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#106 - Brian Singer - “We Don’t Know What Will Trigger the Decline, but When It Happens, Our Fear Is That It’s Sharper and Deeper Than Investors Would Otherwise Expect"
6 days ago
In Episode 106 we welcome market vet, Brian Singer. Meb dives right now, asking Brian for his general approach to the markets. Brian tells us it’s fundamental in nature. They look at about 100 different asset markets, trading the broad markets rather than individual equities or bonds. They look for mis-pricings, then when one has been identified, they dig in, running both quantitative and qualitative analyses. They follow this with various risk management strategies. The overall portfolios are both long and short. As Brian often writes about macro factors that affect asset prices, Meb asks which macro factors are influential today. Brian gives us his thoughts – not just on macro factors, but game theaters as well. He talks about populism, energy (which ties into the Middle East game theater), and Chinese growth. Additional game theaters beyond the Middle East he discusses are the European Union and Asia. Next, Meb asks about Brian’s process. How does it really work when you’re putting together a portfolio? Brian starts with valuation work. Specifically, they focus on the present value of future cash flows. They then assess things from a qualitative perspective – for instance, how might a certain government policy affect markets? They don’t look at markets on a company-by-company basis. It’s a macro approach, with fundamental value being a critical component. All of this is the “where” stage in Brian’s process. Next is the “why?” For instance, why does an asset mis-pricing exist? This eventually leads to game theory and an assessment of market turbulence and fragility. Meb brings up Brian’s portfolio and asks about his current positioning. In general, Brian is cautiously optimistic on some equity markets, but generally against bonds. What he finds attractive right now from an equity perspective are Emerging Markets and some European markets. He’s especially attracted to Greece, Brazil, Argentina, and India; and to a lesser degree, China, Indonesia, and Malaysia. Brian talks more about Italy, Spain, and the UK. Brian tells us most bond markets are unattractive. He gets into more detail regarding investment grade bonds, sovereigns, and junk. Soon, the guys dive into currencies. Though most investors tend to think “it’ll all net out in the long run,” Brian takes a more active approach. The specific currencies he finds attractive right now include the Swedish Krona, Indian Rupee, Russian Ruble, Philippine Peso, and Turkish Lira. As to overvalued currencies, he points toward the U.S. Dollar, the Euro, the Swiss Franc, the Thai Baht, and the Israeli Shekel. Next, Meb asks what is keeping Brian up at night as he looks at the markets today. Brian points toward four major concerns: monetary policy, rules-based strategies such as smart beta, the Volcker Rule, and circuit breaker inconsistency. He dives into tons of great detail that supports the notion for some concern, concluding “We don’t know what will trigger the decline, but when it happens, our fear is that it’s sharper and deeper than investors would otherwise expect.” There’s plenty more in this episode: Brian’s thoughts on what steps can be taken to help protect against a declining market… his stance on cash in a portfolio… whether the 10-year bond will ever get back to 4%-5%... and finally, Brian’s most memorable trade. This one involves Black Monday. Hear all the details in Episode 106.