YouSaid · the spoken record

James Fishback

lines on the record: 143
first: 2024-05-23
most recent: 2024-05-23
sittings or episodes: 1
sources: podcast

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“Thing and I think it is. And what happens if it's just a flop? If you build out a portfolio that is largely exposed to names like NVIDIA and there is some probability that the state of the world is AI as a flop, then Right. And I believe in the company. I'm invested in the company. But in terms of what company is going to behave better, is going to withstand volatility, is going to withstand the dispersion of different scenarios and outcomes, there's no question. It's Microsoft.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I think a lot of it has been, you know, I'm a big believer in don't tell people what your philosophy is or your framework, just show them. And I think that I've outlined that and what's going on now at two-hour conversation. I would say if I could sum it up, we don't make predictions, we assign probabilities. And I think I've made that clear with thinking about things like Dollar Yen. If you're predicting what Dollar Yen is going to do, you're going to be long dollar yen in size and you're going to be exposed to path dependency risk, which is if we go down to 148, you're screwed, especially if you have a levered long. And so using options, taking advantage of the forward curve and how risk reversals are priced and how skew on the surface's price helps with that. So again, assign probabilities. And then I think build out a portfolio that does well in various states of the world, right? And that goes back to the assigning probabilities is, okay, what happens if Trump wins? What happens if Biden wins? What happens if AI is a real magical?”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“What is your investment? Final question, your investment philosophy at Azoria. I mean, it sounds like you evolved in a lot with option structures and you can do everything, but is there anything about your investment philosophy that you have azoria or plan on having Azoria that you don't think people will have gathered now by talking about market so far?”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“But in terms of a 10-year position, I would much rather be invested in stocks than the bond market. But again, certainly operating opportunities around what's happening in treasuries and interest rate futures.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Yes, the way you frame the question, though, was like I was an institutional investor, like a real money investor, like I have to put money in there. I can be involved in the bond market from the short side as a macro trader. And so when you say, you know, stocks or bonds, I'm involved in both. And that's how I think about it. And so if you're going to ask, which would I rather be long over the next 10 years? Obviously, stocks for the reasons outlined, specifically those stocks that I mentioned. And I think there's interesting opportunities trading the bond market, but from a long position, I think there's some interesting opportunities in real yields if you kind of get in around these levels to lock in some low rates, sorry, to lock in some higher real rates”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“I mean, although it did, right? I mean, those things have happened. But for the purposes of this comparison, I'm talking about a liquid G7 market and what that would mean for the possibility of this happening here. And so long end yields higher for the higher for longer impact shift on the market. And then you obviously, I think, want to have the market needs to have a risk premium if this reckless fiscal spending and it's both parties. I got to tell you, it's both parties, Jack. If that continues, the long end at current levels is just not reflective of the risks in the United States.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think that, you know, in line with what I mentioned earlier about there being a higher neutral rate, that part of the curve needs to be repriced. I think we have to look to something that happened, and this is not a theory. This actually happened. This is not a hypothetical scenario, is what happens when a liquid G7 government bond market stops functioning. We saw that in the UK in the fall of 2022. We went from went up 100 basis points on the 30 year guilt in just a matter of weeks. And so that was a function of the market testing fiscal policymakers in light of that new budget announcement, in light of more reckless fiscal spending, something we continue to see in Washington, again, at a time of as measured, low unemployment and still not low inflation. And that is a problem. And so I worry about, and because it can happen in the UK, it sure as heck, it didn't happen in Zimbabwe. It didn't happen in Argentina.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“As long as that stock obviously is kind of basic, as long as that stock is above that level, it doesn't matter if Microsoft traded down 50%. As long as you get to that level by 2026, you're in a good position. And I'm not recommending the particular strike that you mentioned, but just as an example, obviously being short options comes with path dependency the other way. You're buying the path dependency benefit from those who are short the options. They're selling it to you.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“We may mean different things by path dependency. What I mean by path dependency is if you own Microsoft and it goes down 50%, you've just lost half of your money on that particular investment. If you have an option that's out to 2026 and Microsoft goes down 50%, you haven't, right? You haven't lost what you would have lost in the first scenario. The cool thing about options is that they naturally de-risk themselves, right? As you move closer to strike, you get longer the stock. As you move away from strike, you lose that long exposure. By path dependency, I also mean that you're not going to be taken out of a position because you're either direct explicit risk limit. Say, hey, if Microsoft goes down 20%, I'm out or because you have some kind of levered long that says at some point you have to get out for margin requirements. And so that doesn't happen with options when you're long them because”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Microsoft is not going to be down massively. Microsoft is a real business. Not to say that NVIDIA isn't, but Microsoft is a real business independent of the AI phenomenon in a way that NVIDIA isn't. So yes, are we probably going to see lower returns holding Microsoft over to the next 10 years in NVIDIA? Probably, but with a stronger sense of stability, with less volatility and with far more predictability. And just like with that dollar yen trade, if you can add that kicker on top of a mispriced call option out to 2025 or 2026, you don't have to worry if there's some nuclear whatever or some event geopolitically that could take you out of a position that you need to risk manage. I'm a big fan of options. That's my really my background what I bring to the table is a derivatives background. And so if I can look at a stock today that has compounded a consistent rate and it seems like the business itself, if you look at the fundamentals pop open the hood, understand exactly what markets they have.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Well entrenched, that have a moat that have existing device ecosystems that have the cache that are not going to be subject to some geopolitical If AI turns out to be a total fad and we're not even talking about it, we're laughing about it two years from now. NVIDIA is not going to do very well as a jack. It's going to be down massively.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“And so let's just kind of take that and paraphrase it. I would want to buy companies. Not because they're AI companies in the sense that you look at NVIDIA, for example. I think it's still a great company, but are strong free cash flow generative companies. They have a moat. They have a strong management team, a strong balance sheet. And the AI kicker is there. Companies that even if AI didn't exist, Jack, would be compounding at 15, 20, 25% a year for the next 10 years. The AI kicker is the embedded optionality. And so that's what I'm most excited about. There's some really interesting things you can do with long-term call options to reflect this view. Again, eliminating path dependency, not requiring a stop loss because you're pretty much buying options, I think at a mispriced volatility level and watching things repriced accordingly. And then I think holding some stuff in the underlying stock itself. I don't try to be too creative. We're not here to find the next stock that's going to go up 10x. If you can find a handful of companies that are”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“But again, the Microsoft relationship there is important. But this is not the world in which the sort of the Stalwarts, the incumbents are going to be at a disadvantage. They're going to be at a tremendous advantage. You need capital to actually invest, to buy GPUs, to scale out this technology. You need an existing device ecosystem to deploy it to. They have that. And in many cases, they have consumer products. We just saw this new Surface laptop from Microsoft with this impressive AI GPU on board. Microsoft 365 via Copilot and a consumer technology facing product that is benefiting from AI. And you get that in a company that is compounded about 20% of year. I'm reminded of this, Bill Ackman quote, which was we buy hedges. Not just because they're hedges, but because they make good investments on their own.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I do. I think that the biggest thing to look at in the market today is the entrenched players who are already generating value from generative AI. And what do I mean by that? I mean companies like Microsoft, Google, Amazon, who benefit from AI in a number of ways, right? You look at the ability to actually build out the infrastructure, look at something like Azure or Google Cloud. Obviously AWS, those are all check boxes on being able to monetize this AI paradigm shift. Then you look at Microsoft, their ability to sell co-pilot, to increase prices, to offer new offerings to people who are already entrenched and part of that Microsoft ecosystem. Again, billions of devices between these three companies. This is not a paradigm shift where you're going to see the entrance. Obviously, you're going to have examples like open.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Think you're absolutely right that being right and making money are two different things. And it often is how you express the trade and specifically do you have a stop loss? And, you know, to limit your losses and maximize your gains. So just to review, you do like dollar yen being long the dollar over the yen and in the future taking advantage of the positive carry of the dollar the fact that dollar interest rates are higher than the yen and you mentioned higher for longer so presumably that means you think that the fed is not going to cut by as much as the market expects. Do you have a view on the stock market in any possible whether it's S&P calls, S&P puts, volatility in the front end is compressed any of you in stocks at all or no?”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“VIX, not technically anyway, right? Because it's a function of realized VAL. The cool thing about these instruments, too, is that they de-risk and they auto-monetize with time. So if you put on a two-year inflation swap in March of 2020, every inflation print that happens takes profit and takes risk off the table. And so you could literally just sit back, put this trade on, and not touch it for two years. Whereas with gold, you would have had to time it. Yes, gold went from $1,600 to $2,000. Yes, it was up over that two-year period, but it ended 2022 at 1600. And so you'd have had to been right on the timing, on the direction, on the path dependency, and on the view. When you just have the view and you can express that in a simple, predictable instrument that settles into a terminal outcome, that is the way to trade macro, in my opinion.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“About what's going to happen because you're seeing it play out in real time. And the cool thing about an inflation swap or a variant swap or all of whatever it is, like a Fed funds futures contract, it settles into some objective terminal outcome unlike gold. If you buy gold on the basis of inflation being higher than expected, Jack, you've got to then find somebody in six months who's willing to buy it from you at a higher level. If you pay an inflation swap, you are exchanging what you view or what the market's view of inflation is today over some period of time with what inflation actually is over that period of time. And so that is why this type of trading framework, I think, makes a lot of sense. It's simple. It's predictable. It is liquid. It is scalable. And it applies obviously to inflation, to variant swaps. If you sell a variant swap at 30 vol and realize ends up being 15, then you know you made your money. That's not the case with the...”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“What was gold at the end of 2022 sixteen hundred? And yeah, there was a little bit up and a little bit down. But what you're far better off doing In my framework of looking at, and a lot of people share of his framework, is do the thing that works, that is simple, that is predictable, that doesn't require you to take this basis correlation risk in mind. So instead of buying gold on the basis of inflation, don't confuse the view with the structure. You just pay a two-year inflation swap. A two-year inflation swap in March of 2020 was negative 20 basis points. What that was saying is the market believe not that inflation was going to be a certain number, but that deflation was a certainty over that period, that it was going to average negative 20 basis points. And three months later, that shot up to 1.8%. In the traditional style of investing, you look at that and say, take your profits or trim it. When I look at that, I say add, add, add, because now you actually have more conviction.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“The way you structure the bet, Jack, is often more important than the bet itself. Anyone can have any idea about Japan this, about gold, that, about inflation, this. But how you structure that bet matters? Look, in March of 2020, when that $2 trillion cares act came down the pike, it was very clear that was going to be inflationary in a way that post-08 fiscal stimulus wasn't. It was literally helicopter money from PPP to the top off unemployment benefits to the stimulus checks. It was just handing money out in many cases to Americans of the lowest income variety who had the highest propensity to consume, who were then being taken out of the labor market, which was doubly inflationary, who were then being absolved of their liabilities in the moment, which was also inflationary. And so you could have looked at that and said, holy, moly, this is going to lead to an unbelievable inflation rate. What was gold in March of 2020? It was 1,600.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“If $en is $156, we can buy a $155 digital call that is technically in the money to spot, but out of the money to the forward. And essentially if nothing happens, if we're just in this same spot, and I don't mean like a straddle, I mean if Dollar Yen is higher than 155, you can pay something like 35 cents for that and make a dollar. And so that's when I think about macro, I think about the quote that someone told me very early on when I started which was.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“That the dollar will continue to appreciate, but you get to have it at a nice little distount because the market is rewarding you with that positive carry. Now, I take that a step further and I say, look, how can we juice that up a little bit? One, to limit the downside in the event that something happens for the BAJ. I don't expect them to embark on some Fed style or ECB style hiking cycle. And a lot of people are wrong about that with that prediction. But I look at that and I say,”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“At Russell 2000 versus SP and the divergence that you see there, Jack, is precisely because the Russell companies have higher exposure to interest rates, to floating rate debt, and so on. But I would say this, there are three key areas that I'm looking at. One of them is this hire for longer theme, which is tradable in a number of ways. I think Dollar Yen is a really interesting way to trade it because you have this positive carry element. You know, dollar yen right now, if you go into Bloomberg and look at your screen, it's 156. But if you go out three months, you're not actually buying it at 156. You're buying it at 154. If you go out six months, you're buying it at 152. If you go out a year, you're buying it at 148. And that's because the forward curve rewards you for buying the dollar, selling the end because Japanese interest rates are zero and US interest rates are five and a quarter. And so you get to have the right macro view, which is”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“So, you know, I don't really think about it that way to tell you the truth. I think about the market in terms of scenarios. What is the Fed going to do? What impact is that going to have? I think there's very little impact, by the way, between what the Fed does and what the stock market does. I mean, again, the market's up 25% since the Fed, the first Fed rate hike. We've had discontinued outperformance. The market sells off for two minutes after a Fed meeting and then has rallied back to all-time highs just days later. And so there's very little correlation between what the Fed is doing at any given moment and what the market's doing. And part of that goes back to the Lemonhead problem that the Fed has right now is there's very little in terms of transmission between Fed policy and the real economy. And, of course, the stock market, right? If Fed rate hikes aren't hurting businesses, which are disproportionate, large businesses which are disproportionately weighted in the S&P 500, then there's obviously not any impact there. Now, look, look.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Obviously, there are clear implications for what's going to happen in the foreign exchange market. That's the clear release valve for trade negotiations. And so you have to very closely monitor what's going to happen in CNH, what's going to happen in dollar mech, for example, what's going to happen with the euro. As these things are moving in real time, as trade negotiations are going to happen, as tariffs are going on, that's obviously stronger dollar and that's weaker the currency that is being applied the tariffs. And so there's a lot to do there, a lot of it is in the moment. You can't put a trade on in on May 22nd anticipating what's going to happen, but it's really about having the right framework and understanding what the implications of these trade policies will be.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“A lot of Republicans or Democrats when it comes to this free trade. They fall for that line. They fall for without ever questioning it. Free trade is good. Tariffs are bad. Free trade is good. Tariffs are bad. Much like the folks who said interest rates are bad. They are going to hurt the economy. Interest rates are bad. They're going to hurt the economy without actually ever thinking for themselves. Think for yourself and you'll realize that the trade agenda that President Trump is going to pursue is going to really revive growth and bring high quality jobs back to the United States, not the jobs where you're working here and you're working there and you're doing doubles and then you're off and this, that, and the other. Those are not the jobs that respect the dignity of the American worker.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“The playing field level. And so the second other country's stop cheating and stop rigging this bilateral multilateral trade system. That's the moment that we can take these tariffs off. And in the meantime, there's going to have to be some interesting conversations, again, negotiations between the US trade representative, who I hope again will be Bob Lightheiser. And of course, President Trump's team. Trade policy is the most important. It also, Jack happens to be the one that's largely within the authority of the President of the United States without having to go to Congress. And so these are largely executive actions. We saw that again with what happened with Mexico in 2019, with what happened with the Phase 1 trade deal. These things did not require congressional approval. Obviously, USMCA did require ratification. But a lot of the tit-for-tat stuff that was used in negotiations was straight from the White House. So you don't have what some would say is the moderating effect from Congress, which to tell you the truth.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Well, so this is a really long conversation. Trade policy, if you view what are we trying to solve for here? If you want the solution, the outcome that you're solving for, Jack, to be the cheapest possible t-shirts and air fryers, then yes, China ripping us off, taking our IP, sending stuff over to Mexico and shipping it across the border with some very lovely people is not good for the American economy, but is good for lower prices. Instead, the Trump Lightheiser view is let's not solve for price. Let's solve for dignity. Let's solve for respect. Let's solve for the amount of men who are working age but are not in the labor force and working because they're taking painkillers every day. That trade policy is the right one. And I want to be clear here. This is not tariffs forever and ever. This is tariffs as a means to an end, as a means to rebalancing trade, to actually make”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Rational thinking in the market creates interesting opportunities. This obsession with Trump derangement syndrome, which a lot of hedge fund managers suffer from, led to steep losses around the 2016 election, I think will lead to steep losses again in this election. That's why I'm building out this Trump framework aptly named, I think, to think about what a second Trump term will do for financial markets.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“No, but it does impact men, women, children, communities, which are really badly hurting right now. And so I am a Christian first. I am an American second. I am a conservative third, and I am a head of macro, fourth, allegedly. So honestly, this is all interesting, but what I care about is what happens to this country. I view my ability to make money in the markets as an ability to use those resources to fund my nonprofit, incubate debate, which is now the fastest growing debate league in America. We're serving 5,000 students in rural and urban communities from all walks of life to participate in this thing called open debate. That is what matters to me. But you're absolutely right. I don't call them political observations. They're reality observations, Jack, but the market is not real life. It is not reality. It is in many ways a game. And the lack of”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Or what the dots are going to look like in September, but it does have very real implications for the election. And I think that's why President Trump is going to take this thing in a landslide.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“How great the economy is when we've got half of working age men not working in places like Appalachia, in places like southern Alabama and northern Mississippi not working and being told by Will Stansel that the economy is great and you're the one who needs to reevaluate it and go get a Bloomberg account and look at all these metrics. The economy and the American people are deeply hurting just because the official statistics, and I'm not suggesting that they're rigged, I'm saying that they are measuring something different. I care about the well-being, the let's call it the livelihood, the quality of living of the people of this country, not the people who just got here three weeks ago from mainland China on some BS asylum claim. I care about them. And so in that case, the economy is not working. But again, let's go back to separating your politics and your ability to assess this is a purely political situation this has little to no bearing on what the Federal Reserve is going to do at the June or the July meeting.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Which is rural America. I look at opioid overdose deaths. I look at deaths of despair. All of these things are at record highs. We're losing 950 people, Jack, to deaths of despair in this country. What does that mean? It means suicide. It means alcohol poisoning. It means overdose. And so I'm not trying to solve for some GDP output on what we mean by the economy being good or not being in recession. That is meaningless. What matters is the American people. And when I look at somebody like the late Alan Kruger, the economist from Princeton, who sadly took his own life several years ago, his hallmark research finding was that half of the working age men who were not working were taking opioid painkillers every single day. And so I don't want anyone, not least that press secretary from the White House, lecturing the people of this country about”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“You see them in California and taking jobs and filling those responsibilities. They are not the constituencies. They are not voting. They are not what we think of as the U.S. economy, someone who just came here from Bangladesh or from Guatemala or Nicaragua or Venezuela. So that's the first thing is the labor market is largely right now being driven by migrant labor crossing the southern border. And so when you look at these gains, they're not actually telling you the full picture. The second thing is let's not confuse consumption with satisfaction. Americans are deeply dissatisfied about where things are right now. They're not happy about paying more at the grocery store. They don't appreciate the gaslighting from the Biden administration about, well, since inflation hasn't gone up anymore that you're in a good position, meanwhile, things are across the board 20 to 30 percent more expensive with no signs for that coming down anytime soon. And so that's not any solace. And then I look at the things that matter.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“So, I want to be clear, I think the economy is not working for most Americans, but there's a definition, you know, the way the Fed looks at the economy and the way that most Americans look at the economy. And so the Fed can look at the economy and say everything is dandy and by the metrics and by the dashboard that we use, we don't have to adjust policy or cut rates. When I actually look at the real economy itself, there's not a lot to be optimistic about. Let's talk about labor force participation, check. Since July of last year, We have lost 500,000 workers, native-born workers in the labor force, and we've gained two million foreign born workers in the labor force. And so when you look at these monthly non-farm payroll numbers, the jobs report, which you're actually seeing in many cases, is foreign workers, many of whom are crossing the border and being given instant asylum, taking jobs, you see them in New York.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“That is what we're talking about here. And so, yeah, in the long run, this is going to have to be reconciled, but right here, right now, Jack, there is very limited evidence that interest rates are being restrictive and are actually holding down the economy far more evidence is on the regulatory side, on the inflation side, but that is beyond the Fed's purview right here, right now, especially on the regulatory side.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Oh, of course it doesn't. And remember, in the long run, we're all dead, right? But again, we're talking about what Fed policy is going to look like between now and 2024, the end of this year or going into 2025, right? And so to your point, by the way, the fact that you haven't had to buy a car or do a mortgage, that's also an issue here because all of that was front-loaded because of the pandemic. People took advantage of low mortgage rates either to buy outright or to refi. They took advantage of low interest rates to buy a car. And so all of that consumption was front-loaded, the interest rate sensitive consumption, which left the non-interest rate sensitive consumption, which, by the way, is most of it because you don't need to finance the ability to go to dinner, get a haircut, or go to Disney.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“No, but I haven't since the Federal Reserve raised interest rates from 0 to 5.3%. I haven't tried to buy a car or a home. If I had to at the beginning before the Fed started hiking rates, That does matter. Eventually, you have to pay the piper and all this debt has to be refinanced just because it's longer than two years doesn't mean that the debt is permanent, right?”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Today, they're hurting because of the mistakes that got us to this point, i.e., again, the Fed, we had CPI hit 5% in June of 21, it took the Fed nine months to actually do something about it. That's a problem. And so Know to tell you the truth, the people that I know, and you're not, I don't know, but I want to ask you, Jack, has your life been negatively affected by the Fed raising interest rates by zero to 5%?”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“I'm looking at the math. I want someone. I want someone to find me ten people who are going to stand up and say that, again, we're talking about obviously there's some distributional impacts here. But obviously, who spends the money in the economy matters? There are obviously Americans who are suffering because of high inflation, who are living paycheck to paycheck and paying rent. But I look around, I look at people in my life, people in my community. Where is the proof that the Fed's rate hikes have hurt them? They're earning money on their Robin Hood balances in their chase CD accounts four and a half, five percent. They're locked into a two point seven percent mortgage rate. I'm not sure. I think Bidenomics is hurting them far more than Fed policy is today. Obviously, there are low income Americans who are hurting, but they're not necessarily hurting because of the Fed policy.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Want to be clear so there's one case that says because of all the reasons you said fixed liabilities floating rates that higher interest rates are nowhere near as contractionary as many market participants thought in 2022. That is the kind of these soft version. The more extreme version would be say actually interest rate hikes, not only are they less contractionary than people thought, they're actually net on net stimulative. Which camp are you in?”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“In 2023, that's certainly been walkback big time. So the market's coming around to this. And so one thing that what has really been a guiding framework for me in trading the front end of the interest rate, futures curve, whether it's trading FX, whatever it may be, has been guided by this research, this framework that the Fed policy today is not anywhere near restrictive as they think it is. And what that means is higher for longer.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Right here, right now, it's 9.7. So we're actually below the average of household debt payments as a percentage of disposable income, despite the fact that the Fed just tightened monetary policy at the fastest rate since Paul Volcker. With the Fed has a lemonhead problem, they think that rate hikes are doing one thing and they're doing something entirely different. And so what does that mean? It doesn't mean you go cut rates counterintuitively, but it does mean you keep rates higher for longer. You know, when someone like Governor Waller was saying in the fall of last year, we're going to be cutting rates in the spring, he certainly walked that back big time. When you look at what the market was pricing after the December FOMC meeting, going into January, six, seven rate cuts.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Analysis, net interest payments by non financial corporates in America have fallen for six quarters straight. They're down twenty-five percent. And so everyone had this idea that wait on a second, we're going to raise interest rates to get companies to invest less, to hire less. Oh, wait, we're giving them more money because they turned out their debt. They're locked in at a fixed rate and they're actually now earning 4% to 5% on their excess cash. Okay, so that's not exactly working the way that the Greg Mann Q macro textbooks that it was going to. And then on the other hand, Jack, we say, hold on, consumers, oh, yeah, well, they also refied their debt, their household debt at a record rate. And they're earning money on their cash. So where exactly was this going to happen? Where exactly were we going to have recession is an interesting stat here. Household debt service payments as a percentage of disposable income. The long run average going back 40 years is 11.5%.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Back to this well, rates this and rates that, and it's going to squeeze the consumer. But I kept pushing them on the exact mechanics behind Y rate hikes were going to hurt the consumer. We know they're not going to hurt businesses because as you brought up, Amazon, Apple, Google, Microsoft, they all termed out their debt. We saw record issuance in 2021 and 2020 that allowed folks to lock in the low interest rates that were fueled by zero interest rates, the forward guidance path tied to that new shift from the Fed at Jackson Hole in August of 2020. And of course, QE, they took advantage of low rates on the company side. Funny enough, by the way, there are companies who are making more today in interest because of high rates than they're paying out an interest expense. So on a net basis. And this is not just a unique company phenomenon. Obviously, this is going to be weighted toward the larger companies, but if you look at the Bureau of Economics,”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“And so these three things conspired in a way that ultimately lived up to that fun maxim, which is too much money chasing too few goods and too much money chasing too few workers. And that was really what started this. But I want to be clear, I'm not saying this is inflationary. I'm not saying this is some massive boon to growth. But the idea was if you take Fed funds from zero in March of 22 to five and a quarter, you would think that you wouldn't end up adding three million jobs to the U.S. economy in 2023. You wouldn't get blowout back-to-back retail sales numbers. The consumer is seventy percent of the economy. in the United States, not the case in China where it's about 55%. And so if you're going to tell me, Jack, that the US is going to be in a 99% chance of a recession, my question to folks who are saying that in 2021 and 22 was why? And they kept going.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Top off. You had two out of three workers in America making more on unemployment than they were at work. Obviously the pandemic was a part of that, right? But why extend those conditions through the American Rescue Plan? Yes, at a lower amount, but why extend those types of conditions? Let's think about that, Jack. That's a massive negative labor shock. You're taking labor out of the market, right? Because now they're making more sitting at home ordering DoorDash and Chipotle. Shout out to Bill Ackman. And on the other side, you're giving them this ability, this cash to then spend money. While there's a third option, a third category, which is, oh, wait, we're lending, speaking of that word loan forbearance. We're giving them loan forbearance and giving them the ability not to pay back their student loan debts. In some cases, private companies giving loan forbearance on mortgages and so on and so forth. Obviously, there was a rent moratorium and eviction moratorium.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“So the truth is both, right? You had transfer payments in that first part, call it again, 2020 and 2021 of the pandemic. That lit the foundation for this to even be a possibility. Those were obviously inflationary. I mean, think about this. The CARES Act through that supplemental unemployment.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And that was not widely appreciated in 2022. And I think now, objectively, it definitely is more true than the consensus thought it was because we did not have an imminent recession, as was the consensus. I repeat, and long-term viewers will know, there was a headline from Bloomberg Economics that said a 99% chance of a recession. And that's a pretty high percentage. And we have not had one yet. It is a year and a half later. But James, on the fixed side, floating rate liabilities, you have a bank account, you have a money market fund, you used to get zero. Now you get five and a half percent. How stimulative do you think that really is? Because isn't it true that people to, you know, the average asset in a money market account or bank deposit is a corporation or a very wealthy individual whose spending habits are not going to be”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“So interest rates going up, the liabilities are fixed. So the 3%, 4% mortgages that homeowners got in 2020 and 2021 or the incredibly long-duration fixed rate Amazon issuing a 40-year bond that's only a small tiny amount above treasuries in terms of the yield. Private sector has huge fixed liabilities, so the rise in interest rate isn't going to immediately affect them. It's going to take a few years. Got it. That's exactly.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT
“Would have been unheard of during the cryptomania just a couple years ago. And so that's because investors are actually earning interest for the first time in a long time. I don't mean today. I mean, over the last year and a half or so. And so let's think about the breakdown here for a second, Jack. Your liabilities are fixed, which means if rates go higher, you are not paying more in interest expense. And as rates go higher, you're actually earning more on the excess cash balances, a lot of which was tied to the enormous transfer payments under both under the CARES Act, under the COVID appropriations act, and of course under the American Rescue Plan, the last of which was particularly ill-timed in the face of what was happening in the economy and the pandemic, then guess what? The economy doesn't actually operate the way you think it does. Rates going higher up to a certain point isn't actually going to slow growth. It's going to do the opposite.”
2024-05-23 · Forward Guidance · James Fishback: Inside The “Head Of Macro” Dispute That Has Captivated The Hedge Fund World · IDENTIFIED FROM THE TRANSCRIPT