← Top Traders Unplugged
Top Traders Unplugged
ALO32: AI Booms, Fiscal Strains and the New Macro Regime ft. Joe Little
01:05:16
Loading summary
Transcript471 lines
- [00:00]
Joe Little
Foreign.
- [00:09]
Rates, Boss long bond is misbehaving, it keeps going higher. So I mean, Greenspan and Bernanke called.
- [00:16]
It the bond yield conundrum.
- [00:18]
I've been calling it the reverse conundrum.
- [00:20]
Today because everything seems to be the other way around.
- [00:23]
So I think the underlying dynamics where we're seeing steeper, steep, deeper yield curves.
- [00:28]
Rising term premium in bond markets, that all looks to me that it's quite consistent with the with a concern around debt, a concern around fiscal dominance, a concern around fiscal inflation, risks coming back.
- [00:45]
To the fore in a way that we just were safe to ignore all.
- [00:49]
Of that for the last 20 years prior to the kind of COVID pandemic.
- [00:56]
Nils Kostrup Larson
Imagine spending an hour with the world's greatest traders. Imagine learning from their experiences, their successes and their failures. Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best hedge fund managers in the world so you can take your manager, due diligence or investment career to the next level. Before we begin today's conversation, remember to keep two things in mind. All the discussion we'll have about investment performance is about the past, and past performance does not guarantee or even infer anything about future performance. Also, understand that there's a significant risk of financial loss with all investment strategies and you need to request and understand the specific risks from the investment manager about their product before you make investment decisions. Here's your host, veteran hedge fund manager Nils Kostrup Larson.
- [01:51]
Alan Dunn
Welcome or welcome back to another conversation in our series of episodes that focuses on on markets and investing from a global macro perspective. This is a series that I not only find incredibly interesting as well as intellectually challenging, but also very important given where we are in the global economy and the geopolitical cycle. We want to dig deep into the minds of some of the most prominent experts to help us better understand what this new global macro driven world may look like. We want to explore their perspectives on a host of of game changing issues and hopefully dig out nuances in their work through meaningful conversations. Please enjoy today's episode hosted by Alan Dunn.
- [02:35]
Thanks for that introduction, Niels. Today I'm delighted to be joined by Joe Little. Joe is Global Chief Strategist at HSBC Asset Management. He leads the firm's macro and multi asset research, sets the house view on global markets and long term asset allocation, and is the author of HSBC's flagship Houseview. He's been at the firm for a number of years and before that was an economist at JP Morgan and a global macro PM Joe, how are you? Great to see you. Great to have you on ttu.
- [03:06]
Joe Little
Thanks a lot. Alan, great to see you. Thanks a lot for having me. I'm a longtime listener, first time caller.
- [03:12]
To the show, so it's great to be on.
- [03:14]
Alan Dunn
Great. No, delighted to have you on and looking forward to hearing everything you have to say about global markets and asset allocation and all you're hearing from your investors as well. I know you speak to a lot of different clients in Asia in particular and do a lot of travel, so very much. We'll look forward to hearing all of that. We do like to start off by getting a sense on how people got into markets and economics in the first place. So what got you involved back in the day?
- [03:40]
Joe Little
Yeah, some time ago now.
- [03:42]
I mean, I studied economics, Alan, so I guess that was where I sort of started thinking about macro trends, trends maybe becoming aware of financial markets.
- [03:53]
But I always thought I'd go into.
- [03:55]
Some sort of policy role being a SPAD or some sort of special advisor working at the bank of England or something like this.
- [04:04]
And it was a bit of a.
- [04:05]
Happy accident in the end. I stumbled into a great role at JP Morgan in London working with some terrific people in the equity research, equity strategy team, macroeconomic team.
- [04:21]
And I love that combination of macro.
- [04:22]
And thinking about investment markets. So I had this, yeah, I had.
- [04:28]
This idea that markets were markets in.
- [04:30]
Ideas and you could have this laboratory for testing your theories about the world, battle them out in the domain of investment markets.
- [04:42]
And then like you said, I sort of spent this time as sell side economist. Then I was a portfolio manager for a little bit.
- [04:47]
These days I'm a buy side strategist. But I've always worked in macro and asset allocation. And today my current role at HSBC Asset Management, like you said, and in.
- [04:59]
Alan Dunn
That role you set the house view and you write a lot of thematic material, I guess in terms of how the macro regime is evolving, et cetera, I mean, day to day, does that, what does that look like? I guess speaking to a lot of different types of investors. Is that it?
- [05:16]
Joe Little
Yeah.
- [05:17]
So we are a global asset manager.
- [05:18]
We manage $850 billion over 20 locations worldwide. My responsibilities sort of divide into three different zones. Firstly, working a lot with the research analysts and portfolio managers in the UK and then around the world in our different manufacturing centers, helping them with decision support.
- [05:42]
We often call it investment decision support.
- [05:44]
Macro perspective on events, helping think about alpha signals or making them aware of some of those macro risks.
- [05:54]
And then like you say, a big part of what I do is traveling.
- [05:58]
To see investors in different locations, talking to the media, getting to do podcasts.
- [06:04]
We call it Thought Leadership, which is.
- [06:06]
Quite a grand title, isn't it? I do my best to live up to that label.
- [06:09]
And then the third part I do.
- [06:11]
Is helping my boss, the global cio, coordinate and look after the global investment platform. So sort of variety of management and leadership responsibilities that go with that.
- [06:22]
So it's pretty varied actually.
- [06:24]
I get to do a lot of very different things and meet a lot of very interesting people.
- [06:29]
Alan Dunn
Very good. Well, I mean, we mentioned kind of your work on kind of thematics and kind of the big picture. So probably the obvious place to start. I mean, most people, myself included, you know, reading your work, we're all in this view that the macro regime has shifted somewhat in the last number of years versus the previous decade. Maybe just to give us a sense on, you know, what do you think are the most important elements of that regime shift and the aspects that are most pertinent to the investment culture today.
- [07:05]
Joe Little
Yeah, I mean, that's a great question to start with.
- [07:09]
I think it's helpful to think about where we've come from and then where.
- [07:12]
We are in and maybe moving towards.
- [07:15]
Because I draw a big distinction between the environment that we found ourselves in in the post financial crisis world versus.
- [07:22]
Where we are today. And it maybe even predates the financial crisis to a certain extent.
- [07:29]
But the environment of the 2010s was.
- [07:31]
Very much one of the flexible supply and demand as the key driver of perturbations, volatility in the macro cycle.
- [07:43]
So we sort of ended up in.
- [07:45]
Good growth or bad growth environments, depending on how events were playing out. But all of the while it was low inflation, deflation, not inflation, as the primary sort of side of the probability distribution that we were worried about as regards inflation.
- [08:02]
And the reason that that environment came.
- [08:04]
About is because supply was abundant, geopolitical situation was very stable.
- [08:11]
We were coming to the end of.
- [08:13]
The phase of hyper globalization, but still in a very globally connected, extended supply chain situation. Demographics was very favorable in terms of the integration of the global economy as well. And of course tech big part of the story.
- [08:33]
And now if we contrast that with where we're sort of moving to and.
- [08:37]
Maybe heading towards at least three of those following winds which kept inflation low and kept the growth environment strong, are becoming more headwinds, so tailwinds to headwinds, particularly around the tricky situation in geopolitics and global economic fragmentation, particularly around what's going on more broadly in globalization as that shift to regionalization, something particularly we're seeing in the Asian trade data especially, but is also a phenomenon elsewhere. And also demographics shifting as working age populations decline. Everybody is concerned about Japanification all of a sudden.
- [09:19]
So that means that there's a heavy burden weighing on tech and AI to kind of keep this benign growth inflation.
- [09:25]
Mix which we've experienced over the last 20 or 30 years back, still on the road.
- [09:30]
My worry is that we've entered an.
- [09:33]
Environment where supply shocks are a much more dominant source of economic fluctuations. And what happens with that, Alan, as you know, is you get not just growth volatility, but also uncertainty, stickiness and spikiness in the inflation regime as well. And that has profound consequences for how we want to think about asset allocation.
- [09:56]
Alan Dunn
Yeah, it's interesting. I mean I definitely kind of very much hear all of those points. And you know, when, when we came out of COVID and then the war in Ukraine, these were themes you very much heard from policymakers as well, even central bankers talking about the supply constrained world. Now against that, obviously inflation has come down. Obviously it's still a little bit above target. When you can, would you say you can see all of these elements in the data now, are these more things that you will see will continue to influence the trajectory of inflation over time?
- [10:33]
Joe Little
Yeah, I mean cyclically we've seen some.
- [10:34]
Stickiness in inflation, haven't we? If you look at the data in particular for Australia or the UK or the us, those Anglo Saxon economies, if we can call them that, inflation does.
- [10:48]
Seem to have got a bit stuck. I mean, if you asked to guess.
- [10:52]
What the inflation target was for those central banks, just by looking at the inflation data, you'd guess 3%, you wouldn't guess 2.
- [11:00]
And I guess the environment that I'm.
- [11:02]
Envisaging is not something that's particularly dramatic in terms of really decisively changing the inflation trend. It's more of a nuance.
- [11:12]
So what I would say is that.
- [11:14]
The 2% inflation, which had been a bit of a peak during the 2010s, central bankers were struggling to get to 2% inflation. Serial undershooters of the inflation target. That becomes more of a flaw in the way that I would think about it now, it means it's a bit subtle, it's a nuance rather than something more dramatic, suggesting that it's going back to the 70s. That would not be the way that I would want to characterize the situation. And I think you are seeing elements of that playing out in the data.
- [11:47]
We have had a little Bit of.
- [11:49]
A puzzle, I think, for many economists this year about why the tariffs in the US are not playing out more obviously in the key CPI readings.
- [11:56]
I wonder if actually what's going on there is a little bit of a.
- [11:59]
Delayed effect that could come through in 2026. Some of the economic research that we've been quite persuaded by suggests that most of the tariffs, about two thirds have been affecting profit margins and about one third has been passed through into the inflation data. Now, as policy uncertainty slips away, tariff uncertainty falls away. All of these economic policy uncertainty measures are dropping quite quickly now.
- [12:24]
Firms might regain a little bit more confidence, bit more pricing power, and suddenly we see a bit of a delayed.
- [12:29]
Kick on in terms of how tariffs are playing out.
- [12:31]
So it can be a near term theme, a 2026 theme, particularly with policy impulse positive in 2026. I like the way that you phrased.
- [12:41]
It at the start because it is as much as anything the way that we want to try and understand the economic regime as being one of sticky and spiky inflation. And that's quite different to what we've experienced in the past. And I guess we're going to talk about it, but it has big effects in terms of thinking about bonds and currencies and stocks and all the asset allocation decisions as well as.
- [13:02]
Alan Dunn
Sure. Well as it is kind of. We are recording at the end of November. It'll be out in early December. It is the time of year where everybody, every strategist on the street has their 2026 outlook. Now, you did talk about positive policy impulse, so that maybe suggests that you do see some positivity coming. Where we've had from the data we've seen, obviously the data is very patchy at the moment. The general sense is labor market weakening in the US and some downside risks to growth. But looking ahead, it sounds like you're a little bit more upbeat on the outlook. Is that fair to say?
- [13:34]
Joe Little
Yeah, we're still taking a moderately pro.
- [13:36]
Risk allocation in how we're building portfolios and a lot of that is connected to a sense that the most likely.
- [13:44]
Outcome is a bit of a muddle through. Policy impulse is positive.
- [13:49]
Next year we've got Fed cuts, not lots. And I think they're going to be constrained a little bit by this sticky inflation backdrop, but still a cutting environment. Tariff policy uncertainty is fall.
- [14:01]
The fiscal story and what's going on.
- [14:02]
In the industrial policy side are really big boosts to growth. So I think a lot of people have looked at the AI boom. What's going on there.
- [14:08]
But it's all the derivative sectors as.
- [14:10]
Well where you're seeing a big investment boom.
- [14:13]
And all of that is important.
- [14:15]
I guess what's different versus maybe what we've become used to is how a faster cadence of growth might begin to generate inflation pressures a little bit faster than many analysts are expecting.
- [14:29]
So that's how we're sort of thinking.
- [14:32]
About it in the central scenario. What I would expect alongside that is that growth comes together a bit more globally. So the US exceptionalism idea has been this story that US growth has been the big relative winner. Markets of course going with that too.
- [14:51]
But as we look at the GDP.
- [14:53]
Scenarios for 2026 and also think about consensus around profit expectations as well, there.
- [15:00]
Is a sense that those expectations seem.
- [15:02]
To be a little bit more globally aligned. Europe, China picking up much more US relative advantage, slipping away a little bit.
- [15:12]
And that's quite important because it speaks.
- [15:14]
To something that we've been positioned for and thinking about in investment portfolios, which is this broadening out of stock market behavior.
- [15:22]
So yeah, reasonably constructive in terms of our core scenario.
- [15:24]
I mean we run a few different scenarios. Of course we can talk about the risks, but the core scenario is one.
- [15:29]
Where we think that policy impulse is important. Little bit of an inflation challenge, cyclical.
- [15:35]
Inflation challenge that comes alongside that. But this idea of a broadening out of market performance can mean that there's still quite a lot for investors to look at and think about in 2026.
- [15:46]
Alan Dunn
And obviously from a markets perspective, but it's not totally removed from the economy. It's been an important driver of the economy as well, has been AI and AI spend and more recently we've had some, I guess, reassessment of the merit of that, the amount of spending and the return that ultimately will be accrued. And you know, also from a, I guess from an earnings perspective, future questions on I suppose the durability of those revenues. Well, you know, from an economic perspective, how do you see this? And also from a market perspective, some people draw the parallels with the mid-90s. That was a different era that was in the old regime. Do you see that kind of parallel or is that at least from an economic valuation or an equity valuation perspective?
- [16:43]
Joe Little
Yeah, it's a great question. I was asked the other day which.
- [16:47]
Year the current situation is most like. I thought it was a really fun.
- [16:53]
Interesting game to play because there's so.
- [16:55]
Many parallels with the 90s.
- [16:57]
I was re reading, reading the old.
- [16:58]
Book of Michael Lewis, the new new thing. I don't know if You've read that.
- [17:01]
One, but he chronicles the the dot.
- [17:04]
Com story in typical Michael Lewis fashion.
- [17:07]
It's a great read.
- [17:08]
And going through that now you can.
- [17:10]
Sort of see the similarities between, between.
- [17:13]
That era, the economists writing about endogenous growth, productivity story, all of the investment excitement around the dot com mania as well.
- [17:24]
So there's a lot of parallels with.
- [17:25]
The late, late 90s.
- [17:27]
I mean I think the big differences.
- [17:28]
Are maybe the difference also around what we see in terms of the broad global growth environment, the economic, the trade environment and this notion that I mentioned.
- [17:42]
At the start where the way that.
- [17:45]
I would characterize the system is with a little bit more volatility, uncertainty, shock behavior coming from the supply side of the macro system as well.
- [17:56]
So in a way you've got this slightly strange blend where some parts of the economy are looking a bit like the 90s, other parts may be bit.
- [18:03]
More like the 60s.
- [18:05]
And economists have talked a little bit.
- [18:07]
About the K shaped economy all year where you have this lopsided nature to growth. Some sectors really doing very well and winning, other sectors struggling a lot more.
- [18:17]
So I think that's a nice way.
- [18:20]
To think about it.
- [18:21]
In the very near term I'd certainly.
- [18:25]
See the AI theme as a bottle big investment boom. We can see that very clearly in the economic data, the excitement around data centers, the spend on data centers is overtaking more conventional forms of investment.
- [18:39]
First half of the year, the US economy, all of the growth pretty much.
- [18:42]
Is explained by data center software, it, tech investment.
- [18:48]
So there's very clear sort of shovels.
- [18:51]
In the ground investment going on.
- [18:54]
Then the sort of economic question is how long does it take before the.
- [18:57]
Supply side starts to react to all of that in a more positive way. Where's the productivity story? Is that coming through in the data yet? A little bit, but maybe not quite in the really big way that tech optimists expect. And that's when you get the more disinflationary force.
- [19:14]
So 2026 it still feels as if.
- [19:16]
We'Re putting heat into the economy. It's going to create a little bit of cyclical inflation. But the question later is whether or not the AI theme is really a big positive supply shock.
- [19:25]
And of course a lot of that is going to come back to the.
- [19:27]
Idea of how much labor it displaces as so there's an awful lot to think about.
- [19:33]
And then in markets too there's many.
- [19:36]
Dimensions around index concentration, relative performance in different countries to reflect on also.
- [19:45]
Alan Dunn
And I mean obviously we're talking very much from a U.S. perspective, in terms of the impact of AI on GDP and the kind of fiscal impulse outside the U.S. obviously. Europe. Europe, we've had the loosening of the debt break in Germany and a bit more optimism on growth. I was at an event, I saw Isabel Schnabel speaking last week or the week before saying she thought things look pretty stable in Europe and if anything, upside risks to inflation. And then obviously in China and Asia, where you spend a lot of your time, a different growth dynamic. So, I mean, maybe taking the Asian perspective, China has been muddling through, I guess, to use your expression. How do you see China's growth trajectory and in the context of the overall emerging markets and Europe as well, taking the kind of global perspective on growth and not just the U.S. yeah, I.
- [20:42]
Joe Little
Mean, it's really interesting to reflect on what's being going on in Asia.
- [20:48]
In the markets.
- [20:49]
We've seen super strong performance in Asia and China in particular. But so much of that is coming from the RE rating of the stock market and then the curr effect, actually not that much is coming from profits growth. It's the US where you've had the profits growth and then a little bit of RE rating. But that combination of, if you like the structure of the return for investors in 2025, it's a really interesting juxtaposition. My expectation in 2026 is that if.
- [21:21]
Things keep going and the show stays on the road, then that's to going. Got to.
- [21:27]
That distinction has to address. It has to be more about macro fundamentals, profit fundamentals coming in to make that performance of Asia stock markets, global stock markets, sustainable. So we call it role reversal, Alan, in our investment outlook.
- [21:42]
It's kind of a.
- [21:43]
You always want a jazzy name for the investment outlook.
- [21:45]
But the story in China, I think.
- [21:47]
Is consistent with that. I mean, growth trends look resilient in 2026.
- [21:53]
There's still this big focus around policy support.
- [21:57]
Not maybe what we saw in the aftermath of the financial crisis, the big bazooka approach to industrial policy, but very targeted policy stimulus, including fiscal support for consumers, which is a big, I think, change to maybe what we've seen in recent years, last decade or so.
- [22:20]
It's very clear in Asia that the.
- [22:22]
Trade environment remains a challenge. We've done some work looking at export share, import share of the Chinese economy.
- [22:29]
And you can see how the trade.
- [22:31]
Destinations are changing in the context of US Trade policy. Trade fragmentation, much more regional focus around trade now. So that pattern of a more diversified export market, much greater emphasis around regional trade Integration and the Chinese industrial policy focused on developing a really competitive advanced manufacturing sector. They're sort of at the heart of it.
- [22:55]
We've just had the new Five Year Plan. So that's kind of interesting because it puts fiscal policy on a pedestal.
- [23:01]
I mean, maybe we've all learned this lesson because in the west we were so absorbed with monetary policy as the only tool of macro stabilization for so long. Western policymakers seem to have kind of discovered the bigger focus which is dominant in Asia around industrial policy.
- [23:20]
But the China Five Year Plan really.
- [23:21]
Emphasized tech innovation, scientific innovation, it emphasized economic rebalancing. So a bit more of a focus on the consumer rather than just investment and the business.
- [23:32]
And we've got this funny phrase that.
- [23:34]
You may have seen, anti involution, which is very popular in Asia.
- [23:40]
Essentially policies to address the big challenge.
- [23:43]
Around overcapacity, which is still a big problem for China. We're stuck in deflation. It's now the longest stretch of deflation since the Asia financial crisis, if you believe it. So that's an important element of the story to watch.
- [23:59]
But yeah, on balanced growth looks pretty resilient.
- [24:01]
I think in 2026 we are expecting an exit from deflation gradually to play out as we go into the early part of 2026.
- [24:11]
And then the hope in connection to.
- [24:14]
All of that is that fundamentals can do more of the heavy lifting in terms of driving market performance in 2026. Because there's been a big reliance on re rating and currency to drive the stock market this year.
- [24:31]
Alan Dunn
I mean you touched on the markets a little bit, but I mean bringing it together, it sounds like growth in the U.S. okay, maybe a little bit of an impulse. China, okay. There's a lot of concern out there about AI, about the markets. But it seems like from an equity perspective, you're not overly concerned about how far things are gone and seems a reasonably positive perspective. I mean, I'm putting words in your mouth, but is that how you see it?
- [24:56]
Joe Little
Yeah, I mean, look, you're always in.
- [24:58]
My line of work, you're always thinking about what can go wrong, where the risks might be. I mean one of the biggest risk of course is price evaluations. We've had this big phase of RE rating in stock markets, credit spreads moving.
- [25:11]
To.
- [25:14]
Multi decade lows.
- [25:16]
Really important to think hard, not just.
- [25:18]
About what's going on in the economic environment, but also in terms of market valuations there. In my philosophy, they're the sort of two key variables that are helping us understand what prospective returns in 2026 but even beyond there on a multi year horizon might look like.
- [25:37]
So that sense around are we priced.
- [25:40]
For perfection in markets is a big thing that, that I worry about. And you mentioned some of the other things to be concerned about if growth stalls out or if the AI trend really kicks on again and we get another phase of US exceptionalism.
- [25:56]
But our central scenario is really looking.
- [25:58]
For this idea that the stock market trends, investment trends can broaden out. If growth comes together, there's a little bit more inflation. So we need to be thoughtful about how we maybe diversify our diversifiers a little bit more. But a case investment case that's quite strong particularly for EFI and especially for emerging markets, which is our kind of highest conviction view at this point. Looking ahead to 2026.
- [26:29]
Alan Dunn
We touched on the 1990s and parallels and obviously differences as well with respect to tariffs, trade, environment, etc. I mean the other glaring difference is debt and deficits. I mean if you go back to the mid late 1990s, well in the late 1990s US ran a surplus I think by 2000. So I mean that's a massively different backdrop from a debt perspective. But obviously we've seen some issues wobbles I guess. In the UK bond market we've had a re rating of yields in Europe, the US it's been up and down around 4 1/4% since what, 3 1/2 years now. So despite the kind of trajectory of debt levels in the US the markets have been stable. Is this a risk? Is it something that heavily weighs in your mind when you're doing asset allocation or how do you think about it?
- [27:23]
Joe Little
Yeah, for sure.
- [27:24]
I mean you're right.
- [27:25]
The contrast with where we were in the 90s is remarkable, isn't it? I mean there was an intellectual debate about whether or not the treasury market should be sustained because the public finances was in such a good situation. The argument was whether or not the.
- [27:41]
Treasury market should be sustained as part of providing global liquidity services to the.
- [27:45]
Rest of the world.
- [27:46]
Crazy.
- [27:47]
When you think about the context of today, what a huge difference.
- [27:52]
But yeah, look, you're right Alan.
- [27:54]
I mean this has a bearing because.
- [27:56]
I think it's an important economic megatrend.
- [28:01]
Mega force to understand. When we do longer run investment modeling, thinking about debt like demographics or globalization, these are really important trends to be on top of.
- [28:14]
But in the here and now.
- [28:19]
We'Re.
- [28:19]
Thinking if the growth cycle is going.
- [28:21]
To falter, what could be the drivers of that? And there's the old joke among economists, it's not the funniest joke.
- [28:30]
I fear I might have set it.
- [28:31]
Up a bit too much now.
- [28:32]
But there's the joke that the economic.
- [28:34]
Cycle doesn't die of old age, it gets murdered.
- [28:38]
And normally what economists are thinking is.
- [28:40]
The central bank becoming very hawkish. But the bond market can also play a really important part there as well.
- [28:46]
So I think one of the main areas in terms of the mechanism where.
- [28:51]
Growth might falter and again investors get very fearful about recession, which is not our base case.
- [28:57]
But the mechanism by which that plays.
- [28:59]
Out I think could be through the so called crowding out, huge issuance of credits by AI and tech and data center investors. That could create pressure on credit markets.
- [29:15]
And raise cost of capital challenge financing.
- [29:18]
Right across the system. Or equally in the context of the government finances, public finances, debt ratios exploding. Do we see some challenge around a misbehavior of ultra long term government bonds?
- [29:34]
I mean, so far that's been contained.
- [29:36]
To Japan, Europe and France in particular.
- [29:40]
Quite a lot of discussions with investors in the UK around the budget, what.
- [29:45]
Might happen, what might happen there.
- [29:48]
And I think if we look at the part of the yield curve that's been most affected, it does seem to.
- [29:52]
Be the ultra bond rather than 10 year, it's a 30 year sort of problem in the main.
- [29:59]
But one feature of markets that's been really interesting to me this year has been how the long term bonds at.
- [30:06]
The 10 or 30 year maturity have.
- [30:08]
Been either sticky or moving higher.
- [30:10]
Despite the fact that we've had rate cuts. I found that really interesting. We've got a few charts on it in our chart pack for the investment outlook.
- [30:20]
But it's another one of these stark.
- [30:22]
Differences versus the environment of the 2000s or the 2010s, because in that phase.
- [30:28]
You had Greenspan or Bernanke complaining that the long bond was just falling and falling and falling even when they were hiking rates. And now you could see Powell or the new Fed chair next year kind of making the opposite through the looking glass argument. I'm cutting rates.
- [30:45]
I'm cutting rates, boss.
- [30:46]
But the long bond is misbehaving. It keeps going higher. Greenspan and Bernanke called it the bond yield conundrum. I've been calling it the reverse conundrum.
- [30:56]
Today because everything seems to be the other way around.
- [30:59]
So although what's interesting is that the areas of stress in debt markets have been a little bit country specific and it seems to be quite focused on.
- [31:07]
A particular part of the yield curve.
- [31:09]
I think the underlying dynamics where we're.
- [31:11]
Seeing Steeper yield curves, rising term premium in bond markets. That all looks to me that it's quite consistent with a concern around debt, a concern around fiscal dominance, a concern around fiscal inflation risks coming back to.
- [31:31]
The fore in a way that we just were safe to ignore all of.
- [31:35]
That for the last 20 years prior to the kind of COVID pandemic.
- [31:41]
Alan Dunn
And I mean you mentioned the conversations with investors and a big talking point in relation to this regime shift has been the end of the 60, 40 or certainly question around the role of bonds and portfolios. Obviously from a fixed income perspective, yields are higher than they were in the old regime, which makes them more interesting. But as you say, if we're into a sticky inflation world, and if we're into a world where if they cut rates and yields tick higher, then duration doesn't serve its same role as in the past. So I mean from an asset allocation perspective, what are you suggesting then in relation to how to use fixed income in multi asset portfolios?
- [32:28]
Joe Little
Yes, so you're right, duration doesn't play.
- [32:32]
Maybe the same role that it did always.
- [32:37]
I mean, maybe investors were a bit spoiled during the 2010s, 2000s because diversification was reliable and cheap and easy to.
- [32:50]
Access, highly liquid at the same time.
- [32:53]
So maybe we have to work a.
- [32:54]
Little bit harder for that now.
- [32:56]
Now that's not to say that there's.
- [32:57]
Not things to do in bonds. I mean, one of the markets that we've been actually quite interested in has been the UK gilt market. Not because the public finances or the.
- [33:07]
Productivity story, but because the fiscal premium looks really outsized.
- [33:13]
The term premium looks really outsized relative to what we normally expect.
- [33:17]
So there's a sort of, sometimes there.
- [33:18]
Can be a carry argument or like valuation anomaly argument for parts of the bond market on a tactical basis, almost even in this environment of tricky fiscal dominance, tricky macro situation and supply shocks.
- [33:36]
But I think in general what I would say Alan, is the idea of diversifying the diversifiers working a little bit.
- [33:45]
Harder to try and find risk mitigation or portfolio resilience is probably the way that I would try and approach that.
- [33:54]
I mean, one thing that stands out in our investment outlook is the case.
- [33:59]
For hedge funds or alternative investment strategies.
- [34:05]
Because when you look at the performance of hedge funds in phases like the.
- [34:10]
80S or the 90s and it's the era of global macro investing in some respects, much stronger return profile and a.
- [34:19]
Really important contribution for overall risk return.
- [34:23]
At the portfolio level.
- [34:25]
And then you have this kind of fallow period where many hedge fund Strategies.
- [34:30]
Macro multi strategy found it a lot.
- [34:32]
More difficult when you're in the monetary.
- [34:35]
Policy on steroids era, low inflation era.
- [34:39]
So if things are reverting back to.
- [34:42]
A regime similar maybe to the 90s with little bit of 1960s mixed in.
- [34:47]
As we were joking earlier, then, then some of those areas in the, in.
- [34:53]
The hedge fund space, look, look, look interesting, look interesting too.
- [34:57]
I mean the other idea, I'm not.
- [34:59]
Sure how you're going to react to.
- [35:02]
This one is a lot of our.
- [35:03]
Work does point to emerging markets really growing up. So in the investment outlook I make the, the, the joke that it's like Dirty Harris.
- [35:13]
Do you feel lucky? Because emerging markets have been lucky in 2025 with the dollar move, but they've also been good. So it's not just luck, it's also.
- [35:24]
Self made luck if you like, because.
- [35:26]
The macro reforms, the financial reforms seem to be really having a big effect. And if we look at bond markets.
- [35:31]
Emerging market bonds, even including the currency, a lower volatility than developed market bonds.
- [35:36]
Now, and we see a similar pattern.
- [35:38]
In equity markets as well. In fact, some of the allegedly most risky equity markets, like frontier markets, seem to have lower volatility than MSCI World or European or the rest of emerging markets.
- [35:51]
So there's something going on in a.
- [35:53]
Diversification on a country by country basis within the EM indexes, which seems to provide much lower volatility than we might conventionally assume.
- [36:03]
That's not to say they're necessarily hedging tools, but when we're a little bit starved of, of our old reliable workhorse, reliable diversifiers, and we're having to look in different directions, I think it does require a little bit more of an.
- [36:19]
Open mind to think about different parts.
- [36:21]
Of fixed income, different parts of alternatives.
- [36:24]
Especially something like hedge funds, maybe private markets too.
- [36:28]
And even emerging markets, which stereotypically is the gung ho beta bet, can maybe play a role as well, particularly if.
- [36:35]
The economic cycles are a little bit desynchronized.
- [36:37]
Alan Dunn
Yeah. And is that, as you say, index composition kind of sector exposure? Are you getting more financials, more commodities in emerging markets, less tech, presumably? Is that the less volatility? I mean, the great question always used to be, will you get emerging markets genuinely decoupling? I mean, if we have a major economic downturn or an equity downturn in the US which generally drags down the rest of the world, I mean, immune would be a strong word, but can emerging markets decouple in a scenario like that, do you think?
- [37:15]
Joe Little
Well, the spillovers, the sensitivity to the.
- [37:19]
Macro cycle does look like it's less than we might stereotypically or historically have seen. And that comes through in a lot of the work that we've done.
- [37:30]
It also comes through in the recent.
- [37:31]
IMF World Economic Outlook. They've been writing and looking at it as well.
- [37:35]
So the kind of drawdowns in gdp.
- [37:39]
The damage to risk markets does seem to be a little bit less than maybe the old approach would suggest.
- [37:50]
And of course a lot of that.
- [37:51]
Is really connected to maybe more developed and improved reformed economies, financial sectors, a much deeper domestic investor base as well. So you don't end up with this classic stereotypical emerging market doom loop. The Fed hikes rates, capital rushes away and it tightens financial conditions within emerging markets.
- [38:14]
They have a little bit more self.
- [38:16]
Determination than I think what we saw in the past.
- [38:20]
The other remarkable thing is that even within the emerging markets complex, you end.
- [38:24]
Up seeing quite idiosyncratic things going on within the index or across the region.
- [38:30]
So China versus India is the best.
- [38:32]
Example, maybe quite salient for everybody listening as well.
- [38:37]
India has had a poor year for.
- [38:38]
Performance in the stock market in 2025 after multiple gangbuster, very strong years. And China is the big winner in 2025.
- [38:47]
Now historically this idea that India and.
- [38:50]
China can have slightly mirror image performance, that's very strange. If you look back during the 2000 and tens look back even further, the historic tendency is for those indexes to be highly correlated.
- [39:04]
And so this goes back maybe to a little bit of what's going on.
- [39:07]
Domestically, but also what's going on domestically in terms of the behavior of investors.
- [39:12]
And also how foreigners are accessing emerging markets as well. If everybody's just buying global emerging market.
- [39:19]
Funds or BRIC funds, then there is a forced correlation with those markets.
- [39:26]
If instead there's greater access awareness of.
- [39:30]
Country specific themes, greater access to country specific funds, then that can be a.
- [39:36]
Source of differentiation and diversification within the.
- [39:39]
EM index, which almost supports this idea of recognizing that economic policy, the stage of the cycle, the structure of the economy in India or in South Asia.
- [39:51]
Is very different to what you see in China and North Asia. And so some of those differences can.
- [39:58]
Really kind of come through in what we're seeing in index performance.
- [40:04]
And I think that becomes more and.
- [40:05]
More important actually rather than being just a short term blip, I think it.
- [40:11]
Sustains because a lot of the policy in innovation or idiosyncratic measures that that different countries may take in terms of.
- [40:23]
Their economic or foreign policy, that seems to be a direct consequence of the geopolitical environment that we found ourselves in.
- [40:32]
The multipolar world as I call it and others call it, that seems to.
- [40:38]
Create a situation where you can have greater differences, policy experimentation in different parts of the world. And that might mean, like you say, that you end up with a slightly different dynamics depending on where you are in emerging markets. Not just reflecting sector composition but also reflecting like a country effect as well.
- [40:59]
Alan Dunn
Interesting. Yeah, I mean you touched on the tailwind for em for the US dollar. I mean the dollar has been an interesting story this year. Obviously started the year people expected a stronger dollar on tariffs. We got the tariffs then, we had a weaker dollar then and there was a widespread pessimism about, yeah, look for the dollar and we've had quite mixed performance since then. I mean if you look at the Euro, it had a jump up but it's kind of been stuck at 115, 116 maybe for about six months now. Dollar yen on the other hand has kind of been moving higher of late in Asia.
- [41:34]
Joe Little
Mixed.
- [41:35]
Alan Dunn
Yeah, NIMBY was a bit stronger, but kind of not doing anything too dramatic. But everybody had that chart in their reports at one point showing the, you know, the worst start for the dollar for the year ever. You know, I haven't seen it for a few weeks now because obviously that story has quietened down. But it seems like that extreme bearishness has paused for the moment. But I mean where are you on a multi year basis?
- [42:01]
Joe Little
Yeah, I mean like you say, the.
- [42:05]
Cadence of the dollar has been quite different since the summer versus what we saw in the first part of the year. So may part of the year is that very clear. Rapid decline in the dollar versus everything that's the debasement trade or the US exceptionalism reversing a story very clearly. And it's fizzled out, hasn't it in markets.
- [42:30]
The dollar depreciation that we have seen.
- [42:33]
Since the early part of the summer seems to be more about the cycle, seems to be more about the Fed. And then as you mentioned Alan, we've had a bit of a reversal or going on more recently.
- [42:44]
We still find that the dollar is.
- [42:49]
Quite overvalued versus most currencies. 15 to 20% overvaluation on our equilibrium currency modeling now, I mean, you know, you have to be a bit careful about valuation analysis when it comes to currencies.
- [43:03]
You might be okay with bonds and stocks, but with currencies you have to be a little bit careful. But I do think it works at extremes. So the question is whether or not that 15 to 20%.
- [43:14]
Misvaluation, overvaluation is enough to kind of trigger the valuation elastic into coming back together.
- [43:23]
The one reason why it might be.
- [43:26]
Is that policy does seem to be focused again on delivering a weaker dollar. That seems to be the message from Treasury Secretary Besson. That seems to be something that the Fed is wanting to support. It seems to be aligned with that sort of rebalancing adjustment on trade balances and maybe supporting some of the big tech export side as well.
- [43:53]
And some of the themes that I.
- [43:54]
Mentioned around growth coming together, if the bad luck that's hampered European economic performance in recent years is easing.
- [44:07]
Then European.
- [44:08]
Economic recovery, German fiscal support, Chinese growth as we talked about looks like it can be resilient and strong, around 5% give or take.
- [44:18]
Then this idea of maybe some re.
- [44:22]
Equilibration of growth around the world that can also support a weaker dollar.
- [44:29]
So I mean our scenario is to expect it to be a little bit.
- [44:32]
Higgledy piggledy from here year, but to position for a modestly weaker dollar in 2026 that can still then obviously be a help for emerging markets and E fee capital flows downhill. Some support in terms of financial conditions for rest of the world asset classes.
- [44:51]
But it's not quite the sort of.
- [44:53]
Dramatic the end of dollar dominance idea that was quite popular among polite discussion circles of economists earlier in the year.
- [45:08]
The one idea that we've had which I can't quite be certain of at.
- [45:14]
This juncture, is how the dollar performs under a growth problem scenario.
- [45:19]
Because historically we're used to not just.
- [45:23]
A multi decade dollar bull market, but.
- [45:27]
We'Ve also had this kind of risk.
- [45:29]
Mitigation property of the dollar dollar.
- [45:31]
Sometimes people call it the dollar smile. So you get a positive return for.
- [45:35]
The dollar in a risk off a.
- [45:37]
Positive return for the dollar in a.
- [45:39]
Situation where US growth is outperforming the rest of the world and it's just.
- [45:43]
That middle bit where the dollar is.
- [45:45]
Weaker which kind of supports rest of world economic and market performance.
- [45:50]
The question in my mind is what's.
- [45:51]
Happened to that left hand part of the dollar smile? Has it become more of a sort of a smirk?
- [45:58]
And that could be then something to.
- [46:01]
Watch and think about.
- [46:03]
It brings us back again to this.
- [46:05]
Idea of where the true risk mitigators and diversifiers are today.
- [46:10]
So they're the things that we've been thinking about. But yeah, we're in the camp of multi year dollar weakness. I think you've got to be kind.
- [46:16]
Of realistic about the rhythm of that and the extent it can play out in.
- [46:22]
But the key thing is that policy.
- [46:24]
Seems to be lining up behind a valuation signal and I think that's a reasonable basis then to give some support to some of the investment themes in emerging markets and outside of the US Markets as well.
- [46:39]
Alan Dunn
Yeah, I mean, you mentioned policy. I mean, part of the theme earlier in the year was maybe policy credibility. And obviously we've had attacks on the Fed and suggestions that will see that less independent Fed. And we're getting into the end of the year. So the time frame on how all of this plays out is getting a bit closer in terms of likely replacement for Jay Powell. So any thoughts on that? Who's your personal favorite or who do you think the most likely replacement is? And, and you know, there's two schools of thought. One is this is going to be highly significant. The second one is not going to be that significant. It's one, one person, one voice at the table. What do you think in terms of the significance?
- [47:28]
Joe Little
Yeah, I think, I mean, it's exciting, isn't it, these, for central bank watchers.
- [47:33]
These things are always interesting to follow. I'm a bit of a nerd, Alan, when it comes to tracking central bank speeches.
- [47:42]
And I think like many economists we.
- [47:44]
Have been in the market. There's been a significant attention to the presentations of Waller alongside the other core FOMC members over the last sort of six months, I would say in particular. And those speeches are always very thoughtful and interesting, so always interesting to read.
- [48:12]
The other candidates that have been discussed.
- [48:14]
Are, are a little bit more maybe unknown to investors, although all very high profile in their own rights as well.
- [48:25]
How much of an effect can it have in 2026? I mean, it might be worth one cut if you get a particularly dovish Fed chair. Our scenario isn't so far away from.
- [48:36]
Where the market is. Something like 3.5% fed funds by the end of 2026 would seem reasonable, so.
- [48:43]
Sort of two or three cuts. But I find it hard to see.
- [48:46]
That it's going to decisively pivot everything on a dime. Like you mentioned, it's one vote in a system where dissent and disagreement is increasingly something that investors expect and look for in the minutes.
- [49:05]
So I think it could be worth a little bit of extra easing at.
- [49:09]
The margin if you get a particularly dovish leader chair at the Fed, but not sure that it completely decisively changes everything in 2026.
- [49:21]
I mean, Central banks we know are.
- [49:23]
An arm of government. This idea that economists had that they were just independent technocrats like a monetary Policy council or a fiscal council, as if they can ever be completely fully technocratic and independent. It was always is something of a non starter from my perspective.
- [49:43]
But you still have a situation where.
- [49:45]
There is operational independence, which is of course the critical part of the story, to deliver good growth and inflation outcomes.
- [49:54]
I mean, the other thing I'd mention is that the economists don't really know.
- [50:02]
Too, too much about populism and how populism plays out.
- [50:05]
But the playbook that we have from.
- [50:07]
Latin America and other economies does always point to a idea around some challenges and growth and this idea that institutions are under scrutiny.
- [50:22]
And so to a degree, what we've.
- [50:24]
Seen in 2025 isn't really that surprising. It's very much a sort of a classic playbook. I think where it leaves us is.
- [50:33]
Reinforcing this idea that that 2% on.
- [50:36]
Inflation is more of a floor now than a ceiling. It doesn't have to be particularly, we.
- [50:41]
Don'T have to be particularly shrill in the inflation scenario that we might want.
- [50:44]
To assume, but just to sort of reinforce that idea that stickiness and spikiness are probably good by words, good adjectives to describe the inflation process now, which is a marked difference relative to what we've become used to and the environment that we've grown up in as investors.
- [51:01]
Alan Dunn
Yeah, I mean, absolutely. The one asset that maybe has reflected all of these kind of themes this year has been gold. I mean, it's an asset that polarizes strategists and economists and asset allocators. Some people love it, some people have zero. I mean, in your model portfolios, is there a place for gold and how much?
- [51:25]
Joe Little
Yeah, we've been big fans of gold, Alan, so we got that one right. And so that's been an important theme both in terms of it being in.
- [51:37]
Strategic allocations as an extra layer and.
- [51:42]
Element, but also to reflect the fact that we had some concerns around dollar dynamics and what might happen. And we'd seen in some of our.
- [51:54]
Analysis, looking at central banks and sovereign investor positioning, you can see that movement more toward gold and some diversification to other currencies as well.
- [52:07]
So across a lot of the metrics that we've been tracking, across a lot.
- [52:13]
Of the discussions that we've been having with investors, I've been having with investors around the world, it's really come up as a kind of key theme.
- [52:18]
And as you say, it's probably the.
- [52:19]
Clearest example of some of those ideas really coming into markets and playing out strongly.
- [52:26]
The other one I'd suggest is the Stock bond correlation because that stock bond.
- [52:31]
Correlation has really shifted materially. Obviously depends a little bit how you measure it, what the look back period is, what kind of time horizon you're looking at. But it's another reminder that stock bond correlations moving into positive territory that's telling us something about how many investors are thinking about inflation. Co movement of those asset classes is really reinforcing that dynamic that you've seen behind the gold price action, the debasement trade as it's been talked about.
- [53:05]
And it's a remarkable situation. Of course all of that's happened at the same time. The stock market's been bull market all over the place. So quite interesting set of co movements.
- [53:18]
Correlations in parts of asset markets.
- [53:22]
Alan Dunn
We touched on how you speak to lots of investors. So that gives you a good vantage point around sentiment and where people's minds are. I mean do you think generally very hard to kind of broad brush statements. But do you see a generally pro risk positively positioned investor base that you speak to or cash levels a bit higher? Is that going to be a positive or would you say be are overextended or neutral? Or how would you categorize positioning from your vantage point?
- [53:56]
Joe Little
Yeah, I mean I think it depends a little bit sector to sector, investor.
- [54:00]
Type to investor type.
- [54:01]
But there does seem to be a.
- [54:03]
Bit of a nervous equilibrium, a fragile equilibrium maybe to the outlook.
- [54:10]
Because this idea that we talked about.
- [54:14]
Where the economists have been thinking about, about the K shaped economy, what happens next?
- [54:19]
Does the top end of the K move higher still? Does the bottom of the K fall away? Or could it catch up a little bit? Many questions about how the economic system's.
- [54:28]
Going to play out.
- [54:30]
I think many investors are worried or.
- [54:32]
Focused on an idea of a sustained.
- [54:36]
Big AI bubble dynamic, also fearful at the same time in the same conversation.
- [54:42]
Without skipping a beat in the articulation.
- [54:45]
Of their thoughts about the slowdown in.
- [54:47]
The labor market data and whether or.
- [54:49]
Not the US economy is hitting some.
- [54:51]
Sort of stall speed that then affects what goes on elsewhere.
- [54:55]
So there's some dissonance and anxiety in.
- [55:01]
A situation which is pretty radically uncertain really.
- [55:06]
So a lot of what we see with positioning may be thinking about something.
- [55:12]
That is still modestly pro risk is.
- [55:15]
Tentative, is tentative and as you say.
- [55:19]
Cash positions and a heightened awareness to news and sensitivity to sort of sticker shock or market dynamics.
- [55:30]
I think that's all very much part.
- [55:34]
Embedded in the conversation.
- [55:36]
And this is why some of the.
- [55:37]
Dynamics that we've been seeing with AI volatility for example Tech volatility is really interesting. Tracking some of the technicals, how that's going to play out. Is it going to evolve into a much bigger story? There's clearly a lot of nervousness among the investors that I talk to, but.
- [55:57]
Also a recognition that while the growth.
- [56:00]
Cycle looks okay, investors mostly want to stay invested and look for or maybe different sectors, different geographies to express their view, maybe with a little bit less valuation risk. So thinking about Asia tech rather than US Tech for example, could be an interesting looking at neglected equity markets in Europe, thinking about the highest quality parts of private credit rather than a generic allocation. Focus on direct lending, looking at new ways to hedge hedge portfolios. We talked about hedge funds. That comes up a lot with investors who are thinking about the asset class in their investable universe.
- [56:46]
So certainly.
- [56:49]
An acknowledgment of different scenarios and recognition that a lot can potentially happen.
- [56:57]
And the kind of unique situation that.
- [56:59]
We'Re in today where, where you know.
- [57:02]
If macro trends lurch to the downside.
- [57:05]
Or to the upside, it would have big effects on portfolios and big effects on markets.
- [57:11]
And at the same time it, it almost, it because it's part of the conversation and the discussion, it almost wouldn't.
- [57:16]
Be that much of a surprise. Quite, quite interesting.
- [57:20]
Alan Dunn
And I know you publish on capital market assumptions and we've talked a lot about kind of the view this year, next year, I mean taking more of a kind of a multi year, as you say perspective. We're in a new regime. Valuations are high on a five to ten year view. I guess you hear from a lot of people, expect lower returns in equities or US equities, look for opportunities elsewhere. Is that your thinking? I mean you sound positive on em. Is that the core, I suppose high conviction view or anything that you would particularly highlight if you're constructing a kind of a portfolio from a 5 to 10 year perspective as opposed to for the here and now.
- [58:02]
Joe Little
Yeah, thanks Alan. I mean this is a really big part of the work that we do.
- [58:06]
Is something of a passion project for me as well. I must confess.
- [58:10]
We have higher cash rates because of the sticky inflation on a multi year timeframe. So rate cuts in the very near.
- [58:16]
Term, but a higher sort of resting rate for rate for cash rates.
- [58:20]
And one of the things that that.
- [58:21]
Does is then, then play out right through the asset spectrum into bonds and credits and equities and elsewhere.
- [58:29]
Importantly, it means that while equity returns.
- [58:32]
Still look okay in nominal terms, the reward, the equity risk premium for taking equity risk is a Lot more skinny than maybe we would expect. We have equity risk premium in the US starting with a 2 now, which is unusual. We've got down to a 0 in the dot com mania. So you can see the valuation adjustment investment is, you know, could still continue but normally we'd want to see 4% equity risk premium, 4 and a bit percent equity risk premium where we do.
- [59:03]
See high returns very much in the EM space which is coming from asset.
- [59:09]
Risk premia being a bit more elevated. Cash rates are in some instances, you know, decent as well. And then also the currency element, which I think is a big part of.
- [59:23]
When we think about the long run.
- [59:24]
Work, we're often thinking about whether or not the spot currency is going to outperform the forward rather than necessarily making a bold view. But the currency element does seem to be a big part of the story. Virtually all of the emerging market currencies that we study in our work are showing material undervaluation versus the dollar. And on a medium term view I think those valuation rules of thumb are probably a decent guide.
- [59:48]
And then there's a number of areas in the alternative area which I think.
- [59:52]
Look interesting for return enhancement. So we might look at something like direct lending still some safer parts of private credit.
- [59:59]
Private equity has been a bit neglected.
- [60:03]
But there seems to be an improvement in terms of the private equity market in general. Returns still look okay.
- [60:12]
It's quite aligned with some of the.
- [60:13]
Broadening out type of idea in the buyout private equity space. And that's how we model it as well, thinking about it as a derivative on different parts, different factors in the equity market. So that's kind of interesting too.
- [60:29]
And then at the sort of lower risk end we see some of the phenomenon that we mentioned at the start. Credit spreads at multi decade lows. In some instances we've seen credits trading through government paper. We've got higher risk premium on bond.
- [60:44]
Markets because an expectation that some of those fiscal risks are going to come through.
- [60:48]
So it is very much a case.
- [60:50]
Of of thinking quite hard about how you position that safety part of the portfolio. Which is why some of these other areas of asset markets, thinking about maybe Asia credits or emerging market credits or hedge funds or infrastructure come into that sort of safety part of the portfolio. Very much similar to what we talked about moving or making the argument that moving to a more highly uncertain, complex macro environment, a multipolar world if you.
- [61:22]
Like, kind of means you've got to move to a multipolar portfolio as well.
- [61:26]
And think about building portfolio resilience with A number of different asset classes to try and bake in some of that all weather type characteristic which we want to harness in our multi asset portfolios.
- [61:41]
Alan Dunn
Very good. Just conscious of time, we're just up to the hour and we do like to ask our guests guests for any advice they might have for people who are interested in macro or getting better at macro or things you've read. Obviously you mentioned Michael Lewis's book which I haven't read, so I made a note of that one to go and look at. But anything else that you've read that's been highly influential in your career or advice you've got and things you'd pass on now to people.
- [62:07]
Joe Little
Yeah, I mean I am a big sucker for books, Alan.
- [62:11]
I read recently, just finished Breakneck by Dan Wang which is all about the Chinese economic miracle and Dan Wang is quite a well known analyst writer on China. That's a terrific book. I'm not really surprised to hear that it's one of the top nominations for economics book of the year. It's certainly the best new economics book that I've read this year. And he goes through some key aspects of China regional development and China macroeconomic development. Thinking about technology, thinking about how they've set up some of the manufacturing success stories, but also thinking about some of the other areas of recent history, the zero COVID policy for example. So that's fascinating if you're interested in China macro I suppose historically it's maybe.
- [63:06]
A lot of books that you know.
- [63:08]
Things like Market Wizards which I always recommend to our graduate cohort. I love that book.
- [63:16]
On the economic side, there's a terrific.
- [63:18]
Book by Danny Roderick at Harvard called Economics Rules which looks at how you can apply economic models to thinking about the world. This sort of is like the idea of the stock market being the market in ideas that I mentioned at the start. So Roderick kind of goes through all of the different schools of economic thoughts and shows you how all of the models are relevant. You've just got to pick, pick the right model at the right time.
- [63:43]
So I really enjoy, enjoy stuff like.
- [63:44]
That and often that's quite a nice book for people who are maybe coming from an economics background to start thinking about how to apply some of those ideas to the real world.
- [63:53]
But yeah, big sucker for books. Big sucker for substack as well, Alan.
- [63:57]
So always following your substack.
- [63:59]
Alan Dunn
Good stuff. Good. Good to know there's some readers out there. Great. Well listen Joe, appreciate you coming on today. It's been great to get get your thoughts on everything from global markets to global asset allocation. And obviously listeners can follow your work. I'm sure they can find you pretty active on LinkedIn and social media and you kindly also share a lot of your HSPC publications on those platforms too. So keep an eye out for Joe's work because obviously it's a very macro driven world we live in today. But from all of us here in Top Traders unto Unplugged, stay tuned and we'll be back again soon with more content.
- [64:39]
Nils Kostrup Larson
Thanks for listening to Top Traders Unplugged. If you feel you learnt something of value from today's episode, the best way to stay updated is to go on over to itunes and subscribe to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you and to ensure our show continues to grow, please leave us an honest rating and review in itunes. It only takes while a a minute and it's the best way to show us you love the podcast. We'll see you next time on Top Traders Unplugged.