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Bilal Hafeez

lines on the record: 92
first: 2022-02-20
most recent: 2022-02-20
sittings or episodes: 1
sources: podcast

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“And a score for the crypto specific side, and then we put them together to come up with an overall view. So our macro view on crypto is negative because, you know, the Fed and all the defensive things we talked about. But our crypto factors are positive. And as it happens, the crypto factors are just more positive than the macro negative factors. So if you combine the two together, it's made us go from neutral Ethereum to being bullish on Ethereum. Not massively bullish, but like bullish on Ethereum as when we sort of look at everything holistically.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“The price has been falling. So these are all very constructive signals. But the twist is that unlike lots of crypto focused organizations, we combine these crypto specific factors with macro factors because our view is that is not just crypto factors that drive crypto. You have to contextualize it in a macro environment. What's the Fed doing? What's the risk appetite investors? Does equities look more attractive than crypto? And so we also look at macro factors.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And the skew was heavily towards the puts. And now in the last few weeks, we're suddenly seeing that demand is starting to switch away from puts towards calls. So that's telling you that the direction investors want to go in is more towards the upside in Ethereum, which is constructive. Then the final point, as you mentioned, is hash rate. And the way to think about hash rate is just how much computing power is being devoted to Ethereum's system. A very bearish signal would be that if Ethereum prices are falling and the hash rate is falling, that's telling you that people are removing their computers away from the system, which is bad for obviously for the Ethereum system. But ironically or interestingly, even as Ethereum's been falling, the hash rate has been going higher and higher and higher. And so there's a lot more computing power devoted to Ethereum, even though”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely, yeah. So we monitor futures activities. So, this is activity of futures Ethereum futures on all the major exchanges, whether it's a traditional exchange or crypto exchanges. And typically when the activity goes up, that generally means there's some caveats. It generally means that people are suddenly starting to get more interested in Ethereum again. So when Ethereum prices were falling, open interest starts to fall as people start to run away thinking we don't want to touch this as it picks up again, that tends to be a bullish signal. So that's what we're seeing there. Then the core ratio is essentially there is an options market, a derivatives market, an options market on some of the major crypto markets. And Ethereum was falling, there was a lot of demand for puts for people betting on declines in Ethereum prices. And you can compare that to the price of coal, so people making bets on the price going up.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. I mean, that ratio, it's much more treacherous trying to come up with a valuation for crypto. So what we do in this case is we look at this, that measures almost like a price-to-book ratio. Where we say, okay, what is the book value? What price did people buy Ethereum at in total? Like if you add up all the people, whether they were early people or late people, what's kind of the average price they bought it at versus the current price of Ethereum? And so when that ratio is very low, that means the price to book is very low, you could say. And we don't know, is 1.1 the magic number is 0.8 the magic number, 0.3. We don't know, but based on recent history at least, it seems like around one-ish is the magic number, in which case that often coincides with turning point. So it's a crude measure of valuation. You could say”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“In this case, it's the pure prices because in order for you to earn that 15%, you have to stake the coin. So there's an extra step you have to do to earn that higher yield. So what we're doing is we're saying that, okay, if you just buy the coin on a normal platform, this is the return you'd get. Now, if you do an additional step, if you stake it or if you do something else with it, then you'd get an additional return. We don't include that because it requires an additional assumption. But in general, the price returns are so high that in the case of crypto, it will swamp 10% yield or things like that. In the case of Brazil, though, the yield is very important because the FX volatility in the yield kind of are comparable in some ways.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“So, in some ways, you could say Bitcoin is like the Apple, the safe haven, so to speak, of crypto. Then you have kind of Ethereum, Solana, Cardano, smart contract DeFi's, where there's something real there, something a bit more tangible. You can see the lending, you can see fees associated with it, and they give you higher returns than, say, Bitcoin. But the really speculative end where it's unclear what the returns are because people are buying expensive land in virtual territory and who knows whether that virtual territory will still exist in the future or whether anyone will care. That's where the high-risk high returns are.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And then we have DeFi, so lending and borrowing, yield farming type coins. So we wanted to kind of see how Even though it's very volatile and returns are still quite big, in some ways that behaves like a mature market. It's like the large cap. It's like Apple. It's just, you know, it's steady, solid returns. And then smart contracts, then smart contracts and DeFi are kind of the next way of delivering strong returns. So there's a lot of activity there. They deliver much stronger returns of Bitcoin. But what's blown, but all of these get blown away by metaverse, you know, which is the really speculative high-end high octane end of the crypto world, which is partly ironically accelerated by Facebook changing its name to Meta last year, which, you know, ironically kind of was like a traditional company suddenly rebranding itself, led to Meta exploding higher metaverse coins exploding higher as everybody suddenly said, okay, what is this metaverse?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I know it's that few crazy some of those returns. I mean, first, just some context for this all, which was that what I found was that as cryptos matured, it's become very evident that different crypto markets behave differently. And so I felt there was a need to introduce more transparency to the crypto market. And one thing we know from other financial markets is that having an index that represents some kind of benchmark for markets helps you just clarify what's going on. So there's like the S&P 500, there's a small cap index, there's European index. So we did that basically to the crypto world and essentially we've launched three indices. One is a smart contract index, which has things like Ethereum, Solana, Cardano. So all of these smart contract tokens. And we see the performance of that. Then we have the metaverse one, which is made up of virtual worlds like Gala, Decentraland, and GameFi, you know, gaming type.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and you've got a chart from one of your research pieces from MacroHive that compares different crypto indices, different aspects of crypto, starting, I believe, from January of 2021. And Bitcoin has gone up from a few days ago only 40% outperformed the S&P and the Nasdaq and most stocks. DeFi has gone up 729% smart contracts have gone up 1726% and metaverse index, and again, we can get in what is the metaverse index, how are you compromising this, is up 7,261%. So have you made sense of that dispersion between returns?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Force everybody to think about remote cloud, everything became much more technology driven. And what we saw was just a huge amount of innovation occurring in the crypto space. So you saw the development of more smart contract coins, alternative to Ethereum, Solana, Cardano, and so on. They really started to take off. You saw Metaverse really take off as well. You saw DeFi take off. NFTs get launched. So you just had a huge explosion of activity in that space, which suddenly made there more opportunities for people to invest in. So I think all of these things kind of came together at this time.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“That's quite powerful. In the day, you can make that in a day. And so that's quite powerful, you know, if you're like a retail person and you've just suddenly seen your money got 10% in a few days. So it feels like you can get rich very quickly. There's nothing more powerful to people than a get rich quick scheme. And so I think retail adoption because it was easier to trade crypto. They had more money and they were stuck at home, nothing else to do that made it easier as well. Then the third factor, I think, was institutional adoption that suddenly you had large institutions saying, okay, we have to get into crypto. And so you had launched some ETF funds, some asset managers saying they want to invest as well. So that certainly helped as well. And then I think also you saw just because of the nature of COVID, as I said earlier, that really...”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, yeah. And the good, you know, thing about Bitcoin is the volatility in Bitcoin is around 80, 90%, you know, whereas say the S&P 500 volatility is say around 20%. You know, with 80% volatility, that means that in the space of a few days, you can make a 5% return or 10% return in a week. You can make quite easily. And that's...”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Great point. I just add that while institutional investors, a lot of whom you work with view volatility as a drag, that's something that threatens their returns, variance drag, and the like, a lot of individual investors actually are attracted to things that can move up and down because it can be quite exciting. And there's the chance for very large gains. Sorry, go ahead.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Some kind of future return, far future return now the other thing that helped a lot was retail adoption for sure, you know, because suddenly people, you know, were flush with cash because of the governments and everything. They were stuck at home and what could they do? they could watch Netflix or they could trade stocks you know so it's no coincidence that the the rally in crypto coincided with a rally in meme stocks and small cap stocks it all kind of happened at the same time”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Opportunity cost is zero for the next four or five years. It doesn't matter. Like, if you just put it in cash, you learn zero and so you can wait for those five years. So in some ways, this is kind of what low rates does. It basically says that assets that give you returns way in the future, whether that's in dividends or coupons or some new use cases in the future, some future metaverse, zero percent interest rates, you know, essentially allows you to put a larger weight on the far future than on the near future. But if interest rates were 10%, then you suddenly put a lot more weight on what's going to happen in the next few years because it's too expensive for you to give up that 10% interest rate every year to put something into something like that. So that's kind of roughly how to think about that. So one is zero interest rates really helps asset classes that have”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“You absolutely, yeah, so if you have an asset that gives you 0% annual coupons or dividends or zero every year, or you have another that gives you, say, 2% dividends every year, if interest rates, and on top of that, if there's no chance of profits in the next three, four years, but there are chances of profits in the next 20 years, if you have 10% interest rates, then the opportunity cost of you putting your money into a loss-making business for the next five years is quite high. Because if interest rates are 10%, you're going to give up 50% or 60% returns for the next four or five years in order to wait for the profits to come in that investment. Now, if ITRE says zero,”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think there's a few reasons. You know, one is I do think that the Fed cutting rates to zero and centranks doing that around the world definitely made it much easier to finance investments into crypto as it did into tech and VC and everything. So the context was low interest rates, which really does help asset classes that don't have any inherent returns. So if you have an asset class or a company that doesn't have any profits, cutting rates to zero really helps those types of markets. So one is, I think the Fed did help in that way, and that was a big reason why.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Definitely. How do you explain the huge bull run that crypto has had really, let's say, starting in March of 2020? I know Bitcoin was one of the first macro assets to bottom, I think on March 9th. And since then, until, oh, I don't know, March or April of 2021, it was just a huge straight run up, a phenomenal returns. And of course, the lesser well-known, I guess, project you can say.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Who say, Oh, Bitcoin's going to go to a million, ditch all your traditional assets and become a billionaire. And I think there's a need to be somewhere in between.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Really has been to apply rigorous investment analysis that we do on equity markets or on FX and apply it to crypto. And the reason for doing that is one is we're very experienced at doing that, having done research for a long time. But when I look at the crypto world, there's just a lot of people who just are making crazy claims about crypto. You see that on YouTube, on TikTok, on Twitter, wherever. People are making all sorts of outlandish claims. And many of them are just charlatans. And so there's a need, I think, to have a voice in the crypto world that, you know, number one accepts crypto as an asset class, but then apply some rigor to it to kind of manage people's expectations and guide people in that whole process. Because at the moment, it's kind of polarized. You either have people who just hate crypto and just say stay away from it completely, or on the other side, you have...”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Change the world, but I'm viewing it like an asset class, like a tech stock or currency or a commodity, and it's all of those things and more in some ways. It's like a venture capital thing as well. It's a philosophy and so on. But, you know, being a student of history, what you know is that at the beginning of new technologies, you always have these idealists, you know, who think this will kind of get rid of authoritarian structures. It will be a great kind of libertarian, anarchic, you know, revolution that will happen. But soon it gets co-opted by the establishment. And that's what's happening with crypto as well, that it's entering the mainstream because the establishment entities, whether it's traditional banks, traditional hedge funds, the average guy in the street, they start to adopt it. And then suddenly lots of those original philosophies get thrown to the wayside. And that remains kind of a niche thing. So suddenly it kind of enters more of the classical investment framework. And my aim.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And the reason for that was one was just the length of time Bitcoin in particular has been around for. And then also with the creation of Ethereum, suddenly it became a bit clearer that there's some use cases for crypto as well. It's not just this digital gold with Ethereum, which in some ways is a decentralized computer. You can suddenly see, okay, with smart contracts that are decentralized, you could start to have some interesting use cases emerge. And we've seen NFTs as one use case. We've seen the DeFi world as well. So that suddenly says, okay, there is something here. I've been focusing on it, you know, a lot over the last year or two. But the way I approach this is rather than a lot of crypto enthusiasts, I'm a kind of crypto realist, you could say, you know, where I, you know, I don't think necessarily crypto will.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Well, I learned about crypto as soon as it got launched, Bitcoin got launched soon after the global financial crisis. And back then, it was more as a curiosity on the side. I wasn't that engaged in it, you know. A few people I know who are kind of very sort of geeky computer programmer type people telling me about it. And in some ways, I dismissed it, kind of thinking, okay, it's a nice quirky little thing on the side. Then I started to follow it in subsequent years as it became more popular and then more people around me suddenly started to say they've become super rich on Bitcoin. So that perked up my interest. But it's really only been over the past, say, two, maybe two or three years. I've taken it much more seriously. So before that, I was kind of viewing it more as, okay, this is an interesting little speculative asset in the corner. And it's only really over the last two, three years where I'm thinking that actually it is a major asset class that we have to consider.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I think, you know, in terms of stocks, I think Japanese stocks could do quite well this year. I think the growth picture looks quite positive. Brazil as well. Brazil in some ways is a commodity play as well. I mean, the only issue for Brazil is that one is the central bank is raising rates fairly aggressively now, which could start to hurt the equity markets. Plus also we get Brazilian elections later this year as well. So there are some risks there. But in general, I would say that I'd probably favor European stocks over US. EM stocks, I'd be more cautious on because in general, if you have a cautious view on risk, EM equities are more higher end of the risk side.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Clear to me that Chinese growth will necessarily do well, you know, partly because there's been a clampdown on the private sector, partly because the leverage process in China is changing because of weakness in the property sector. So the visibility on Chinese stocks is quite poor right now. And so I wouldn't necessarily bet on Chinese stocks, even if China was to stabilize somewhat this year.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would say so, yes. I mean, I would say I'd be probably more positive than Europe than the US because I think the European growth profile this year will be more balanced than the US and there's more for reopening tailwind for European stocks than the US. And then also because European interest rates are going up and the European index is more skewed towards financials, that's really going to help European banks in particular because Europe's had negative rates for a long time. That's really bad for banks and that's starting to turn that helps. Now on China Chinese stocks obviously varies undervalued but my fundamental issue with Chinese stocks is that the Chinese system is such that authorities aren't necessarily incentivized to keep Chinese stock markets strong. They have different incentive structure. So even if Chinese growth stabilizes a bit it's not”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“You had the Fed Hiking and the dollar did really poorly in that year. So the dollar doesn't always strengthen in crises periods. It also sort of depends on the nature of the crisis as well.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Those things are turning around where as the pandemic eases, the rest of the world will get a bigger boost to growth than the US because they had more restrictions than the US currently does. So they'll get bigger kick-up on growth. These flows into US equities will start to reverse because US equities aren't doing so well. So you get some loss there. And then also the rest of the world has also started to raise rates as well. So suddenly the US isn't the only country that's raising rates. So that gives you an environment where the dollar could weaken in an environment of relative US weakness. Now if we see a very sharp US recession, the dollar probably would strengthen in that environment. Now the situation where it wouldn't would be if you look at say something like 1994 the Fed hiked in 1994 you had a couple of crises, you had the Mexico crisis and so on and the dollar got hit hard. So that's a period where”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, no, that's a sort of good point. I think one of the big reasons is that if you look at what helped the dollar last year, a large part of what helped the dollar last year was that rest of the world growth was weaker than the US. So the US had relatively strong growth, partly helped by the fiscal and rest of the world, including say China and Europe, had relatively weak growth because those countries were doing lots of restrictions on COVID. And the US had very front-loaded fiscal, and the rest of the world didn't. So there was a relative growth advantage for the US. And from a capital flow perspective, foreigners piled into US equities over the last couple of years. And US investors who normally invest abroad were bringing money home in order to invest in US markets. You had this kind of perfect environment for the dollars to do very well. Then on top of that, the Fed had a pivot last year from being dovish to Hawkish, and that really helped the dollar. Now, this year, I think all”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Medical, like some of the services side. So that's medical prices, owner equivalent rent, all of them really shot up in a dramatic way. That could be another way. We could sort of stay at 7%. Another one is if we saw the dollar collapse in a quite dramatic fashion. The rationale for a dollar collapse would be, I am actually quite, I am actually bearish on the dollar this year. So last year, the dollar went up, but I think this year we're in an interesting environment with a dollar will actually, I think, will fall.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“So, if I was to say, if I myself was to think, okay, inflation could be 2% this year at the end of this year. And somebody else says 3%, the markets are going to behave probably in the same way if it's either 2 or 3%, because it's falling from 7%. That's a big decline. So the interesting point would be, are there people? Should I put another way? What scenario could we see where inflation could stay at 7% by the end of this year? So that's the real inflation sort of environment, that you stay at 7% all year. And so that's the scenario I'd be thinking about. What could cause that? One thing that could cause that would be for all prices went to 150, 200. I think that could cause that. Another thing that could cause that would be if we saw quite a dramatic change in”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, what I would say is that if you look at, say, the rates market or even equity markets, in general, if the markets, in my experience, tends to focus much more on the direction of the trend, not the end destination point.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“So yields to go down and bond prices to go up in that environment. Now the main kind of caveat there is obviously there's still recession is not going to happen next month. It's going to happen in my view towards the end of this year if there is a recession. So there's a lot of runway before we get to that point. But it does tell you the context in which bond yields will go down wouldn't necessarily be one where inflation rates are rising. Inflation rates will be falling. And my sense is markets in general. Find it very hard to distinguish between inflation falling to three, inflation falling to two, inflation falling to four. The market doesn't really differentiate much between those different outcomes. It just says, okay, inflation is falling.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Consensus forecasts so the average of economists on the street is that inflation will end the year around 3-3 and a half percent so a fall in inflation rate and so directionally inflation will be falling to see a on top of that growth will also be falling this year you know again most people expect that as well so so now we're in an environment where growth will be falling over the course of the year inflation will also be falling over the course of the year so even though inflation is still high 3 is still high it's falling and so in that context it will be easier for rates markets to rally in that environment so that's where”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I think this is quite a tricky kind of environment. But what I would say is markets often look at the trends in macro variables. So what we've seen over the last, say, 12 months is that both growth and inflation has been picking up. Both. They've both been just going up. Now, growth has, you know, got to like 11, 12%, you know, in Q2 last year and then was 4% by Q4. So it's still very high levels, higher, much higher than what we used to. And inflation's got to 7%. Now, the next 12 months, what we're going to see is falling inflation. So even people who believe that inflation is going to be high, no one is expects inflation to be at 7% at the end of this year.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“No, no, no, no, that's a fair point. And what I would say there is that the nature of the reverse repos. Going forward. So I'm not saying by them buying treasuries that they're predicting recession. What I'm saying is that from a risk return perspective, it's more attractive for them to hold treasuries than to lend to households.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“I think part of that, I believe you definitely know more about this I do, is because reverse repo rate is lower than Treasury yield. So banks, they seek yield where it is. It's not like banks love treasuries. I've heard this out banks. They love treasuries. Banks are betting on a recession. You've got to trust whether banks. The deals are higher, you know? And you're right. You're right that they're not lending the consumer. Of course, and they always have the ability to do that. And reserves has not really been a problem since 08.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Banks since COVID what they'd been much more comfortable doing is rather than lending to households they've been much more comfortable lending to the government buying treasuries and so that's that's generally been the case for the last two years and so time will tell whether they will suddenly pivot and say okay instead of lending to you know the government will actually lend to people instead so we'll we'll see that switch switch happens”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“No, that's a very good point. And again, it's one of those circularities here. It's hard to know which one comes first. What I would say is that if you look at where there has been lots of borrowing, there has been lots of borrowing in the financial market. So if you look at margin borrowing, things like that, there has been a lot of leverage on that side of things, whether that's crypto, equities, and so on. So that tells you that people that there has been some lending and the lending has really gone into financial speculation, more so than in terms of in the real economy. Now, you could say that as people's checks get run out, the fiscal checks, then people will want to borrow more. The question then is, will banks have the appetite to lend to the households or not? Now, banks claim that they are willing to lend, but time will tell whether they will. You know, what you have seen is...”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“In the street to borrow money very easily and for credit in the broader sense to really go up a lot in an economy. And what we haven't seen over the last year or two is much lending, bank lending to households. That hasn't really happened. There's been credit growth to households has actually been lower than economic growth, which is quite unusual. So credit growth hasn't really exploded higher to households. And so that tells you that when you see this reversal, banks don't really have a huge amount of credit exposure to households, at least so if there is a slowdown, you won't really get a huge amount of defaults from the household sector because they weren't really borrowing like crazy. Instead, there has been some credit that's gone to corporates. So companies have borrowed some. So there could be some sort of pockets of defaults there. And obviously companies have been issuing corporate bonds. So on the capital market side, there could be some sort of default store.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“I think by the second half of this year, those drivers will start to go away. You know, energy prices probably by then will start to go sideways or down and interest rates won't be going up as much as they are. And then on top of that, if we are going to a slowdown, then we might start to see more defaults as well, which could start to hurt banks too. Now, the only thing I would say around defaults are, and this is one of the reasons why I've always been a bit more hesitant about the Fed causing inflation. Many people have said that the reason we have high inflation now is not so much to do with the lockdown of supply chain issues. It's really to do with the central bank. The Fed has massively expanded its balance sheet. M2 growth is very high. If you're printing money, inflation goes up. And for me, that's quite a simplistic way of looking at things because money in reality is the ability for the guy.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Of high interest rates, and on top of that, a world away from the pandemic, so we get back to reality, back to the real world, then that's really quite a bad mix for those growth and techie type companies. It matters where we're coming from. The other point about the value side is that if you look at really what the value sectors are, in reality, they're really banks and energy stocks. Now, banks do well when interest rates go up, and that's what we've been seeing. And energy companies do well when oil prices go up. And, you know, this cycle, we've seen oil prices shoot higher. So as soon as oil prices start to go sideways or down, then there's energy stocks will be hit. And as soon as interest rates stop going up, then banks will be hit. So to some extent, we're in this sweet spot right now for value, you know, because interest rates are going up, you know, the Fed's raising rates, you know, that gives banks more things to do with the interest rate curve. And energy prices are going up.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“So, you know, what we had after COVID was an environment of very low interest rates, very low long term interest rates, which really helped tech companies. And it kind of helps companies that don't have much earnings, you know, because if interest rates are very low, you can basically rely more on the future of their earnings because it doesn't really matter if interest rates are low than the future in the present kind of collapse into one. And so you can just say, okay, in the future, we're going to make lots of earnings and investors will be fine because there's not a big opportunity cost for investors to have to put their money in bonds. So we had this really nice environment where interest rates were low. It helped tech. And on top of that, the world went remote. And everything went virtual in the cloud. So that was really a perfect environment for tech to do well. And that was during the bounce after COVID. And so what that means is as we, you know, go into an environment.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And to what degree do you think there will be dispersion in the returns? I mean, a feature, let's say in the U.S. markets, is that there's been a big flow out of growth stocks into value stocks, out of expensive and into cheap, out of electric vehicle stocks and into oil stocks, for example. Commodities have done really well. Those values are cheap companies that you typically don't think commodity companies do well during a slowdown, but they have done extremely well. Meanwhile, it's been this sort of speculative growth names that really have struggled. Does that make sense during a slowdown? Typically, I thought, I mean, what do I know? I thought the narrative was sort of that it was growth that does better during slowdowns. Do you have a view on that?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Not necessarily falling prices, but prices are not going up as much. So that's more disinflationary trends, narrowing margins. And when you're in that environment, you can quite quickly go into a down 20% environment very quickly. So I think, you know, there is this real chance that we could have like a down 20% year. You know, on top of that, the other thing you have to remember is that if you look at the activity of retail investors in particular, they've been huge buyers of equities over the last year or two years. equities in crypto they've been piled into that in a way that they didn't”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Tend to spend money who are the poorer households, the lower quartile households, they've run out their excess savings. It's really the richer end of the spectrum that still have excess savings from the COVID period. So that tells you that people are starting to run out of purchasing power. Either they don't have savings to dip into. And on top of that, their earnings have been falling in real terms. So the purchasing power has been falling. At the same time, when you look at companies, what they're telling you is that they're facing higher costs coming in. Last year, they were able to maintain very large profit margins because the consumer was able to buy the stuff because they had all this extra savings. Now this year, margins could be pressured because companies may not be able to keep prices so high. So what that tells you is that you could have this combination of falling margins and”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“What I will say is that I think the next 12 months are going to be very challenging for risk markets. So whether that's credit or equity markets, I think there's a high chance that we'll see poor returns over the course of the year. Now, whether that poor returns means we'll be down 5% this year or 20%, it's hard to say right now. Part of that will depend on how aggressive the Fed is. Will the Fed continue to hike rates, even if equity markets are weakening? So that's one big factor. And we aren't quite sure what the Fed's view is on equity. So far, they seem to be quite comfortable with weak equity markets. The other side of this equation is we don't quite know how the US consumer is going to behave going forward because we know that they've built up some savings. So there's some buffer there that they could use. But at the same time, if you look at the distribution of the saving, it seems like the consumers who”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“The market, I would say, is probably assigning a lower probability of like 15% or 20%. So I'm giving a higher probability of that recession. So it's telling you the market is starting to come around to this view that there is this chance of a recession.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“How forward-looking the markets are trying to be in this environment. Now, of course, we know if you look historically that the market almost always overprices hikes. There's this constant, what's called term premier. So the market's constantly overpricing hikes. That happened almost all the time. That also tells you that what the Fed will end up delivering this year may end up being less than what the market's pricing. So there's kind of two different things we're trying to do here. We're trying to work out what will the Fed actually do. And on top of that, what is the market going to price the Fed to do? There's kind of lots of moving parts here. So that's a roundabout way of saying that I do think that the market is fair in terms of pricing that chance of recession. I do think there's probably around a 40% chance of a recession in the latter part of this year, an H1 of.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT