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Huw Roberts

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56

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2021-11-05

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2021-11-05

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1. “What we've built at QI. This is just the iShares ETF that tracks MSCI emerging markets. So if we just kind of scoot to the bottom, I'll go through a little bit of the detail first off by using the PCA process, we derive a macro warranted fair value, and that is one thousand two hundred and fifty eight at the moment. And we have a very strong model. We can say that of 93% degree of confidence, and there's no valuation gap at the moment, but we'll come back to that. But to your direct question, if we go back down here, we can see these are the relationships between these factors and the asset price MXEF. And as you would expect, the biggest single negative driver is dollar trade weighted. So weaker dollar, stronger emerging market equities, stronger dollar, weaker emerging market equities. So all these variables on the left, if they go down,”

   2021-11-05 · Forward Guidance · Deconstructing Macro Narratives About Inflation, Bonds, and Bitcoin | Huw Roberts, Quant Insight · IDENTIFIED FROM THE TRANSCRIPT

2. “So, I would just say at the outset that no more often than not those truisms hold, you know, they're not made up out of thin air, they're there for good, valid reasons, I guess our point or the QI's spin on things is that these relationships aren't set in stone, that no, we have regimes, and regimes shift, and relationships change, and it's important that you catch those regime changes in a timely way. And really, you have some very clever people. I watched our interview with Lyn Alden the other day, and she's got a fantastic brain on her in her ability to pull together narratives is second to none, but for us mere mortals, the ability to watch all these different asset classes and watch all the different factors that can drive them in real time is nigh on impossible job. So why not allow a machine to help with the process?”

   2021-11-05 · Forward Guidance · Deconstructing Macro Narratives About Inflation, Bonds, and Bitcoin | Huw Roberts, Quant Insight · IDENTIFIED FROM THE TRANSCRIPT

3. “whether it's crypto, whether it's rates, equities or ethics, and it will tell you which macro fact there's a drive in it, and then it will come up with a macro fair value, which means that you can then look at where the asset is actually trading, and you can immediately see whether there is a big dislocation where the spot price is trading rich or cheap.”

   2021-11-05 · Forward Guidance · Deconstructing Macro Narratives About Inflation, Bonds, and Bitcoin | Huw Roberts, Quant Insight · IDENTIFIED FROM THE TRANSCRIPT

4. “So too much of the research that you typically see out there at the moment relies on too fat the correlation. Dollar goes down, SP goes up, therefore US equities apparently want a weaker dollar. That is too simplistic in this kind of complex world where all these factors are themselves interconnected. So what PCA does, it just breaks down these relationships into independent patterns so you can work out what the independent relationship between the US dollar and the S&P is between crude oil and the S&P is what growth and the relationship is with the S&P or whatever financial asset you're modelling. So what we built in short is a framework that gives you any asset whether it's commodity”

   2021-11-05 · Forward Guidance · Deconstructing Macro Narratives About Inflation, Bonds, and Bitcoin | Huw Roberts, Quant Insight · IDENTIFIED FROM THE TRANSCRIPT

5. “Absolutely, thank you, Jack. Thanks for having me on. So quant insight looks at a whole clutch of macro factors, traditional variables that I think your views will be familiar with. It's measures of growth, economic growth, measures of inflation expectations, various variables that capture overall financial conditions, so the steepness of the yield curve, the level of real rates, the strength of currencies, for example. And then we look at various measures of risk appetite, VIX, gold silver ratio, stuff like that. And what we do is we pull them all together into a machine learning process. Firstly, instead of relying on correlation, we use a proprietary version of something called principal component analysis, which would love to go into more depth and other time, but probably the”

   2021-11-05 · Forward Guidance · Deconstructing Macro Narratives About Inflation, Bonds, and Bitcoin | Huw Roberts, Quant Insight · IDENTIFIED FROM THE TRANSCRIPT

6. “Unanswered. It's not about what's coinciding with price action. It's about what ultimately is driving it. So in today's episode, I wanted to deconstruct some of these narratives, see if some of them are right. Some of them maybe a little shaking on their legs. I wanted to pinpoint the precise sensitivities of various asset classes to the macro economy. And so for that, I'm speaking to Hugh Roberts, who's an expert in principle component analysis, which is what hedge funds use to determine what is signal and what is noise in the world of macro. What phenomena is really causing price action and what is merely coinciding with it. Hugh is the director of analytics at Quant Insight. And today I'm going to be doing a little man versus machine type conversation. I'm going to represent the person, the human being who's heard a few of these narratives, and I'm going to propose them to Hugh, who's going to represent the machine, who's done all of the work on the component analysis.”

   2021-11-05 · Forward Guidance · Deconstructing Macro Narratives About Inflation, Bonds, and Bitcoin | Huw Roberts, Quant Insight · IDENTIFIED FROM THE TRANSCRIPT