Meeting Of Minds – August 2018

Published on: August 28th, 2018

In Raoul’s Meeting of Minds, he takes a deeper dive into the auto sector which he categorises as vulnerable on several fronts. He concludes with some actionable short trades in his least favourite single name stocks. Julian meanwhile, briefly examines the myth of excess returns available via EM carry before turning his attention to what will be a fraught and fractious autumn in Italy. Why do we care? Because Italy has the third biggest bond market in the world and has the potential to destabilise the Eurozone project once and for all.

Comments

  • AB
    Anthony B.
    1 September 2018 @ 10:37
    Julian, on page 26, you mention tempering your enthusiasm on being short EM due to institutional positioning. What variables and levels are you most focused on in assessing how much more room there is to run before they step in? Is it the Goldman Index or a U-turn in fed policy? The arguments laid out would suggest the EM sell off should continue at least through year end. Thanks to you, Raoul and the team(s) for so much food for thought!
    • JB
      Julian B. | Contributor
      6 September 2018 @ 21:24
      Hi Anthony sorry if there's any confusion but I haven't tempered my view on EM. Yes its true that EM bonds, especially in local currency have fallen considerably. But broad EM equities (EEM) are barely down 20% and typically falls 30-60%. As for the trigger for a bounce ultimately it has to be an about turn from the Fed and that will only occur if and when we get a sufficient sell off in US equities (so far US macro is too strong).
  • MB
    Matthias B.
    29 August 2018 @ 12:48
    and a question to Julian (and Raould can chip in as well if he wanted) on his previous constructive stand on gold in light of his FX views (strong USD): since the dollar started it ascend in mid April, gold sold off substantially (not as bad as the Lira or Arg Peso but worse than the Euro), Silver fared worse which may as well relate to its partial treatment as industrial metal (where copper and zinc faced strong downturns). If Italy was to worsen as you describe and further EM spillover occured, I would presume that gold remains vulnerable. At what point would you expect gold to eventually bottom and rally along the US dollar? the gold/silver ratio hit an all time high today and is probably multiple standard deviations away from a long term mean, would it make sense to rather buy silver than gold? tks again!
    • JB
      Julian B. | Contributor
      31 August 2018 @ 14:07
      Matthias I did some work on commodities for my institutional clients and the contrast between Gold and Silver is indeed extreme. In that sense it's one of my favourite "buys" when the dollar tops. As to when that happens is very simple. We need the Fed to reverse their tightening backing off hikes but more importantly QT. The trigger for that is simple. Lots of pain that starts to impact US stocks.
    • MB
      Matthias B.
      2 September 2018 @ 16:38
      tks a lot Julian.
  • MS
    Mark S.
    30 August 2018 @ 03:50
    Julian I have a question based on your tweet today. You wrote 'broad financial conditions keep easing'. https://twitter.com/JulianMI2/status/1034890969382965248 Besides the stock market, how are you seeing this? Rates are going up as is the market, but is there a way you are seeing the easing besides the market? Second actions that could reverse this from watching you on other RV videos are Increase in US dollar, sharp hike in Fed Interest rate hike in response to surprise inflation #, sell off in bonds etc. But What about these countries with the currencies spinning out of control? Raoul mention USDCNY over 7 being the big one for him. But what about Turkey? SA? Argentina? Brazil? Australia? I realize these have a potential contagion but besides China is there another big one? If seems that EURUSD seems like it's a little unreliable as a marker breaking below but then well above 1.15? Thanks
    • JB
      Julian B. | Contributor
      31 August 2018 @ 13:31
      Hi Mark. So are you know a typical FC index contains an element for FX i.e. the $, short term rates, bond yields, credit and stocks. However, no 2 indexes are exactly the same. I like to use the Chicago Fed index for domestic US FC and the Goldman index, which has a higher $ element for "overseas US FC". Back in the spring, we looked at the 5 elements of FC and concluded that while the $ and bond yields had responded correctly the moves had been more muted than in previous fed hiking cycles i.e. they hadn't tightened FC much. That said, they had at least moved in the correct direction. The two elements that had failed to respond and indeed continued to ease were stocks and credit. I believe there are a number of reasons for this from QE to the Greenspan Put (why should the equity market be afraid of the Fed when they have their back) to the fact that Fed Funds are still very negative. At some point, this has to change and you have correctly identified the triggers i.e. the $, yields etc. As for countries overseas unfortunately as is typically the case when the Fed hikes they are going to be left to their own devices. The Fed won't ignore them completely especially as we saw in early 2016 when Chinese contagion forces Yellen to change tack. However, with nominal GDP at home running way above potential, they will have to keep tightening until something significant breaks and causes US stocks to drop sufficiently that they can stop.
  • sB
    sylvain B.
    31 August 2018 @ 03:28
    if Macro view on Auto then short the sector. Shorting Renault is a micro story and you will be short a deep value stock. This is why i wouldn't short Renault. Stock is down 11% YTD and 24% since April. Carlos Ghosn, CEO, just bought EUR7mios worth of stock at 71.50 euro (largest purchase ever). The stock is the cheapest among the peer group. Stock trades at 0.6X book, with a P/E of 4.1X and less than 3X EV/EBIT and boasts a dividend yield of 5% with a payout of only 20%. company generates eur1.7B in free cash flow or 8% FCF Yield Current market cap (21b implies) 0 value for Renault, as it is less than the stake in Nissan, Mitsubishi et Renault Finance. Renault and Avoztaz are currently valued on negative FCF to perpetuity. The company has EUR16B in cash on the balance sheet and could use it to pay a spec div or buybacks 14% held by French State than wants out. A Chinese group may be interested buyer of the stake. At current price I would be long Renault and short VW for ex
  • MB
    Matthias B.
    29 August 2018 @ 12:28
    well argued. questions for Raoul: since you are bullish USD, bearish EUR, would it not make more sense to short VW and Renault in Euro (besides that their main listing is in Europe thus provides better liquidity)? And given that the OEM suppliers normally face a bigger cycle than the manufacturers themselves, would it make sense to short european or US suppliers, such as Leoni/Schaeffler et al. ? tks a lot.
    • FD
      Fjodor D.
      29 August 2018 @ 14:44
      Fully concur with Matthias. I'd also be interested why those three car producers (all have come off 20% over the last weeks and are just OS) and not e.g.: GM or F? What be good to know if US car loans have fixed interest rate payments or variable ones.
    • JL
      J L.
      30 August 2018 @ 10:00
      If you short them in dollars you are actually going short EURUSD so that is what fits a bearish EUR view. I'd just short the most liquid stock and place currency bets separately elsewhere.
  • PD
    Peter D.
    29 August 2018 @ 16:41
    Great articles. I was struck by the apparent ill-health of the auto finance sector in the US set out in this article. Rather than looking to short car makers themselves, might there be merit in shorting finance companies with significant auto loan books in the US? If so, what sort of quality bias would you look for the loan book to have (if any): sub-prime, near prime or prime? Many thanks.
  • AS
    Alan S.
    28 August 2018 @ 19:46
    Okay, I'll ask the obvious: How does one buy a put on EURJPY? Researched it, and humbly I ask, besides futures contracts, is there a way?
    • SR
      Steve R.
      28 August 2018 @ 23:45
      It totally depends on your trading platform. Does it provide the ability to enter into FX option trades? I personally use Saxo, so it's literally right-click and select Forex Options Trade menu option.
    • JL
      J L.
      29 August 2018 @ 15:53
      easy on Saxo, no way of buying fx options on Interactive afaik, only options on XXXUSD futures
  • KJ
    Keith J.
    28 August 2018 @ 21:14
    As the millennials grow up and have kids they’ll want cars. No use calling an Uber in the UK with 2 kids unless they have car seats (they don’t). Not sure how strict laws are elsewhere but I suspect they may opt for safety anyway. This will of course be done on the never never but perhaps not with the luxury German names. Anecdotal, but I have numerous friends who were driving BMWs on finance 5 years ago but, now they have kids, are driving Hondas or Fords.
    • SR
      Steve R.
      28 August 2018 @ 23:47
      Totally agree with this. Just about every parent takes their kids to school in a car these days. Kids are expensive so parents trade down from the Audi/BMWs to Ford Mondeos etc.
    • JL
      J L.
      29 August 2018 @ 10:55
      UK has a very different dynamic to the south of Europe and even German cities. Better weather and (vastly) better public transport and cycling infrastructure means a car is not necessary for taking kids to school at all really. That said all of my friends with kids end up getting a car for weekend trips etc but as you say it is mostly budget cars (regardless of their income).
    • LD
      Lance D.
      29 August 2018 @ 11:23
      they don't want kids my daughter and her friends are horrified at the thought of having kids they see them as a waste of money ( i am always the first to confirm this fact with them too hahaha.)
    • LD
      Lance D.
      29 August 2018 @ 11:29
      however they are not to enthusiastic about car sharing & see uber as the lesser evil the big thing in my house hold when it comes to travel is the deal that can begot for public transport they really do kick the arse out of public transport .. baffles me i think they stink but hey what do i know huh?
  • DO
    Daryl O.
    29 August 2018 @ 06:56
    Again, 2 really good articles. Thorough but concise. Complexity to clarity. Thank you both.
  • TR
    Todd R.
    29 August 2018 @ 01:23
    I would really love an audio version of this. Would be perfect for commuting or while on a run.
  • JJ
    Josh J.
    28 August 2018 @ 21:36
    RV - can all the macro insiders research be distributed through videos? Or at least a short video accompanying each written piece?
  • JS
    John S.
    28 August 2018 @ 20:30
    Thanks for the update. Is there also the opportunity to short US sub-prime auto loan lenders or is that a knock on effect that will take some time to play out?
  • LD
    Lance D.
    28 August 2018 @ 12:18
    wow this italy thing is just a mind field so thanks for coming back to this..

Mark Yusko

Morgan Creek Capital Management, Co- Founder, CEO, & CIO

Mark Yusko is the Founder, CEO and Chief Investment Officer of Morgan Creek Capital Management. He is also the Managing Partner of Morgan Creek Digital Assets.

Morgan Creek Capital Management was founded in 2004 and currently manages close to $2 billion in discretionary and non-discretionary assets. Prior to founding Morgan Creek, Mr. Yusko was CIO and Founder of UNC Management Company (UNCMC), the Endowment investment office for the University of North Carolina at Chapel Hill. Before that, he was Senior Investment Director for the University of Notre Dame Investment Office. Mr. Yusko has been at the forefront of institutional investing throughout his career. An early investor in alternative asset classes at Notre Dame, he brought the Endowment Model of investing to UNC, which contributed to significant performance gains for the Endowment. The Endowment Model is the cornerstone philosophy of Morgan Creek, as is the mandate to Invest in Innovation.

Mr. Yusko is again at the forefront of investing through Morgan Creek Digital Assets, which was formed in 2018. Morgan Creek Digital is an early stage investor in blockchain technology, digital currency and digital assets through the firm’s Venture Capital and Digital Asset Index Fund.

Mr. Yusko received a BA with Honors from the University of Notre Dame and an MBA in Accounting and Finance from the University of Chicago.

Anthony Scaramucci

SkyBridge Capital, Founder & Co-Managing Partner

Prior to founding SkyBridge in 2005, Scaramucci co-founded investment partnership Oscar Capital Management, which was sold to Neuberger Berman, LLC in 2001. Earlier, he was a vice president in Private Wealth Management at Goldman Sachs & Co. In 2016, Scaramucci was ranked #85 in Worth Magazine’sPower 100: The 100 Most Powerful People in Global Finance. In 2011, he received Ernst & Young’s “Entrepreneur of the Year –New York” Award in the Financial Services category. Anthony is amember of the Council on Foreign Relations (CFR), vice chair of the Kennedy Center Corporate Fund Board, a board member of both The Brain Tumor Foundation and Business Executives for National Security (BENS), and a Trustee of the United States Olympic & Paralympic Foundation. He was a member of the New York City Financial Services Advisory Committee from 2007 to 2012. In November 2016, he was named to President-Elect Trump’s 16-person Presidential Transition Team Executive Committee. In June 2017, he wasnamed the Chief Strategy Officer of the EXIM Bank. He served as the White House Communications Director for a period in July 2017. Scaramucci, a native of Long Island, New York, holds a Bachelor of Arts degree in Economics from Tufts University and a Juris Doctor from Harvard Law School.

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MicroStrategy, Co-Founder

Mr. Saylor is a technologist, entrepreneur, business executive, philanthropist, and best-selling author. He currently serves as Chairman of the Board of Directors and Chief Executive Office of MicroStrategy, Inc. (MSTR). Since co-founding the company at the age of 24, Mr. Saylor has built MicroStrategy into a global leader in business intelligence, mobile software, and cloud-based services. In 2012, he authored The Mobile Wave: How Mobile Intelligence Will Change Everything, which earned a spot on The New York Times Best Sellers list.

Mr. Saylor attended the Massachusetts Institute of Technology, receiving an S.B. in Aeronautics and Astronautics and an S.B. in Science, Technology, and Society.

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Nugget's News, Founder & CEO

Alex Saunders is the founder and CEO of Nugget’s News, a digital media company focused on all things crypto. Alex has been captivated by cryptocurrency since 2012 and in 2017 he began educating globally on the benefits of cryptocurrency and how to safely acquireit. Nugget’s News has been listed as a top-20 podcast by Business Insider, ShapeShift and Lifehacker and has over 120k YouTube subscribers with 9 million total views.Alex is also heavily focused on his cryptocurrency education platform Collective Shift which currently serves over 4,500 members. provides his unique perspectives by utilising his expertise in fundamental analysis, technical analysis and market sentiment. He is working towards his mission of making it easier for everyone to understand the financial world.

James Putra

TradeStation Crypto, Inc., Sr. Director of Product Strategy

James helped launch TradeStation Crypto’s offering which utilizes a true online brokerage model that self-directed investors and traders have come to expect for equities, futures, and foreign currency markets. He is a reputed crypto asset specialist and blockchain thought leader focused on helping people find innovative ways to participate in this space. He is active in the blockchain community with speaking engagements, TV appearances and mentoring. James has over 15 years of experience in the Fintech industry.

Raoul Pal

Real Vision, Co-Founder & CEO

Raoul Pal is the Co-Founder and CEO of Real Vision, the world’s pre-eminent financial media platform, which helps members understand the complex world of finance, business, and the global economy.

Real Vision members also have access to Real Vision Crypto, a cryptocurrency and digital assets video channel watched by over 80,000 people. In addition, Raoul has been publishing Global Macro Investor since January 2005 to provide original, high quality, quantifiable and easily readable research for the global macro investment community hedge funds, family offices, pension funds and sovereign wealth funds. It draws on his considerable 31 years of experience in advising hedge funds and managing a global macro hedge fund. Global Macro Investor has one of the very best, proven track records of any newsletter in the industry, producing extremely positive returns in eight out of the last twelve years.

He retired from managing client money at the age of 36 in 2004 and now lives in the tiny Caribbean island of Little Cayman in the Cayman Islands. Previously he co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul moved to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe. In this role, Raoul established strong relationships with many of the world’s pre-eminent hedge funds, learning from their styles and experiences.

Other stop-off points on the way were NatWest Markets and HSBC, although he began his career by training traders in technical analysis.

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What Bitcoin Did, Journalist

Peter McCormack is a full time journalist/podcaster covering topics such as Freedom, Human Rights, Censorship and Bitcoin. Peter created and hosts the What Bitcoin Did Podcast, a twice-weekly Bitcoin podcast where he interviews experts in the world of Bitcoin development, privacy, investment and adoption. Launched in November of 2017, the podcast has grown to over 100 episodes with a guest list that is a testament to the diversity of knowledge and opinions that represent the broader Bitcoin community. Expanding his growing list of human interest recordings, documentaries and films Peter has recently launched the Defiance podcast and DefianceTV.

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Avanti Financial Group, Founder & CEO

22-year Wall Street veteran who has been active in bitcoin and blockchain since 2012. In 2018-20 she led the charge to make her native state of Wyoming an oasis for blockchain companies in the US, where she helped Wyoming enact 20 blockchain-enabling laws. From 2016-18 she jointly spearheaded a blockchain project for delivering market index data to Vanguard as chairman and president of Symbiont, an enterprise blockchain start-up. Caitlin ran Morgan Stanley’s pension solutions business (2007-2016), heldsenior roles at Credit Suisse (1997-2007) and began her career at Salomon Brothers (1994-1997). She is a graduate of Harvard Law School (JD, 1994), the Kennedy School of Government (MPP, 1994) and the University of Wyoming (BA, 1990).

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Bitwise Asset Management, CEO

Hunter Horsley is Chief Executive Officer of Bitwise Asset Management. Prior to Bitwise, he was a product manager at Facebook, working on advertiser products including the multibillion-dollar sponsored content ecosystem and ad breaks in videos. Before Facebook, Horlsey was a product manager at Instagram, responsible for multiple advertising products generating several hundred million dollars of revenue. He is a graduate of the Wharton School at the University of Pennsylvania, with a B.S. in economics. Recently, Horsley was named a member of Forbes’ 2019 “30 Under 30” list.

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Forest For The Trees, Founder & President

Luke Gromen has 25 years of experience in equity research, equity research sales, and as a macro/thematic analyst. He is the founder and president of macro/thematic research firm FFTT, LLC, which he founded in early 2014 to address and leverage the opportunity he saw created by applying what clients and former colleagues consistently described as a “unique ability to connect the dots” during a time when he saw an increasing “silo-ing” of perspectives occurring on Wall Street and in corporate America.

FFTT caters to institutions and sophisticated individuals by aggregating a wide variety of macroeconomic, thematic and sector trends in an unconventional manner to identify investable developing economic bottlenecks for his clients. Prior to founding FFTT, Luke was a founding partner of Cleveland Research Company, where he worked from 2006-14. At CRC, Luke worked in sales and edited CRC’s flagship weekly thematic research summary piece (“Straight from the Source”) for the firm’s clients. Prior to that, Luke was a partner at Midwest Research, where he worked in equity research and sales from 1996-2006. While in sales, Luke was a founding editor of Midwest’s widely-read weekly thematic summary (“Heard in the Midwest”) for the firm’s clients, in which he aggregated and combined proprietary research from Midwest with inputs from other sources.

Luke Gromen holds a BBA in Finance and Accounting from the University of Cincinnati and received his MBA from Case Western Reserve University. He earned the CFA designation in 2003.

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CoinShares, Chief Strategy Officer

Meltem Demirors is Chief Strategy Officer of CoinShares, an investment firm that manages billions in assets on behalf of a global investor base, and is a trusted partner to investors and entrepreneurs navigating the digital asset ecosystem. Meltem oversees the firm’s managed strategies group and its New York office and leads corporate development.

Previously, she was part of the founding team of Digital Currency Group. As a veteran investor in the digital currency space, she has invested in over 250 companies in the ecosystem.

Meltem is passionate about education and advocacy, and teaches the Oxford Blockchain Strategy Programme and co-chairs the WEF Cryptocurrency Council.