The Gentle Art of Making Enemies

This week's title comes from one of my all-time favorite albums. Faith No More's King for a Day...Fool for a Lifetime. This was also the first concert I ever attended at Roseland Ballroom in NY. I chose this song for multiple reasons. First being the Fed's constant jabbering that's causing markets to price in cuts and now starting to even switch to hawkish talk of possible hikes being on the table. Second is constant geopolitical concerns going on. I'll take the first verse of the song to highlight my feelings.

I'm sorry, but no strong open this week either. A contractor knocked out my internet and I'm working off the phone. Luckily I do a lot of my work before the weekend, but mainly summaries of content only.

You can get a picture of the rough week it was for global assets. Equities & Bonds took a beating. Mexican Peso was the strongest currency follow by Aussie Dollar and another rough week for Bitcoin. Energy settle down on all fronts, but metals were strong for commodities.

Best of the Week

A first time in the 'Best of' slot for the Nordea podcast. The trio of Johan Trocmé , Viktor Soneb?ck and Jonas Thaudahl Ankjaer put together some amazing work on how companies perform depending on whether they invest and payout to investors. I loved all the details here. They looked at the MSCI World and talk through the differences by region and sector based on choosing Capex spending, R&D, doing M&A, or using buybacks and/or dividends to return to shareholders. Essentially, North American companies payout more using buybacks more often than not. European companies invest more, with the exception of the Nordics who have moved to paying out more. Buybacks are on the rise for European companies. For the investing side, Capex used to dominate, but R&D is on the rise. The patterns in performance based on these factors have regimes. One thing did hold steady. Less volatility is Capex spending lead to better returns. One of other stat I found interesting was that the most active M&A firms outperformed the index by 200% since 2002. Listening time: 22 minutes

How to Spend It

Best of the Rest

Ken French joined Meb Faber and left us with a few gems. He told Meb that he differs most from his research partner, Eugene Fama in market efficiency opinions. French noted that groups of stocks don't tend to get labels until they've already done well. The biggest / craziest stat from this interview was that it takes 64 years to truly observe if investors have skill. So I guess looking at a quarter of returns is a bit silly. He says there's so much randomness in stock returns and the short run is mostly luck and noise. Firing a manager after a bad year or two is laughable. He also gets into time value and that there's no free lunch in markets. Most people will lose trying to beat the market. Meb asked what he favorite undervalued paper was and his response could be quite controversial. He said a paper they worked on showed that the world is confused about ESG investing. The act of pushing money into this strategy pushes up prices but does not change anything thereby reducing expected returns. Listening time: 53 minutes

Professor Kenneth French on Risk, Return, and Rationality

Alf and Brent ask what if we're looking at this all wrong. With John Williams saying the data could warrant a hike without a need, Brent thinks he's speaking truth here. Cuts had been priced in but we should be thinking about the distribution the format matters. Are we in higher for longer like '95, '98 or '07? The Fed needs to impact the private sector balance sheet with higher rates. ECB, Swiss and Bank of Canada are already signally possible or probable cuts (see below), so that's going to give the Fed some room. The issue though is more on the longer dated and there's a risk of term premium tantrum. There's also Japanese currency intervention, which Yellen sort of acknowledged with strong Dollar recently. The guys end on trying to help you create a way to improve the 40 in the 60/40 portfolio as bonds are no longer really a hedge with inflation north of 2.5%. Gold isn't work much either right now. Swiss & Yen don't expect to be with intervention. Essentially the risk weight in the 60/40 is 85/15, so you need to lever up the defenders (Commodities, Dollar, EM, and bonds) and spilt them evenly. Listening time: 37 minutes

What if Hikes are Stimulative?!

Joseph Wang touches on similar topics. He reviews the Fed's more hawkish speak. He talks through a recent IMF report that expresses concern about the US. Basic idea of that part is with more Treasury that would lead to higher rates. Higher US rates would lead to higher global rates. (see below). Finally, his last talking point is around Robert Lighthizer saying that a weak Dollar might be a possibility with a Trump Presidency. Weaker Dollar discourages imports and encourages exports and Trump could choose that instead of increasing the tariffs as a trade barrier. Watch time: 17 minutes

Joseph Wang - Markets Weekly

One for the Road

Denis Shull joined Maggie Lake to talks through her incredible career. This one is wild. Denise has some great stories here, but the best is how the 'Billions' team completely screwed her over. Essentially, interviewing her for some details and then shutting her out and blackballing her from CNBC to keep the fact that Maggie Siff's Wendy Rhoades character is based on her. There's more stories here.

Listening time: 79 minutes

My Life in 4 Trades: Denise Shull

Thanks for reading. Have a most magnificent week.

Michael