YouSaid · the spoken record

Luke Kawa

lines on the record: 43
first: 2021-03-22
most recent: 2021-03-22
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Thank you guys very much. It's so great to be speaking to you guys again and hopefully a karaoke at sometime when Tracy's back in New York.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Is the dissemination of information in a manner that allows a lot of these priors or these questions to be challenged before you actually do it? And then it's just a matter of monitoring and figuring out are things going according to plan? Are they not? And why? And if you've done the work beforehand, you have a pretty good base to go out of there.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“What gives you feedback is the market kind of instantaneously and always is giving you feedback on whether you're right or wrong. And that'll play out over time. But for us, it's very important. This is a results-oriented business, but it's very important to keep process in mind at all times. And that's why it's important to build a lot of consensus for new positions and new trades and have them thoroughly vetted, battered around. So that's the consequence is everyone having buy-in, everyone having understanding of the factors of the milestones that could affect the trade when you go into it and being able to monitor it. So you know when the conditions are shifting, you know when there's been a thesis violation, or you know when things have gone according to plan, but the price just hasn't. So the way to avoid or to kind of mitigate quote unquote consequences.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Components as the parent index, the non ESG index, pretty easily even using some more brute exclusion techniques. So it's something that regulators seem to be demanding. It's something that clearly, if you look across the industry, there's interest in, and it's something that's going to be affecting bottom line results for corporates more and more.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“ESG is much less here's something we would like to encourage by kind of by rules, by flows, et cetera. And it's going to become much more something that drives bottom line activity. It's not just kind of regulation saying you must do this, you must do that. It's governments making steps beyond that using fiscal policy to support ESG goals, and particularly related to E. So that's what provides a lot of opportunity on the time dimension side of things is that I'll give you the Cole's note punchline of the forthcoming paper. And it's essentially that we believe through our research is that there will not be a trade-off between risk and return, any negative trade-off by adopting ESG and that you can make essentially a lot of portfolios that have the same factor.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Big underlying question to this is there a trade off if you think this is a if you think this is a fad, if you think this doesn't produce optimal return results, what are the associated costs? Are there any? And there's precious few academic studies or work on this and Michaela is among the first in this field. And so how we're viewing it is that the traditional kind of investment process, you're balancing risk and return. With ESG, you're adding a time dimension and you're also adding preferences that are going to, the preferences are going to guide the investment universe. And that could be by kind of regulatory fiat, or that could be because of the values of certain boards, firms, endowments, et cetera. And the time dimension is, I think, something interesting. It's the idea that more and more”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“When I think about ESG, and what I'm primarily going to kind of focus on is that there's a paper again, I'll give Michaela Gambera another shout out because he's in the process of review, but another paper that I'll try not to cannibalize or preempt too much. It's about how do we think about incorporate ESG into the asset allocation process? Because I think”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“In late January, you're having dislocations and you're having headline indexes decline because of flows related to retail trading and associated deleveraging. Nothing about the fundamentals change for the better or worse. And very soon thereafter, all-time highs again. So thinking about it from the index level perspective, it doesn't seem that these flows are kind of overpowering the fundamentals at any point in time. Might that be true at the single stock level? That's mercifully something I don't have to have an opinion on anymore.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“This is where kind of the we're very top down oriented and don't do anything related to single stocks. And that's where it helps here is that you can see that”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“How flows might improve for more autopilot flows as employment does grow. And so that's something in a wholesome manner. That's kind of how we think about it.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Markets and the fundamentals haven't changed a bit. Well, then there's a pretty good opportunity for us. That's the valuation and the catalyst that's opened up thanks to these flows. We can expect that to remedy and therefore that's an opportunity. I think another element that's really unique to retail participation is the timing, the fact that this came about during a period in which buybacks obviously fell tremendously because of profitability and because of regulatory rules. And it was a time when the macroeconomy was not doing well. So I think this leads to a bit of an overfocus on retail, which certainly you can see the visible footprint, but it's important not to be doing partial equilibrium analysis here. We also do have to consider how flows are going to improve from bibe.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“If we're going to have a new material source of funds generally entering the market, this is going to put downward pressure on the equity risk premium, this is going to be kind of positive for asset valuations. So from that high-level perspective, that's the first order from which I would view it is that this increased flows from this cohort is positive for equities, full stop. The increased kind of footprint of this cohort, the higher turnover. And I think what we saw at the end of January, it's a reminder to me about how a lot of the pullbacks we've gotten in recent years are, you know, they really do have a liquidity accelerant kicker here. And so from an asset management perspective, if we're able to identify a situation where sharply swinging flows are what's essentially driving the move inline.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I've got to say it was the moment in time where I think my brain had been successfully rewired when you see some of this activity and then you immediately don't go, okay, I need to check this or that forum. It's okay. How is this going to affect the broader market ecosystem? So kind of from the highest, highest possible level view.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“The information in this and whether it's changing our priors, whether it's changing our views, whether it's changing our thesis. So I think it's a lot of humility. It's knowing what you don't know. It's knowing that there's someone around you who has a better idea than you do, deferring to them, and then continuing to seek out corroborating evidence from actual experts on the subject.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's incredibly difficult because as you kind of alluded to your biases will tend to creep in and infect the process. And I think that's where being a global bank and I'm on a global team, this is where that really comes in handy because you do have more kind of boots on the ground closer to home domestic knowledge in pretty much every market. So I think as a starting point that's very helpful and beyond that it's recognizing your limitations, recognizing that I'm not a congressional analyst. I'm not a political analyst, but I talk to people who are. It's still doing that research, doing that work. And that's where there's so much symbiosis, I think, between news and asset management. We rely on good reporting. We're around the desk. We're sharing Tracy Alloway or Stephen Spratt or occasionally Joe Wisenthal articles and discussing.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“If the Fed gave us in their dashboard and their summary of economic projections, the outlook for how some of those variables are expected to unfold and suggested that those are what's moving into being.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I can tell you things that will make me more confident in that going forward. I think just on a basic level for the inflation point, it's almost as if all this, the policy review. Was for naught unless it produces some kind of concrete change and the Fed's reaction function. So that in itself, there's some sunk costs into this new framework that does suggest that, yes, it will continue to be an operable one that produces different results than the previous economic cycle. So I think from a starting point, that's a good place to anchor to. What going forward, I think what would increase my confidence that this is really a different Fed and you hear Fed members talk about this fairly often. They're talking about more economic metrics outside of the unemployment rate. That's in the summary of economic projections. They're talking about the employment to population ratio. They're talking about how labor market outcomes are unequal based on race and that is something that over the fullness of time, a hot labor market can start to correct.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So we're almost targeting basically getting back to the point where bonds might not be providing good protection, but still might also be. So we're going to be flirting with that line under a policy success regime.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Policy much more on board. So it's a wait and see and monitor because at this point, we can't judge the degree of fiscal stimulus and how long it'll be there. What we can do is look at, okay, what kinds of realized inflation outcomes would really cause us to reexamine the stock bond correlation and the potential negative effect on portfolios? And so a couple of my colleagues, Michelle Gambera and Lewis Finney, have done some great work on this. And what they found is that the point where the correlation flips, where you should be very, very worried or at least concerned or taking steps to monitor that the bond part of your portfolio isn't providing the protection you might think it is, is when Core CPI has averaged 2.5% for a 36 month period. So if you think about that in the context of average inflation targeting, that's almost what we're looking for.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Inflation is a show-me story still, right? The Fed has essentially told us that 2021 inflation is not Not something they're going to react to. The Fed, Jerome Powell, is the 2011 Fed, Ben Bernanke looking through inflation, not the 2013 Fed of kind of preemptive setting off a taper tantrum. So the reactivity of financial markets to near-term inflation outcomes, I think we've been well prepared for that and you see that already in the backup in yields we've had. Looking forward over a long period of time, and I know Joe loves to post charts of essentially a bunch of core inflation measures that are just hanging out close to but not above 2%. So that's the history we're fighting. But that was a history that we had in the context of monetary policy doing all the lifting. So it's Sisyphus posting the boulder up the hill, monetary policy can't do it on its own, boulder back down. We try it again. This time it's different because Hercules is pushing the boulder too.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Policymakers have said, hey, we've discovered the real solution to counter cyclical policy. It's giving people money. It's giving businesses money. It's making sure that liquidity crises don't morph into solvency crises. And actually, we do that role better than central banks do it. We're going to continue this playbook going forward. What does that do to the cyclicality of earnings for cyclical companies? And in my view, this is something that would make them less cyclical if we're going to constantly underwrite the business cycle using fiscal policy. So the valuation gap that we talked about earlier between value and growth, if you also kind of just reframe that as cyclical versus defensive, if you're less worried about the cyclicality of earnings for cyclical companies because of fiscal policy taking a more muscular role”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a mathematical kind of construct there. When you move to the handoff to fiscal, I think that's where it moves more into the realm of equity rotation and equity risk premium. So if we're moving into an environment where”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So on the negative rates question, I guess, I mean, the only thing that keeps me from, you know, in my view saying that it's definitely going the way of the woolly mammoth is the Bank of England. That would be kind of the only thing that gives me pause because I do seem to be at least laying the groundwork in the financial system to do that if needed. And it's a real consideration. But that could also be part of the Ben Bernanke constructive ambiguity when it comes to negative rates even talking about them as a form of forward guidance that can kind of help keep the front of the curve well anchored and well behaved. When it comes to the policy asymmetry point, I think it plays out in two important ways. One is, again, you reasonably might not be able to expect to bonds to deliver the same degree of performance during risk goff that they have in the past just because of the lower starting point. So that's.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“The global economy and macroeconomic cycles and ebbs and flows, it's very likely that China is going to be a mover and shaker in that story. So it's very likely that beyond the yield premium they offer that the negative correlation will still be there.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“All this more institutional adoption and appreciation is something that itself will perpetuate and kind of reinforce this negative correlation between SOX and Chinese bonds in particular. Because if you look at also the, you know, if you go through the growth shocks or the any reasonable pullbacks we've had in the past few years, China, the 2015-16 China DeVel obviously Chinese component yields go down during this and global stocks go down Early 2018 the Volmageddon experience, not clearly not a China matter, but yields down materially. Q4 2018, not really a China story. You can argue it might be about trade, maybe not, but yields down a lot during that. And COVID is certainly a story that China was first into from an economic and risk market perspective. And yes, yields down. So if you're trying to tell any story about the”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Bonds might be at an effective lower bound, which is still an interesting part of the COVID shock, is that no central bank took rates more negative to deal from it. So it seems like the appreciation of that policy tool might be fading in its role going forward. And so when we looked across a spectrum of different fixed income instruments, we just believe that Chinese bonds, because the yield premium and because of the economic maturity, the People's Bank of China has now a reasonable history of being able to move counter-cyclically, so unable to ease when conditions are bad and tighten when conditions are getting better, that kind of supports the stock bond correlation you would like to see and helps you have faith that it will be there in the future. But I think what's more important is what Tracy just mentioned, the fact that Chinese bonds are getting all of these inflows and receiving all of this.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the attraction starts with just the most simple component, and that's the yield premium relative to the rest of the world. So essentially coming into this year, you had the Chinese 10-year at a near record premium to G3 yield. So that in itself is going to drive attention, especially with central banks signaling at the time that nobody was anticipating the results we got in Georgia or for yields to move the way they had. So that's something that just off the hop is going to naturally lead people to gravitate towards a higher yielding solution. But I think a deeper part of this, and this is something that it's part of a collection that me and my colleagues have written called Upgrade Your Asset Allocation. And the second paper in this series deals with enhancing diversification in the context of a low yield world. So how are you going to make sure portfolios are well buffered in an environment where”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Or the amount of growth we're about to get that's in the pipeline. But being underway bonds doesn't mean abandoning them completely. So that's the kind of the role we see the give and take. It's certainly not a time, in our view, to be overweighting bonds. We prefer equities to bonds. We prefer credit to bonds. So that kind of gives you a sense of where we are positionally.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think Bond's full stop do still play an important role in portfolios in U.S. treasuries due to, like, think about the nature of the quote-unquote shock. And I'm using air quotes on that because we're still pretty much even at all-time highs after this rate shock. And it's the thing about bonds is that they aren't intended to hedge the shock. They're intended to hedge the downside shock to growth. And that's something that we were able to overcome and deal with last year in bonds. performed pretty well throughout that, I think you can say, especially after the liquidity crisis stages of the COVID shock has passed. But right now, from our point of view at UBS, we're underweight global duration. And that's just based on the view that we're getting a recovery and bond yields haven't fully priced in the magnitude of the recovery.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Congress will begin to work on soon and hash out over the course of the year, but also whether some of the provisions in the most recently passed $1.9 trillion stimulus are actually extended and made more permanent. Those kind of things, they do add up and they just do show that the policy boat is continuing to move in the right direction. And that allows kind of the more cyclical traits to continue to have the wind at their back.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“What's next? The kind of show me story, and using that as a reason to get bearish when we know it's a popular, to quote another of our former colleagues, Sam Rowe, stocks usually go up. That's the thing. So I think importantly, kind of anchoring on that and realizing that as long as we're still expected to get earnings growth, it's just a matter of making sure you're on the right side of the rotation. But in terms of things to watch, I think An encouraging development lately has been the degree of Chinese policy support that hasn't really contracted as significantly as, you know, some may have feared coming into the year that's removed a pretty key downside risk. Second would be the continuation of U.S. fiscal support, not only”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the important part is not to think ahead too much, not to think too fast. The biggest mistake that could be made in the coming months is essentially saying, okay, we've had peak policy support.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Late this year, midpoint of this year we'll be talking about okay. How can this be sustained? Do we have the policy action to sustain this, or are we going to migrate back into the regime we have before? And that's when you return to monitoring your policy milestones and try to attempt to discern the tea leaves here.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Know that's unlocked by vaccinations, that's unlocked by fiscal stimulus. So, right now, I view that as much more fundamental to the cause of value versus growth performance than the rates market. If you're going to run correlations for free month rolling performance of Nasdaq versus S&P 500 versus the movement in 10-year rates or real rates, you're not going to get incredibly strong signals. It's a bit of a quasi-myth. So it's really looking into what's been driving the outperformance. Is it the earnings growth? And do we expect that's reversed? And that's our view that based on just the amount of fiscal stimulus in the system, a given vaccinations, laying the groundwork for return to economic normality, that that's going to happen. And so that's the kind of scenario that I'm talking about, just letting it play out because the earnings in this case are the catalyst and come.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I think this is something that plays in very well to the kind of the biggest debate that you alluded to in the preamble, which is essentially the growth versus value trade right now. Because I think that essentially is a good parallel for what underlies your question there. And for the longest time, you could say, well, these valuations are getting to the most stretched since the dot-com bubble, et cetera, et cetera at certain point. This is going to snap back. The situation we have here and people can point to the rates market as a catalyst for this rotation or as accentuating this rotation. When you really look at this under the hood, it's just the fact that the earnings, the bottom line for value stocks are expected to grow at a faster pace than growth stocks for the first time in quite a while. So if you look at finally getting the catalyst to realize some of that outperformance, and that's”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Gaps are how you avoid value traps is really finding that catalyst and making sure it'll be there within a reasonable period of time so you have your your margin of safety built in on valuation and you have your catalyst that provides for meaningful upside exposure”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Is trying to identify convex opportunities that are based on underlying macro themes. We expect to play out. Now, what is something that provides the convexity or the outsized return or the best expression of a thesis, so to speak? It's probably going to be a combination of both valuation and catalyst. So it's really working through and doing the work to identify assets that do appear undervalued and that we do believe have a reasonable macro case to expect these valuation gaps to remedy based on an improvement and the underlying fundamentals. And I think that's key. It's not just hoping that this valuation gap will close. If you have that, but you don't have the here's how part. And that's what we spend a lot of our time doing. It's easy to kind of identify and just know where the valuation is.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think there's a really actually good tie into journalism here because I think Bloomberg, the interview question you're always asked, I think there is one of the most important things as a journalist and it's accuracy and accuracy are the two most important because I think what you're supposed to answer. And then when it comes to investing, I think the answer there would be accuracy and asymmetry. So essentially what we're trying to do is”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“What you're doing, and whether you're covering commodities that day or options or bonds, et cetera, et cetera. I do like the idea of a little more structure and working to solve problems. The half life and the payoff period is going to be longer than that one day, where we're going to.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and nothing but love on my end former and current employers on that front. But I think there was time in my career where I wanted to. Definitely take a learning step and figure out whether kind of my ideas and the way I thought about things could translate into the real world, but also to start fresh again and be definitely be the dumbest guy in the room. And that's a position I relish and I enjoy and I'm in in every meeting I'm in. So just the ability to really learn, to rewire my brain and to, you know, Solve problems on a more prolonged basis because I think one of the things with journalism that's fun and exciting and what I loved about it when I was doing it. That when you go in every day, you have really no clue what you're doing. The market is going to dictate.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“That's kind of how I'm envisioning the degree of fiscal that's in the system right now and the kind of earnings rotation that's supporting underlying markets.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Right now, dealing with this environment is letting it fully play out. We know that we have some incredible fiscal stimulus in the pipeline. We're pretty sure we have sustained monetary support over a reasonable enough forecast horizon. So now it's a lot about just making sure the fundamentals are still aligned with your thesis coming into this year. And so far, I think that's been the key. And if you look at kind of the current environment we're in, something that it reminds me of a lot, not in macro implications, but in terms of just letting it play out would be the kind of the mid-2014 oil shock whose ramifications in terms of what it did to bond yields, what it did for commodities generally, commodity currencies, that essentially lasted for an 18 month period in which it was a chief catalyst for performance across the board. Right now that's”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, this is the thing about uncertainty, right? It's always supposed to be above average. But at the risk of contradicting Tracy, which I guess I'm allowed to do now, it almost seems that one of the more difficult parts.”
2021-03-22 · Odd Lots · Luke Kawa on the Macro Situation Right Now · IDENTIFIED FROM THE TRANSCRIPT · source