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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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“But two per cent was where the Fed was before COVID started, so the market is almost saying that we're going to just go back to where we were just before COVID, which was late cycle. That's what the market is saying in some ways. And that tells you how strange this whole cycle is. It's not really a proper recession. It was more like a unexpected long holiday for the world that suddenly happens and the holidays ended and now we're kind of trying to work out where we are in the cycle. So I think that's one of the reasons why the market is trying to do this funny way pricing everything. The other strange thing is we've never really had the start of a Fed hiking cycle where the curve has been so flat going into the first Fed hike. So it's almost as if the market is just fine-tuning the cycle so much even before the Fed's even started the market saying it's going to have to end at that point. It's going to be a recession. So it tells you just.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“You know, reset the business cycle so that, you know, we say, okay, COVID was the deep recession and we're now at the beginning of a new business cycle, a new expansion that started in like April, May 2020. And we're just at the beginning of a new expansion. Or did the COVID shock just interrupt the slowdown that was already happening? The Fed was already cutting rates before COVID because there was a slowdown coming and the curve had inverted and there was recessionary fears. And so we're late cycle right now. And I think the market is trying to juggle the two. Are we early in an expansion or are we very late in the cycle? And so the market's kind of schizophrenic about which one are we in. And in some ways, what's interesting is that the market is essentially pricing a terminal rate of around 2%. So the highest rate we got to was 2.5% in the last hiking cycle.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I think this whole business cycle, if you just step back, has really been a strange one because COVID was obviously a huge shock, a huge recession, but it wasn't really a normal recession because people's income went up, people, stock markets went up very quickly. House values went up. I mean, so it wasn't really like normal recession. And so one of the challenges, I think, when we look at, say, the terminal rate and these rate hikes and everything is, did COVID...”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And there's some inversion in the Fed fund's futures curve, the Eurodollar curve, that it's somewhat mild now, but I'm just looking at the Fed fund's probability. The midpoint range of a 200 to 225 basis points for March of 2023 is 27.3, whereas for, let's see, July, it's 24.5%. So it's a few basis points inversion. And the interpretation is that on a probability-adjusted basis. The market is pricing in that the Fed will net net have to cut rates. rather than raise them and the interpretation, the narrative is that the Fed will cause a recession. So it will have to cut rates. To what degree is that obviously it's possible, but how are you sort of handicapping those odds?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“So we've had this massive curve flattening. Now, recently, we've exited that view. So one or two weeks ago, we thought it's time to get out of that trade because number one, it's done very well. But also now that every single meeting this year has been priced in for a hike by the Fed, that's from almost pricing like one hike, one or two hikes this year to every single meeting having a hike just from a risk return perspective, it just tells you that it's harder now to get as much juice from that trade. The other concern I have is that I think there's a high chance that as we go into the second half of this year, the economic growth numbers are going to start to look a lot weaker. And so that if that was to happen, then you suddenly, the hikes at a price for the later meetings in this year could get priced out. So I think we're in this two-way phase now.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“I think my sense is a lot of that juice has gone. We actually put on a trade to go short the front end to anticipate this Fed hikes around April last year. So we put a curved flattener on. And that was a time, if you recall, where everybody was so worried about inflation that people were putting steepness on. So they were expecting the 10-year yield to go up much faster than the two-year yield because they thought that the central bank was behind the curve. So the front end would stay very low. And it's really the long end that would scream higher. Instead, the opposite to happen, we've had this huge flattening because the market has never really believed that we're entering a new high inflation regime. So longer-term interest rates are basically telling you that they don't really see a big inflation problem. They don't see a return to the 1970s, which is our view. And at the same time, the front end has shot up because the Fed's been reacting to the high inflation numbers and increasing its talk.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Of hikes from the Fed and the ECB. Let's look at the Fed. The Fed is pricing in futures market is pricing in something like six rate hikes for 2023. And then there's the terminal rate, which is, so six rate hikes would be 150 to 175 because it's a range of target range. And now we're at 0 to 25 basis points. And the idea is it can only go 25 basis points at a time, although maybe that's wrong. To what degree do you think that's fully priced in? Obviously, it's been a phenomenal trade to go short euro dollar futures or to sort of bet that the Fed would hike rates, but the trade has moved so much in the favor of those betting in that direction that how much juice is left in that trade?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And this is especially the case with the US, but also Europe as well, that there's a political context to inflation as well, that there's a lot of pressure from politicians to tell central banks you have to do something about inflation because the public is very worried about inflation. And while we like to think that central banks are independent, they're not really independent. They're constantly responding to public opinion, to what politicians are saying. And there's been a very clear shift in terms of public opinion towards inflation, which has affected how central banks react.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Caused another. Yeah, yeah. I mean, in the end, they're both connected with each other for sure. The inflation numbers themselves cause a big problem that they've been higher for longer than they had expected. But also there's been a change in rhetoric. It's been most noticeable in the US where initially the US was just ignoring high prints. And then from around June last year onwards with the move up in the dots in their forecasts, the Fed has been slowly moving much more towards a view that inflation is more persistent. So it's a combination of both. But what you do see is that the market tends to react much more strongly to days where you have the Fed or the ECB speaking than it does when you have an inflation data release. So that tells you that the market is ultrasensitive to what the central bank says. So the reaction function is very important. Now, of course, the central bank is affected by inflation. So there you get a circularity. But not only that, I would also say...”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I'm glad you brought that up. To what degree is it sort of like chicken causes the egg? Because some people say, oh, let's say let's take the US. The market has tightened the monetary conditions for the Fed. But the Fed has been the one whispering in every reporter and bond trader in the world saying we're going to raise rates. We're going to raise rates. And they sort of want it to happen. When you say it has an inflation that caused rates to go up, it was expectations of the ECB hiking rates. I mean, the ECB put out those expectations of hiking rates because of inflation, right? So it's sort of like it's all one arrow causing another.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And the reason for Bunils going up wasn't necessarily so much because of inflation per se. It was more to do with the ECB appearing to open the door to rate hikes, which suddenly allowed the whole interest rate curve to sort of jump up in a way that it wasn't able to before.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, that's a good point. You know, I think the story in Europe is that Europe did really see, didn't really see the same fiscal transfer that you saw in the US. So in the US, essentially the US government dealt with COVID was to give everyone checks, irrespective of their earnings. And that ended up leading to people having a higher income from the checks than they had before. In Europe, the approach was what they call a furlough scheme, which was that the government would replace the wages, would pay people's wages that companies were paying. So people's income didn't go up in the same way as it did in the US. So in Europe, you haven't had this.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so that's in the US. And even though in the US, we have a 40 year high in inflation, the US has some fixed income holders, I should say, have some buffer because the 10 year is at a extremely high level, let's say, of 2%. The 10-year Treasury note yield. However, the note, let's say, on a German Bund yield is 30 basis points. And part of the reason that Europe could sort of get away, if you can use that phrase, with very low fixed income rates is because Europe was a very low inflation decade because of slow growth, demographics, you know, older people, there are fewer kids, a lot of reasons maybe we can get into. But now inflation has returned to the European continent. So what sticks out to you, I mean, the majors are Germany, France, the UK, but I even think there's some outlawers. Spain has had a producer price index one month of something like 17%. I mean, is this sort of is this changing the”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Quite significantly over the last three, four months, which tells you that some of the bottlenecks have started to disappear. If you look at the components of the purchasing PMI indices, it tells you that the backlog of orders is starting to fall. And in the US, there was a really big restocking or inventory build in Q4 of last year, which tells you that companies have really started to build up their inventories, which in general should be less price pressures on goods in general because companies have excess stock to some extent. The wild card within all of this is really oil prices to some extent. My sense is that we may go to $100, but we won't go to $200. So in the last year, we've had almost like a 50 to 80% rise in oil prices. And that's very inflationary. In January alone, there was a 15% increase in oil prices. My sense is we won't get those similar increases every month thereafter. And that'll be another factor.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“To self isolate in the UK, so the UK is taking this view that it's fully endemic, and I think other countries will start to follow the UK approach. And so within a few months, I think a lot of the pandemic effects will start to go away. And that makes it easier then to take the view that we should start to see inflation fall as the year goes on. So my sense is Q2 will be an important turning point for inflation. One is the base effects kick in. And secondly, we'll have more clarity around the pandemic becoming endemic. And then as we go towards the end of the year, the other reasons why I think inflation will start to fall is because the big increase in savings that people have built up because of in the US, because of all the fiscal checks and so on, that will all have been spent and there's no new checks coming to people's houses anymore. On top of that, if you look at supply chain dynamics around the world, you see that shipping rates are falling.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Sooner is because the pandemic has lasted longer than we've all thought. You know, China has a zero COVID policy. Germany still has restrictions. You know, in the US, there's still lots of different restrictions. And even if there aren't restrictions, people are still altering their behavior because of the pandemic. They may be staying home more than they would otherwise. They may be more risk-averse. And so to some extent, to answer the question of when is peak inflation, you have to answer the question of when is the pandemic fully endemic and is viewed like a flu and everyone behaves more normally thereafter. Now, I'm making the assumption that we're close to that point now and I'm using the case of if you look at say the UK, the country where I live, the UK view is that the Omicron is now endemic and essentially all restrictions will be lifted in the next four or five weeks. So already lots of restrictions have been lifted, but even within a month, there will not even be a requirement.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. Yeah. I mean, so just on the base effects, I mean, essentially, all that means is that, say, in 2020, prices fell to very low levels, which meant that almost any price changes in last year would have led to big year-in-year changes in inflation. So at the start of last year, start of 2021, inflation was around 1%, one and a half percent, which just made it much easier for inflation to go up to 5% by the end of the year. But now this year, the reverse effect will kick in, where because prices have gone up so much, it will be much harder for prices to continue to go up at this rate going forward. So buy around Q2 onwards, the base effects will start to roll over. So even if inflation is still going up quite a lot month on month, because of base effects, the year on year change will start to go down in the case of the US. Now, as it happens, the way I think about this is one of the reasons why this inflation turn hasn't happened.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“So I could put almost the other way around, which is that we've had phases of reopening. Services inflation was actually higher than goods inflation for most of that decade, but we're seeing no evidence of that happening this time round. And so for me, aside from the measuring issues, what seems to be very kind of powerful right now is that services prices just aren't going up fast enough to match what we're seeing in goods. And to me, that kind of gives you more confidence that what we're seeing now is more for a relative price change between sectors rather than a generalized, broad-based inflation boom that we're going to see for the next five, ten years.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“That's a very good point. And I think part of that is there's been a challenge in general for statistics bodies to measure things where that service is not actually active. So for example, there's a component within CPI, which is about the cost of tickets to go to a stadium. Now, for there were large stretches of time over the last year or two where nobody was allowed to go to a stadium, yet they've had to show some kind of price for that. And they have their kind of ways of kind of averaging the data between the point where they could measure it and the point of extrapolate it from that. So I think part of it is an element of how do you measure a price of something which isn't traded. And then the other side of this is that services, we have seen kind of the reopening dimension of services.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and the fact that we've had huge goods inflation, whereas demand for services has not kept a pace, that is a total opposite of what we've seen for the past 20 years, where actually you've seen goods deflation. The cost of a TV cost like $1,000 20 years ago. Now it's very cheap. And the cost of services like healthcare education has gone up steadily. However, as you say, we have the exact opposite where no one is going on cruises. People are going to fewer restaurants less frequently. However, they are ordering a lot of TVs from their house. So the price of TV is going up, that makes sense. And then you have the oil shock commodity shock, perhaps underinvestment in commodities. That's maybe a secular theme. But my question is, how come the rise in the prices of goods hasn't been offset by a deflation in services? If cruises, if no one's going on cruises, how come the prices of cruises aren't just way lower? Is it the fact that the cruise companies are keeping them artificially high and the CPI?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Americans spent on goods over the last year or two was equivalent of ten years worth of goods consumption. I mean this has been the biggest purchase of goods in world history over such a short space of time. We've never seen this ever happen before and it's happened at a time when there's a pandemic where people weren't able to go to factories or manships and so on. So that's kind of the context. So my kind of view overall is there's been these very unique factors that have sort of driven this all but in the end these are temporary factors and so I'd expect inflation to start to fall.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Long, the pandemic has lasted. You know, so I was kind of hoping that the pandemic would have kind of subsided completely by last summer instead it's carried on with Omicron and people are still wearing masks in the US, kids are still wearing masks. In Germany there's restrictions around large venues you can't fully attend stadiums of sports events and so on. So there's still restrictions even though we've had almost two years of the pandemic and because of that you know we've still seen these factors that have caused you know high inflation but my sense is as the pandemic does ease and it does look like Omicron is now a variant which is closer to the flu countries will start to lift all those restrictions and will suddenly start to get much more freer supply and we'll get some normalization and demand and then inflation will start to come back down again as well. I mean one thing you know we have to sort of note is on the consumption side the amount”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And so people's income actually went up during a slowdown during the COVID period, which was unusual normally during economic slowdowns or increases in unemployment people's incomes fall. In this case, it went up because people ended up earning more through government checks than they were normally. So you had this turbocharged demand, you had restrictions to supply. And if you throw into the mix a massive oil shock, so we've had the biggest percentage increase in oil prices since the 1970s. So this is like 1970 style oil shock. If you throw that all together, you've ended up where we are today with very high inflation. Now, my sense is, and there's a big debate in markets around this oil and by policymakers about is this transitory or not? My take of this is that the forces that have caused this high inflation are transitory, are temporary. Now, what has surprised many of us, myself included, was how”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Essentially, what the pandemic did was that it restricted the supply of goods around the world in different ways. So factories were shut down or not operating at full capacity. So there was less supply of goods. Ships weren't coming to port quickly enough. The last mile van deliveries to people's houses wasn't happening. And that's been affected by the pandemic. And then the other side was the demand side where people, you know, because people were staying at home, whether out of choice or whether there was some kind of government restrictions, people suddenly weren't consuming services. They were no longer going to the cinema, going to restaurants. Instead, they were using their spare money then to buy goods. And so you had this massive increase in goods demand, which was then turbocharged in the case of the US with the Biden and the earlier Trump fiscal stimulus, which essentially gave checks to people.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yes, absolutely. Yeah. I mean, the way I sort of think about inflation is that we've had this long period of very, very low inflation or relatively low inflation. So if we take the US as our example here, so inflation has been around, say, 2% or even less than 2% for the last like 20, 30 years. There's been some volatility around that. Sometimes it goes up to 3%. But we haven't really seen a seven handle in headline CPI inflation since the early 1980s. So obviously that's been a big shock. At the same time, one has to also appreciate how quickly inflation has changed. So in January of last year, so at the start of 2021, US inflation was around 1.5%, 1.4%. By the end of the year, it was closer to 7%. So that's a huge increase in inflation that we've seen over a short space of time. Now, the question is, what's driving that? And in my view, all of this is linked to the pandemic one way or the other.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Right, and it's all sorts of these factors. Because that has been at the forefront over the past year. We've had some deflation in early 2020 and lots of concerns, huge fiscal spending packages around the world coordinated with central bank monetary easing, not just lowering rates, but also expanding balance sheets. And now we are at inflation. I believe in the US, we had a 9.7% year over year rise in the producer price index. We have a seven handle on the CPI in the US. You're much more in tune in what's going on in Europe, but inflation there is high as well. And can you maybe start by laying out your thesis on how you've made sense of inflation as a global phenomenon over the past year, year and a half? And then I want to really dig into Europe.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Turkey more recently, the central bank has basically said even though we have high inflation, we're going to ignore it. If anything, we're going to cut interest rates and just let it rip, then the currency just gets smashed in that environment. So over the very long run, a country that runs very high inflation will end up having a much weaker currency.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“market are one now what drives the empty markets you could say growth so then that tells you that you know high growth countries should generally see stronger currencies another big driver of currencies are the the trade account or the trade balance or current account of a country so if a country is an exporter of commodities and commodity prices go up a lot then the currency tends to go up as well so then there's a link between commodity prices the trade account so countries exports go up and then the the currency as well so that's that's another channel that's that's very important as well and and you know in some ways kind of something that looms behind every currency is inflation you know because if there's an expectation that the country is engaging in lots of policies that will you know will debase the currency will lead to rampant inflation then nobody wants to touch that currency and we've seen that with”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“To raise rates, then that often is positive for the currency. And so, you know, trying to understand what the central bank will do becomes quite important for not only interest rate markets, but also currency markets. So interest rates have two effects on currencies. One is the level of interest rates. If they're high, it's attractive for the currency. And then the change in the interest rate is also a big driver. Then outside of that, the other big driver of currencies are cross-border capital flows. So if a country's equity markets are very attractive because they're going up a lot or there's a big theme that's benefits that country, then you suddenly start to see flows come into that country. So foreigners or international investors start buying equities in that country and then the currency goes up. So the question then is what drives those cross-border capital flows. So obviously expected strong returns in the”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, that's a very good question. I mean, the first point I would just make about Carrie is that in general, over time, it tends to be quite a profitable strategy. And so whether it's a carry in FX markets or carry in rates markets, investors love to get carried. They love to earn that small amount of money every single day and compound those returns over time. So it's a very powerful type of return. And if you had invested in a basket of FX carry trades over time, often the returns have been almost similar to equity markets. So it kind of tells you the sort of the power of this all. So for sure, the level of interest rates and the carry is a big driver of currencies. But outside of that, the other big driver are expectations of changes in interest rates. So even if a country has very low interest rates, so it's not really a carry currency, so nobody's going to buy that currency because of their interest rate. If the central bank is expected,”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And so you talked about FX, that's foreign exchange or currencies. You also said rates, which is interest rates on bonds, yields, and then fixed income, which is bonds. So it's all sort of this stew of macro, and that's why when you said you worked in cross asset, that makes sense. Because if you own a Chinese government bond, you obviously have a view on what the yuan is doing. So you said interest rates are now all sort of the same. That's true in developed markets, but in emerging markets, central banks have been hiking. I believe the rate in Brazil is now 10, 11 percent rates in Turkey are quite high as well. So if carry, in other words, borrowing in a cheap currency, borrowing in a low interest rate currency and investing it in a higher interest rate currency, so like borrowing dollars to invest in Brazilian real bonds, if Kerry were the only thing, then the real should appreciate against the dollar. But obviously there are other factors. So can you just lay out what are sort of the other factors?”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Moves is that interest rates, which are perhaps one of the biggest drives of currencies, have converged to the same rates around the world. So the European Central Bank, Bank of Japan, everyone's doing the same thing. They all cut rates to zero, do QE, and it's very difficult for currencies to exhibit strong trends in that environment. So that's been one of the big, big factors. So you could say it's a fundamental factor. It doesn't say that this will be the same situation forever, but it does tell you that having central banks all have the same interest rate is not great for currency trends.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“And that's where all of these speculators like Soros, who did that with the pound peg to the Deutschmark in the early 90s and then many other speculators or investors challenged the Asia pegs. But by the early 2000s, a lot of those pegs were gone. And instead, what you had was you had managed floats. So what you had was Asian central banks were saying, okay, we won't have a hard peg. Instead, we'll just intervene constantly to smooth the volatility in the market against the US dollar. So that was really going on from the early 2000s onwards, and you had less and less pegs. And so that's kind of one big reason why you didn't have as much of these big swings as you had before. Of course, around the global financial crisis, you had some huge swings in currencies, as you would expect. But since then, one of the reasons why outside of COVID, as you mentioned, we haven't had as big”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, that's a very, very good question. I think one big difference between the period, say, from the 70s, 80s, 90s to now was that up until, say, the late 90s, early 2000s, you had lots of currency pegs, which allowed speculators and investors to challenge the central bank of that country or the finance ministry of that country to challenge the peg. So a peg is when a country fixes its exchange rate against often the US dollar, and it'll do whatever it takes to kind of maintain that peg. So, you know, over the course of the 1990s, as you mentioned, in 1997, before 97, many of the Asian countries had their currencies pegged to the dollar. Now, if your business cycle is very aligned to the US dollar, then that can kind of work okay. But if you're misaligned in some ways, then there's a pressure point on your currency pay.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Continue to do research, continue to speak to the top investors in the world, but have a process that was optimized for that. And one of my kind of basic philosophies there is that I don't have all the answers, but if I'm highly networked with a network of very smart people, I'll ultimately have the best ideas. And so I've structured macrohive where we're highly networked. We're constantly communication with top academics, top researchers, top investors, top policymakers, and we kind of have that virtuous cycle that we can come up with the best ideas. So, you know, we started macrohive in 2019. We've been going for about two, two and a half years. We produced research. We have a kind of high-end institutional research product, which is for top investors. So we have some of the biggest hedge funds in the world that you can name. We have them as clients and asset managers. And then we have a retail product, which is a more”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“One of the things, maybe not all of your listeners will quite appreciate, is that after the global financial crisis, there was a huge amount of regulation of the financial sector, where suddenly the whole environment within a bank has changed to one where it's much more about compliance, rules, regulations, not doing anything that could be risky in any way, even for researchers. And so in many ways it became harder to do my job. For me, being a good researcher is about there's a creative process around speaking to lots of different people, coming up with good ideas and using the latest kind of techniques on the quantitative side and applying them all. But banks didn't really have the same incentives as before to really encourage that. So now I decided to leave working for a big bank and instead launch macrohive where I could.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“With a particular focus on China, I spent a long period working with the Chinese on deregulating the markets, for example, and I ran research out of Singapore there for a number of years. Then in 2012, I moved back to London with Deutsche, and there I set up a cross-asset research team. I did that for a couple of years. And I also was part of a research group that was servicing the CEO of Deutsche Bank. Then in 2015, I then left Deutsche Bank to join Nomora, where I ran international strategy or research there in effect at Nomora in Europe, in London, where I spent about three years there. So in total, I had 20 plus years working in research, speaking to some of the biggest hedge funds in the world, biggest asset managers, biggest sovereign wealth funds. And it was a great, great experience. But what I found was I kind of had done my time working for a big bank.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Who later went on to become the finance minister and central bank governor of Argentina? So I was at JP Morgan for about four or five years and then I left JPMorgan in 2002 to join Deutsche Bank, who at the time were building out to become probably the biggest fixed income bank in the world. So they were really building out all their products and everything. And I joined in foreign exchange in 2002. And my first half of my career at Deutsche, I spent a long time there up until about 2015. The first half of my career there, I ran foreign exchange research working on kind of macro and also quant research as well. I built a whole series of indices to trade currencies as well as coming up with macro views. Then the global financial crisis hit in 2008, 2009 around that period. And then just after that, I moved to Asia, where I basically focused on FX and rates markets in Asia.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. I basically studied economics at Cambridge back in the 1990s and I joined soon after university. I joined JPMorgan in around 1978. And I basically started off in foreign exchange research. So it was quite common for if you'd studied economics at university at a place like Cambridge for you to go to work for a bank. And that's what it ended up doing. And what I found was I just loved research. I mean, just the intellectual curiosity, you know, that aspect of it. And then also on top of that, the good thing about markets are that your views get validated right or wrong very quickly. Whether you're right or wrong, it's unclear whether that's actually the case or not in markets, you're right or wrong very quickly. So I really found my niche early on. I had a great early manager as well, an Argentinian chap called Alfonso.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Year by the slowdown. And so long end yields are not necessarily going to explode higher to 4 or 5%. I still think we're in this kind of lower two to two and a half percent range. The dollar, I think, will weaken over the course of this year, partly because the dollar has been helped a lot by flows into U.S. equities and also by the Fed pivoting early on to being hawkish. Now the rest of the world is pivoting to being hawkish. So I think that will help other currencies against the US dollar. And then finally on crypto, we're being much more tactical this year. This year is kind of a year for being tactical around crypto. So right now we're bullish on Ethereum and more neutral on Bitcoin and we'll be dynamic over the course of this year.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Building as well, which means that there's less need for production going forward, and there's less fiscal support for the economy as well. Now, what does that mean for markets? For equities, I think that we're going to have a tough year of equities. That means equities could be down, say, 5% this year or even 20% if we get to that recession scenario. So super defensive environment for equities and credit spreads in that context would also widen as well. So it's a bad environment for both equities and credit. For interest rates, I think we're in this environment now where the market has price hikes for almost every single meeting by the Fed. So I think now there'll be more two-way pricing for the Fed at the front end. So I think the front end probably has seen something's biggest moves already and it's hard to still expect more Fed hikes to be priced. The long end, I think, will be affected as we go towards in this.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT
“Thank you very much, and great to finally be able to speak to you, Jack, as well. So my kind of core macro view is that we probably will see a peak in inflation in Q1 in the first part of this year, and inflation will in general fall over the course of 2022. In the US, in Europe and around the world. So we're close to the peak in inflation, and we're going to see inflation fall. Underlying that is a view that the pandemic is, we're close to the end of the pandemic, and most countries will view COVID as endemic, like a flu and lots of restrictions will be lifted. So that's the inflation view. On the growth side, I think there's a very high chance that we could see a recession towards the end of the year, if not recession, at least a sharp slowdown. And that's driven by the fact that interest rates have moved up, or prices are very high, which typically lead to slowdowns in growth. People are running out of savings. There's been a big pickup in inventory.”
2022-02-20 · Forward Guidance · Why Inflation Will Dissipate | Bilal Hafeez · IDENTIFIED FROM THE TRANSCRIPT