tools and hypothesis tests in finance Comparing the definitions of “noise” and different scientific methods Regression types, relationships and features Existing models vs creating models with data Hyperparameters, universes, good decision-making and edges The fallacy of “The Efficient Frontier” in Modern Portfolio Theory Methods that make for good choices, and setting expectations Neural Networks, financial data extraction and optimization science Building complex models, integrating and optimizing predictions, and making decisions Counterintuitive predictions and “explainability” – integrated vs optimized models Optimizing for decision accuracy by minimizing prediction error Using Decision Trees, Ensembles and Boosting Market data and making predictions using de-coupled vs integrated approaches Training models and optimizing, going forward Optimal covariance shrinkage and minimizing error Constrained vs unconstrained mean variance portfolios, de-coupled vs integrated, in a managed futures context The effect of constraints in limiting models from being “different” The practical takeaways about integrated solutions for Advisors and Portfolio Managers The value of humility in optimizing for financial markets – knowledge, wisdom and experience Stochastic dominance vs t-tests Time horizons – size matters The Consultant Industry – monthly data vs understanding process And much more   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc.   *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.

Our guest this week was Vincent Deluard, Director of Global Macro Strategy at Stonex. StoneX (formerly known as INTL FCStone) is an institutional-grade financial services network that connects companies, organizations, traders and investors to the global markets ecosystem through a unique blend of digital platforms, end-to-end clearing and execution services, high-touch service and deep expertise. Our conversation covered:   Comparing the narratives from other allocators Is the Fed Pivot here now and will there be a soft landing The rise of structural inflation since before COVID and where will it settle Why the Fed is attempting to show that it “tried” Underestimating the strength of the economy Accepting that Growth, Austerity or Inflation are the solutions How China saved the Fed Bubbles of Bubbles and Ponzi schemes vs fundamentally driven growth Shifting from monetary to fiscal dominance The effects of automation on labor requirements Irrational American optimism vs European pessimism Political influences on monetary policy and the challenges of “onshoring” Adjusting the price, not the quantity The effects of the rates of change The possibility of equities and bonds returning to normal correlations Pension funds, interest rates, central banks and commodities The importance of diversified portfolios with sophisticated hedges And much more   This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc.   *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.    

Our guest this week was Bradley Barrie, president and CEO of Dynamic Alpha Solution, a firm that is reshaping the way US advisors think about asset allocation through their multi-dimensional framework. Our conversation covered: His early career and almost becoming a math teacher Embracing difference and uniqueness from the very beginning The barren landscape for alternative strategies in the 1990s Style drift and closet indexers False diversification Defining Multi-Dimensional Asset Allocation Structural diversification and pairing complimentary styles Outsourced CIO tailored for financial advisors Recognizing the importance of investor psychology Smoothing out the path for portfolios as the ultimate objective The three Ps of qualitative analysis Sharpe vs Sortino And much more This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc.   *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.

Alfonso – also known as MacroAlf – joined Adam and Mike to discuss his most recent report entitled “Yes, But When Recession?” Our conversation covered: Alf’s experience managing a $20B multi-asset book at a global bank Experience launching an independent macro newsletter for greater freedom of views Benefits of interacting with central bankers, regulators and senior officials at the bank Currently focused on recession – when and how bad will it be? Economic, social and market impacts of recessions How recession might change the Fed’s reaction function Powell and other central bankers questioning the benefits of QE and whether Fed may have a different reaction function this time Exploring the pros and cons of QE Why banks lend, and why they didn’t want to lend over the past decade of QE? Powell’s focus on Volcker and implications for policy trajectory Expectations for a second leg down and the 2000 – 2002 analog What happens in bear markets after Fed pivots? Prospects for a longer, grinding bear market Impact of high returns on cash competing with low returns on real estate and other risk assets Character of stock market bottoms in a cyclical downturn Market indicators of recession and inflation risk using Alf’s Volatility Adjusted Market Dashboard Negative credit impulse signaling recession in Q2 2023 Impact of rate of change vs level of credit given enormous surge in bank reserves in 2020 Leading indicators suggesting recession in late Q2 2023 Housing market and Sahm Rule implying recession in Q2 2023 Expectations for returns on stocks, bonds and other assets over the next several years *ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.