Chris, thanks so much for joining us on the program. Listeners, I really want to encourage you to listen to Chris’s interview from January 2018 on the alchemy of risk because we’re going to be assuming your knowledge of the short-vol trade, both implicit and explicit, as was described in great detail in that interview. You’ll find the link to play that interview in your Research Roundup email or on our home page next to Chris’s picture at macrovoices.com.
Chris, welcome back. When we had you on before, you explained the short-vol trade and where the risks were in both the explicit and implicit short-vol trade. That was before the February event.
So why don’t we start with what happened in February? What broke and what didn’t break? And, perhaps, if it’s applicable, what is still left that might break in the future?
Erik: Joining me next on the program is natural resource guru, Marin Katusa. Now, as many of you know Marin was our most requested guest speaker for MacroVoices Live. Unfortunately, we couldn’t get him on the schedule because Marin is one of the sponsors of the Vancouver Resource Investment Conference (which starts the very next day) and has a lot of responsibilities. The tradeoff was we were able to get him on the show a couple of weeks ahead of time.
So, Marin, thanks so much for taking time out of your busy schedule to join us on the program today.
Marin: It’s a pleasure, Erik, always a pleasure.
Erik: The first time that I interviewed you on this program, you described an opportunity to buy Nevsun on speculation because you thought it was a takeover target. And you became something of a rock star in the eyes of many of our listeners because that stock just shot up like 50% two days after your interview.
I want to start with your overall view of the market, because you take a different approach than other people. You apply systems analysis to financial markets. What specifically do you mean by systems or system thinking? And how does that play into the way that you approach markets generally?
Daniel: Thanks, Erik. Basically, the majority of us are trained, when we go through university or even in a lot of the more conventional and institutional sort of career paths of fields of study, especially economics and finance, to think effectively in quite a linear, reductionist-type mechanical sort of manner.
When we talk about a systems view of the world, what it is doing is shifting our view of the world from the world operating as a machine towards the world operating as a living ecological-style adaptive system. So it’s drawing on a lot of lessons from complex adaptive system theory and trying to better understand the interconnectedness, how everything fits together, and the knock-on effects, the relationships – the adaptive nature of all of these relationships and things and how it all transitions.
Instead of looking at, for example, a subsystem or a company or – in this case we’re going to be talking a little bit about banks. Instead of looking at a bank in isolation through a reductionist mechanical view of the world, where we’re trained to basically look at capital adequacy ratios and all of this sort of thing, at the bank in isolation.
Erik: Joining me next on the program is Professor Edward Altman from the NYU Stern School of Business. Dr. Altman is perhaps best known for the Z-Score measure of credit, which we’ll discuss in this interview.
Before we get started, though, Dr. Altman provided a fantastic slide deck. Listeners, you will find the link to that slide deck in your Research Roundup email. If you’re not yet registered, just go to macrovoices.com, look for the red button next to Dr. Altman’s picture that says “Looking For The Downloads.”
Dr. Altman, I’d like to start with the really big picture. So many people in finance have said, okay, that’s it, the secular bull market is over. The secular bear market is on. Once we break 3.10 on the 10-year, baby, it’s all over after that. Yields will never go lower. The market’s headed straight down in terms of price.
And, of course, what we’ve been seeing in the last several weeks is the exact opposite. So what’s going on here? Where are we in the cycle? Are we really at the beginning of a new cycle or the end of an old cycle? And, if not, where are we in the cycle? And what are the signs we should be looking for to tell us whether and when it’s ending?
Erik: Joining me next is JDI Research founder Juliette Declercq. Juliette has prepared another of her fantastic chart books for us so be sure, listeners, to download it. You can find the download link in your Research Roundup email. If you’re not registered yet, just go to macrovoices.com, look for Juliette’s picture on our home page, and the red button that says “Looking for the Downloads” next to her picture.
Juliette, you have had a grim outlook on global activity since January of this year. And you’ve successfully translated that into substantial profits for your clients this summer. My question now, though is: Is the Trump/Xi agreement from the G20 a game change, as so many people seem to think it is?