The Consequences of Clearing Macro Overhangs

Published on
January 9th, 2020
Duration
45 minutes


The Consequences of Clearing Macro Overhangs

Investment Ideas ·
Featuring Jay Pelosky

Published on: January 9th, 2020 • Duration: 45 minutes

Jay Pelosky of TPW Investment Management sits down with Real Vision's Ed Harrison to discuss his investment framework for 2020. Looking at macro factors that could surprise market participants, Pelosky breaks down why the investors and institutions are unprepared for the level of inflation he expects to bear out in 2020. Additionally, Pelosky explains why an unexpected inflationary event could send the equity markets soaring and shock the bond market into downturn. Filmed on December 20, 2019 in New York.

Comments

Transcript

  • NR
    Nelson R.
    17 January 2020 @ 00:59
    Excellent Interview, jay is spot on on many of the opportunities he sees, especially european banks.
  • DC
    Dan C.
    13 January 2020 @ 08:30
    In my view, Jay is under the spell of normalcy bias. He's talking typical viewpoints and the standard "it'll get back to the way it was" lines. I think he laid out a decent case and I've been so checked out of the financial mainstream media, I'm glad he made the appearance on RealVision. This interview was such a stark departure, I'm starting to wonder if I don't see enough of this kind of thing. However, I remain unconvinced (for the geopolitical factors alone) but I suppose it was good to get caught up on the mainstream view.
  • TZ
    Tibor Z.
    12 January 2020 @ 01:54
    I would love to see a target of -2% ! But with the CPI they calculate it nowadays! I wanna see my purchasing power going UP!
  • SA
    Scott A.
    11 January 2020 @ 23:53
    While I may not agree with all of Jay's macro views I do enjoy his interviews. He does make you think. I found his comments on the % of institutional investment and the possible shift from debt to equity due to yield shifts very interesting. Quality interview.
  • GR
    Garey R.
    10 January 2020 @ 19:28
    A good interview and refreshing to hear the positive perspective. However, I cant help but notice that in articulating their bullish perspective (this interview & "A Green Light For Risk Assets") the narrative rests at least partially on the existence of "lower rates or deficit spending". In both interviews, it would be very helpful to probe a bit into how the speaker interprets the interventionist measures needed to create or sustain their bullish perspective. Distinguishing between what is truly an organic driver of positive market direction and what is in fact artificial stimuli would be helpful in better understanding the drivers of the perspective.
  • DH
    Daniel H.
    9 January 2020 @ 07:12
    David Rosenberg just tweeted that the recession is already baked in per the feds own recession indicator, and he supplied the chart. If we go into recession, this interview will not age well.
    • SF
      Simon F.
      9 January 2020 @ 08:44
      Rosie has been baking that cake forever and it is pretty stale by now, so his house is not somewhere to go for tea (Brits will get this). However, he will of course one day be right, but we also know that foreseeable future is the greatest oxymoron in the English language.
    • DS
      David S.
      9 January 2020 @ 18:13
      Is Mr Rosenberg talking about a manufacturing recession or a full-blown two-quarter's GDP recessions? I believe Mr. Pelosky's slow growth forecast for GDP as more likely. If Mr Rosenberg is relying on the Fed's projections/charts, they are no better than anyone else. DLS
    • GT
      Gene T.
      9 January 2020 @ 18:54
      To be clear, what Rosenberg was referring to was the NY Fed's recession model which pierced 80% last summer. The model accurately predicted the last 2 GDP recessions (2001, 2008), with no false positives. He noted that some people have gotten excited recently that the NY Fed model is now sub-50%, and we haven't had a recession yet. His point however, is that the model also declined below 50% prior to last 2 recessions (after piercing 80%) so it likely is too late to call 'all clear'.
    • GT
      Gene T.
      9 January 2020 @ 19:06
      More Rosenberg: As a subscriber, I can tell you that Rosenberg's analysis goes WELL BEYOND the NY Fed model, and there are literally dozens of indicators flashing warning signs on the U.S. and Global economies, although he admits we're not in a recession yet. Those who dismiss him as another bear are just flat out wrong, as he has been successfully bullish on a number of asset classes, including specific equity sub-sectors, during the 2019 equity run-up.
    • DS
      David S.
      10 January 2020 @ 14:22
      Gene T. - Thanks for the clarification. DLS
  • JW
    JW2 W.
    10 January 2020 @ 11:58
    "Boom Loop" vs "Doom Loop" ? :-) - great interview and very good to see Jay avert our gaze from the US equity and T-Bond markets towards Europe, Japan and the rest of the world. Has Europe bottomed? This is what I have been wondering about for a while and of course opinions differ (as they do on most everything it seems :-) - except metals and commodities perhaps. Food for thought and lots of different angles to explore. Thanks.
  • CH
    Charlie H.
    10 January 2020 @ 01:41
    Another good interview Ed with someone that has a bullish viewpoint. I really enjoyed this one and the last one with Stephen Auth. An interesting observation I noticed is what Jay said about the correlation of consumer sentiment with the health of the stock market. The wealth effect one would call it. If this relationship is true/holds I believe it to be very dangerous. Never in the history of the US has so many been dependent on the performance of the equity markets (low yields, and automatic investments from passive ETFs and 401k (or should I say 409k??!?). Because of this dependency a correction/downturn could be very devastating, even worse than the 2008/2009 GFC. The governments, central banks are aware of this and are doing everything they can to prevent this, but in doing so creating a much worse long term problem. The common theme for 2020 is the reflation narrative where Manufacturing data (ISM/IHS PMI) will bounce from it's lows. A side effect of inflation is the input costs whether it be from wages or commodities. This puts a hurt on customers and company cash flows/profit margins. Stagflation is a much more likely scenario in my opinion - inflation without the growth.
  • TE
    Tito E.
    9 January 2020 @ 20:22
    The phrase 'let inflation run hot' gets my goat a little. All the authorities do is engineer inflation. The world economy is desperate to deflate and hard.
  • VP
    Vincent P.
    9 January 2020 @ 19:34
    Would be curious about a recalculation of geopolitical conditions given recent event and how it affects thesis. Also, with equity multiples expanding without eps how inflation helps? Would buybacks stop? Yes! Will AAPL correct? Yes? Does AAPL dictate market direction? YES!! That seems to be priced into equities already. Lastly, how on earth can one say fair value on 10yr is 1.90, 2.00 or maybe 2.30% and should trade higher? Most front runners have got shorter duration (T-Bills since 9/16/19 etc..). Rates will not rise significantly with all the repo, period, I'm sorry. Nice interview.
  • fT
    forecast T.
    9 January 2020 @ 19:04
    About machine learned research. That’s why trading is so important. Capital allocation decisions can’t necessarily be machine built quick enough to capture a new insight. Long as the principles of good cash management apply, sales,research,and trading will just be streamed trading.
  • fT
    forecast T.
    9 January 2020 @ 18:51
    He’s right about regional globalization. It’s become ultra local.
  • AH
    Andrew H.
    9 January 2020 @ 15:51
    I always enjoy listening to Jay. I also think that they are looking at some very interesting areas of the world vs, just the US with Fed policy jacking us ever higher. Still, one of the biggest factors will be the USD. If level or weakening, his plays could work out really well. Been very interested in Chile to go along with Brazil.
  • js
    john s.
    9 January 2020 @ 12:02
    we will probably have a recession in the next 18 months so to ignore that and get bullish for the whole year without words of caution is a bit silly