Resolve Riffs Investment Podcast

ReSolve Riffs: Andy Constan on Hard vs. Soft Landing, Fed Reaction Function & Higherer for Longerer

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.      

David Cervantes of Pinebrook on the Increasing Importance of Political Economy

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.

ReSolve Riffs with Bob Elliott on Hedge Fund Replication and Strategies for a Complicated Decade

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.

Prometheus Research: Navigating a Potential 2023 Global Recession

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.

ReSolve Riffs with ReSolve’s own Dr Andrew Butler on Integrating Prediction with Optimization

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.