(Ep.116) The Acquirers Podcast: Colin Lancaster – Fed Up!: Excess And Crisis Through The Lens Of Global Macro And Central Banks

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In this episode of The Acquirers Podcast, Tobias chats with Colin Lancaster, author of Fed Up!: Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro TraderDuring the interview Colin provided some great insights into:

  • The Real Reason The Fed Aims For 2% Inflation
  • The Speculator’s Dream
  • Icons Of Macro-Investing
  • Investors Never Get Out Before It’s Too Late
  • Great Macro Investors Change Their Mind A Lot
  • QE Was Never Intended To Be A Day-To-Day Phenomenon
  • The Fed Can’t Raise Interest Rates For Years
  • Interest Rates May Never Normalize
  • Find Your Best 3x Levered ETF And Let It Rise
  • We’re In The Everything Bubble
  • Inflation Hurts The Poor
  • Central Banks Investing In U.S Equities
  • Is The Fed’s Tapering Here To Stay?
  • Are We Heading Towards The Japanese Experience Of QE?
  • Fed Up! The Inside Story On The 2020 Financial Crisis
  • A New Macro Hedge Fund

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Full Transcript

Tobias: Hi, I’m Tobias Carlisle. This is The Acquirers podcast. My special guest today is Colin Lancaster. He’s written a new book called Fed Up!. He’s a global macro trader, and he’s got some views on global central bank policy, and what we can do to fix the world, coming up right after this.

[The Acquirers Podcast theme]

Tobias: What’s your background? You’re a macro trader?

Colin: I’m a macro trader. I’ve been doing this for some 25 years now. In fact, I’ve had just this incredibly interesting background in that. I’ve seen really the entire evolution of these modern hedge fund firms, got into the business just because I loved market. I was really passionate about it, and have just an incredibly fulfilling career. I love what I do, and I love the discipline of global macro investing just because world events are all within our mandate, within the scope of what we do and probability weighting outcomes and finding the right way to express those views.


Great Macro Investors Change Their Mind A Lot

Tobias: Macro is very broad term. Can you be a little more specific about what you did?

Colin: Yeah, I would say at a typical discretionary global macro manager has a really unique mandate in that they are essentially allowed to do whatever they like anywhere in the world across asset classes. In the typical portfolio, you find them more dominated by expressions in interest rates or foreign exchange, because most investors, most allocators think of macro as a diversifier against their broader equity exposures. Which is really interesting, because I think the expectation is always that macro is going to post its best years of outperformance when equities are really challenged and when the shit is hitting the fan, and that has proven to be true if you look at the macro greats in our business. But at the end of the day, it is analyzing a whole host of data on a global basis, and really underwriting individual countries as opposed to companies, which is what the great equity investors do.

Tobias: Do you subscribe to any philosophies? Is it necessary to have any philosophy to execute this? Is it more like a special situation where you’re just looking for some catalyzing event to make something occur, or do you do approach from the perspective of say, an Austrian economist, or how do you go about that?

Colin: I feel it’s always important to be pragmatic. I think one of the hallmarks of macro investing is great macro investors tend to change their minds a lot and they’re very willing to admit when they’re wrong. You need a solid framework upon which to operate, and you need an investment process that you have conviction that it’s giving you better than even odds and anything that you’re looking at. But always being pragmatic about a change of circumstances, what an external shock may do, surprise from the central banking perspective, you’re always thinking about how you could be wrong in the way you’re expressing your views.

Fed Up! The Inside Story On The 2020 Financial Crisis

Tobias: So, the culmination of all of your 25 years’ experience as a macro hedge fund investor or trader has been this new book, Fed Up! and the subtitle, Success, Excess and Crisis Through the Eyes of a Hedge Fund Macro Trader. It’s a provocative title. what’s the genesis of that?

Colin: Well, if I had called it The History of Quantitative Easing, no one would read except for geeks like me. So, number one, there’s certainly a marketing angle. I think there’s a reality to that, which is, to me, I’ve always really admired writers. So, I’ll use Michael Lewis as an example, just because he’s come out with a new book as well. But someone like that, who can take a very complicated story, very complicated set of facts that ordinary people, they typically just gloss over, and to couple that with a cast of characters that make it an incredibly interesting read, and a bit of a page turner, this was my attempt to do the same. To take this extraordinary period that we’ve lived through with a global pandemic, a market crash, a barnburner of a rally back and to [unintelligible [00:05:54] that in the life of a macro trader.

I feel are a lot of really important things, which are the role of the global central banks in today’s economy, in today’s markets, the consequences of quantitative easing, consequences of the amount of debt that we continue to pile on to solve problems. But to put this in a very reader-friendly format, with a cast of characters that people can relate to and are fun and to make it something where people want to turn to the next page.

Tobias: A friend of mine has written a book along the same lines. Jake Taylor has written a book talking about value investing, and he’s similarly used– He’s written it as a novel, as a work of fiction and has used the hero’s journey, if you can imagine that, to describe value investment. Do you use any underlying structure like that?

Colin: Yeah, look, I’ll say that it’s probably very similar, in that this is also a novel in that. Everything that’s related to macro investing, and the markets, and the economic data, those are all very much real. But I took liberties with the characters and with timelines again to turn it into a story. Two of the characters are based on very close personal friends, who I’ve worked with over the years. But I really tried to make it and write it, he’s a macro trader [unintelligible [00:07:46] part of his diary.

In fact, the way that I started to write this book was I was just doing journaling on the markets, which I felt was good discipline and to stay in touch with markets. Then I realized, as we got through March 23rd of last year, and we were in the midst of this incredible market crash, markets were down 35% at that moment in time. I thought, “Colin, you really have amazing material here. Here, you’ve been chronicling this crash, and the way that COVID and some of the early data has been absorbed by the markets or hasn’t been absorbed by the markets, this is your real shot to do something you’ve always wanted to do in terms of writing a book like this.” So, I would say that I was very fortunate in terms of timing and just the content that the world was giving me at that time, and the fact that I had been tracking its every move.

QE Was Never Intended To Be A Day-To-Day Phenomenon

Tobias: You’re critical of quantitative easing and the role of central banks in the global economy. Why so? Hasn’t it been a massive success?

Colin: If you look at it from a central banking perspective– and QE has been around much longer than most, but just even take the 2008 global financial crisis as an example, I would say, a central banker at that moment in time is faced with this collapsing economy, systematic failure of all of the banks, massive job loss, and clearly the result in what QE can do to prop up asset values in periods like that, it has been very successful in terms of that. The problem to me, is what we have is– really, we’ve extended this, it’s no longer just use in these more extraordinary circumstances. It’s used every day. And to me, we are now at the point where we’re really testing the limits of QE.

What started as this emergency device, and today, I feel that QE really only propped up asset values. We haven’t seen related credit expansion in– To me, there’s no real benefit for the real economy. Right now, central banks are struggling with this concept of inflation, and how to generate inflation. I think it’s related to this, because I think what the last 10 or 12 years has shown us that QE does not result in inflation. That’s really left for the fiscal side, which is what we’re moving to now, which is a combination of the two schools. But to me, QE had this unintended consequence of really amplifying wealth inequality. If you think about what has happened from a wealth disparity perspective over the last decade or two, and how the top 10%, particularly the top 1%, have really benefited from many of these policies.

To me, what’s really interesting about this is a lot of times, these types of issues are framed as political outcomes. QE has existed under both Democratic and Republican administrations, and I think that particularly from a wealth inequality perspective, there needs to be a connecting of the dots in terms of these things.

So, yeah, at this stage of the game, I am more critical in that I feel that we’ve reached its limits and QE was never intended to be a day-to-day phenomenon. If you look at Fed [unintelligible [00:12:17] and even the rationale for embarking on such, what were then considered massive QE amounts back in the global financial crisis, the central bankers always intended to exit in the 2011, 2012 period, they just were never able to. And so now, we’ve gotten to the point where you’re seeing really staggering amounts of QE on an ongoing basis.

Are We Heading Towards The Japanese Experience Of QE?

Tobias: When you look around the world to say, Japan, correct me if I’m wrong, but the term ‘quantitative easing’ comes from Japan, and they embarked on this earlier than the rest of the world, certainly earlier than the US did. Do you look at Japan and say that’s potentially a model for the US, if we continue along this path, that’s eventually the point that we get to? And is that a bad thing?

Colin: I do think it’s a bad thing. If you look at what the Bank of Japan has done– and you’re exactly right. I feel like we are on that path. But unfortunately, what that path ends up meaning is that the central bank becomes a more dominant player in the market, not only across fixed income instruments and owning, essentially nationalizing the fixed income markets, but if you look at the amount of equities that the BOJ owns in terms of Japanese issuers, etc., they end up owning the market. They are the market for most of this.

I think Japan is an interesting example, because they’ve had a similar type of phenomenon where it has been a monetary policy fuel type of response. They’ve never gotten on board in terms of the fiscal side, which again, the US is now turning to. They’re taking this experiment in a slightly different direction. But I think if we just followed the Bank of Japan’s path on this, I think that’s dangerous, because they’re clearly all in on this bet now, and I don’t know if they can really say that the policy has been successful.

Central Banks Investing In U.S Equities

Tobias: When I look around the world, there are other central banks doing unusual things. One of them is the Swiss National Bank, which has got these holdings in US-listed companies. What do you think of that?

Colin: Look, there’s a scene from the book where we talk about this, where one of my favorite characters in the book is, he’s called The Rabbi, he’s goes through this and talking about looking at the 13Fs that are filed by the SNB and looking at their holdings and saying, “What is the central bank doing owning all of these shares of Apple and Amazon?” In some ways, it’s been a stroke of genius by the SNB to take these newly minted Swiss francs, and turn them into dollars and invest in tech stocks, which is the hottest side of the market or has been in the period that they’ve been doing this, but to see a central bank engaged in this, and they have such massive positions in a lot of US issuers, you scratch your head and say, “Is this really the role of central banks?” That’s really quite fascinating.

We’re In The Everything Bubble

Tobias: The US has an innovation in that it has this 30-year fixed mortgage. To support that, I think it’s become necessary for the central bank to buy mortgage-backed securities, and that seems to have been continuing at an incredibly high pace for an extended period of time. I think that Powell got a question about that at one of his presses, and said, “The property market in the US is white hot at the moment. Why are you still buying these mortgage-backed securities?”

His response was– he seemed shocked that he got the question in the first instance, and I don’t think his answer was very satisfactory. He said we’re going to keep on doing it until we think the property market is stabilized or something like that.

I thought it was one of those moments where it was really him blinking and showing that the plan is just we’re going to print as much money as possible, and we’re just going to keep on buying everything that’s not nailed down until– and I don’t really know what the end point is, but how does that play out?

Colin: Now, look, I think that’s exactly right. One of the statements made by the main character in the book is that, “We’re in this everything bubble, where we’re continuing to see these pockets of excess, where things just get out of whack.” And you’re exactly right, that now crossed into things like housing, which is white hot everywhere, or nearly everywhere across the US. But it’s also responsible for what we’ve seen in terms of the crypto markets, and what’s happening in that space. Obviously, over last two days, we’ve seen the selloff, and just now before beginning of this podcast, we saw that the Treasury wants to have a more proactive regulatory environment for these types of products.

But I think what we’re seeing is speculation being taken to new extremes, new levels. It’s really unfortunate, because it separates people who have assets, and are allowed to participate in things like this, and those that aren’t [unintelligible [00:18:23]. It’s this age-old debate between labor and capital, those that have to survive based on their labor and working for their wages and those that have assets to invest. But this is a period where those that have the assets are rewarded and continue to benefit significantly more than those that rely on their labor to get ahead. That’s problematic.

Look, we have a new administration, and I consider the book to be completely politically neutral. This isn’t, again, democrats versus republicans or anything. It’s really talking about the monetary policy phenomenon and the role of central banks. But obviously, what we are seeing with the new administration, and people have talked about to the New Deal and the analogies to that period of time. But again, we are in the period of creating–

I would say we’re upping the size of this experiment that we’ve been running. If you think about it, the shift in policy, we had the McCain school really rule from the 1940s through the 70s, which was management of a business cycle through deficit spending and money supply. We obviously had this bout of inflation in the 70s, which caused a pivot away from that, and monetarists came into power and focused more on the monetary policy side of the equation.

Interest Rates May Never Normalize

But I feel now we are entering a new stage of this where we are combining the two and beginning something different, which the outcomes of that I feel are more uncertain than really at any time over the course of my career, and in the path that we could take.

I think it’s going to be very difficult to understand that. I think for investors, the markets are going to be quite a bit more challenging, because of the different paths that we could take here and how you have to probability weight all of these outcomes. Is inflation really transitory? Has the economy really gotten past all speed once you strip away all of the fiscal that we’ve thrown at things? We don’t know the answers to those questions.

But what I do think is that the $29 trillion or close to $29 trillion US government debt that we have– It’s difficult to see interest rates ever really normalizing. If 10-year bonds traded back to 5%, which isn’t a huge number. It would cost us 30% of US GDP just to service our debt. That’s an unsustainable number. It’s pretty crazy when you think about it. So, how do we get out of this hole? Do we just inflate our way out of it? Does it involve just more debt monetization by the Fed? What is the path forward?

The Fed Can’t Raise Interest Rates For Years

Tobias: The central bank is supposed to be independent from the federal government. But there’s a point where 5%, you say 30% of the GDP becomes consumed by interest payments, but I think it’s something north of 2%, and the government itself is 100% of its revenues become consumed by interest payments. So, there’s this natural cap on, say, the 10 year around 2%, or a little bit more than 2%. We’ve seen it run up pretty extensively over the last six months, say. But there’s no way really that the Fed can let it get above 2%, is that because there’s no way they’re going to let the government go bankrupt.

Colin: Exactly. You really can never have interest rates normalize in the way that they should, because if they do, we’re all insolvent. It’s really incredible, but think about this. There’s a scene in the book, where the team is in Las Vegas, driving down the Las Vegas strip in a limousine and they see one of the IOU debt billboards that does exist just outside of the ARIA casino, which measures how much debt is owed. That scene which took place a bit over a year ago, it was $23 trillion of debt, and now there’s $29 trillion or nearly 29. So, just to think that we’ve piled on and over $6 trillion of debt in a very short period of time, it’s scary. Look, it was necessary. A global pandemic required us to do things, but our playbook is always the same, which is pile on more debt is the way out. I do feel there’s an end game to that, that can’t just be the only solution to these problems.

To your point, the interconnectedness of the Fed, and the government, I think that there’s been a huge pivot of last few years. Obviously, President Trump would openly criticize a Fed chair and almost taunt Powell early in his tenure, which Powell did a good job of trying to show that independence, but certainly there’s some influence there. Now, with former chairperson Yellen as the Treasury secretary, there is a link between the government and the central banks and the central banks, they have allowed the government to go on these spending tangents and this concept of debt monetization is not going away, although, that the Fed will continue to buy the bonds that are required to allow this type of spending.

Is The Fed’s Tapering Here To Stay?

Tobias: I guess to play devil’s advocate, the question would be, well, if we have done all of this intervention as central bank policy, and the result of that should be inflation, where’s the inflation? Is it just a matter of us not measuring inflation properly by using the CPI? Or, is it that it’s a multifactorial problem, and it’s not as simple as one input and one output? What’s your view there?

Colin: Yeah, I think it’s a multifactorial problem. I think that inflation is incredibly difficult to model. Look, the Fed has more resources than anyone in the world, and they’ve done a chronically terrible job of modeling inflation and having inflation even close to their estimates. Which is troubling in a couple of ways. Which is, if inflation is a large part of their mandate, which price stability is, and they don’t really understand it, what does that mean for current policy?

Can you take their word that the surges that we are seeing are transitory or is it a bigger problem? The problem to me is kind of the same side of a two-headed coin, which is, “Wow, if we have the burst of inflation, be careful of what you’re asking for,” because inflation is a dangerous thing, and it would require the Fed to embark on a hiking cycle, which would largely put out the recovery that we have had.

On the other side, if it is transitory, and we fall below their 2% threshold, or we end up in a deflationary environment, what does that really mean? That’s really scary, if we ended up back into what I would describe as a stop-and-start type of economic environment where the recovery is never really past all speed, so, the Fed can never complete the tapering that they want to do from a bond buyer perspective and embark on a hiking cycle. We’re stuck in this no man’s land of continuing with current policies.

Tobias: One of the debates at the moment is whether the inflation is transitory or not. There’s the view that while we had– the entire economy was shut down a year ago, and there are going to be supply constraints year over year, and that’s why we’ve seen such a big increase in consumer prices and asset prices. And then the other view is well, if you dump a whole lot of money into the system, you’re going to see inflation. Do you have any view on whether this is more transitory, or whether it’s permanent, or even the things that we should consider in making that decision?

Colin: Well, I’m going to skirt the answer by saying I don’t know, but when Janet Yellen was chair of the Federal Reserve, she and her staff developed her own model for measuring inflation. Its uses slack, import prices, and expectations as its key drivers. And if you use her model, which has been fairly successful in looking at inflation, it would say it will be right around 3%, a bit north of 3% at the end of 2022.

So, that would certainly suggest that it’s not transitory. So, here you have the former Fed chair, who now is treasury secretary in her own model would say that’s not transitory. So, I think there’s a big debate. I would love for Powell to get that question at one of her pressers and someone to point to that model and say, “Well, what do you think of the Treasury Secretary’s model?” Are you looking at that, because it’s predicting a much higher path of inflation?

The Real Reason The Fed Aims For 2% Inflation

Tobias: Let me ask you a question. Why is 2% inflation a good thing and inflation above that number a bad thing?

Colin: I really think that was an artificially generated number. I don’t think that there is any great reason for 2% to be this this magical marker. I think the Fed ended up coming to that number, because it’s something that they felt that they could deliver on. But the problem is, they haven’t. So, I don’t think there is anything special about that number.

Tobias: It might be a number that they can sell to people to– [crosstalk]

Colin: Yeah, it sounds benign. It sounds easy. 2% sounds like you can tolerate it. There shouldn’t be big problems that develop from that. So, I think you’re probably right. I think it’s from a marketing perspective, it’s a bit of an easy sell.

Inflation Hurts The Poor

Tobias: So, if we see inflation, this is presumably something it hurts the poorest first, it hurts the middle class. How do we implement policies that help the poor and the middle class?

Colin: Well, I think the reliance on monetary policy has hurt them already. If you look at the– Again, back to the book. We talk about this quite a bit. But wages have not kept up with inflation over the course of last 20 years, former President Trump touted the greatest jobs market of all time, but many of these jobs that were created over this period were in hospitality and entertainment, hourly wage jobs with many without even full benefits. So, I really think it’s hard to claim victory with some of those numbers, that those are really jobs where people can provide for their families.

So, I do think you’re right. It is always that group of individuals, those that are reliant on their wages that always take that hit, the biggest hit from an environment with higher inflation. I think that the ways around this are on the fiscal side. It is trying to get dollars to the right people for the right types of spending, the right programs, whether those are for education or otherwise, but the danger in all of this is we just can’t spend for spending’s sake either. We have to expect some type of return on investment in those dollars were spending, which I think is something that is always lacking from Washington, and that’s a difficult thing to ask, and it’s a difficult thing to change.

Tobias: Is this something that you can fix through the tax system? What’s wrong with the tax system, and how would you fix it?

Colin: Yeah, I think that some of what President Biden has proposed is probably a bit long overdue in terms of equalizing the way, again, both wages and capital are taxed at any point in time. So, I think there is some equalization that is going through Washington and will be enacted there. All of these policies combined with this economic environment we’ve lived in have unduly benefited the top 1% from a wealth inequality perspective. That feature by itself has had a lot of other… populism we’ve seen more divisive, politics, all of these things. I think it is a matter of making sure that the overall playing field is more level, and people are feeling that they’re being left behind by what they’re seeing.

Find Your Best 3x Levered ETF And Let It Rise

Coming back to the markets and the Fed in the book, one of the comments in the book is, boy, find your best 3x levered ETF and let her rise, because that’s the way you get rich today, which is really a sad statement. It’s not about delaying gratification and saving in a traditional way, and then using that… saving for some more entrepreneurial activities. Lever up, and buy tech, and buy crypto, and that’s how everyone’s getting rich these days.

Tobias: It does seem to me that there’s a lot of speculation in crypto in the sense that– Well, there are some folks who are in it, because they’re using it speculatively, but there are other folks in it who are using it as a way of expressing their dissatisfaction and disappointment, or wish to withdraw from the fiat money system. Do you have any view on which one of those two views prevails or where we are in that system? Because the difficulty of it is that you look at the prices in it, and they’re very volatile, and they tend to be volatile, and up to the right for the most part, so I have some sympathy for those who view it as a speculative instrument.

Colin: Yeah. I’m a bit of a geek in this way, and to me, there’s this intellectual appeal to having this new store of value, which can protect you from a big risk-off type of environment. Again, coming back to one of my earlier points that as a macro investor, I think we are always expected to provide safety in a more uncertain market environment.

So, you’re always looking, what are the best asset classes to provide real safety? Is that gold, is that cash, is that something like bitcoin? What is really going to give you these historical correlation benefits that you used to get from owning treasuries, owning bonds, when the equity markets were selling off, because those correlations over time continue to break down, so you’re just not getting the protection that you used to get.

And in a portfolio context, when our job is… into those environments, well, what is the safe assets? So, there’s this intellectual appeal to really want to understand it, and what does it mean? I’m sympathetic to the people who like the concept of this, say, a non-government-controlled currency, where there is an understanding of the supply dynamics. Meaning, how much new supply can come to the market at any time and protection against just an increase in money supply and the dilution and… results.

The Speculator’s Dream

But I think from that original concept, it’s become a speculator’s dream, and a lot of these coins, it’s the equivalent of the meme stocks, and these are all going to just be a disaster for people who are investing in them, and think that there’s any real value, because they’re all built on the concept of a Ponzi scheme, get in early and sell it to someone else at a higher value, but there is no real fundamental value to many of these things. And I don’t like it, because I think social media and other areas have made to take the old-fashioned boiler-room pump and dump scheme to an entirely new level where people are watching Saturday Night Live to see if a comment is going to be made on a particular cryptocurrency, and what that’s going to mean. I don’t think those are healthy market dynamics.

In some ways, I would say that for me over the last– since the recovery began, call it last April, this has been a very easy period to make money. It’s hard for me to get in an Uber without a driver telling me about his success in crypto or this tech stock or that. And, boy, I just worry so much whenever markets appear easy, all my warning signals are going off, and I get really worried, because investing and beating markets is not easy. It’s an incredibly difficult thing to do, and whenever you have a period where you’re in a bubble or bubble-like conditions and it has become easy, it always ends badly for a lot of the people that are involved and that will be a really sad consequence when that happens.

Icons Of Macro-Investing

Tobias: In the book, you say that Fed Up! pays tribute to some of the icons of investing and there’s a great list here, Ray Dalio, Paul Tudor Jones, Stan Druckenmiller, Louis Bacon, Alan Howard, and Ed Hyman. Tell us about their thinking. Why is it so consequential?

Colin: Look, it’s that group are the people who’ve always inspired me. They’re the icons of the macro world. To use someone like Stan Druckenmiller, I can’t think of anyone who I would rather watch being interviewed than him because he’s got this amazing style of just calling it the way he sees it and in a very folksy manner and here, you have one of the best compounders of the wealth of all time, and he just amazing because of that, but I love to listen to people like that. I love to absorb anything they ever say or write, because I think you learn so much from people like that. It’s people who really lived in navigated through all of these cycles. They’re, again, incredibly pragmatic about their investing. But they’re just so good at it, that type of things. You only earn your stripes over doing this for decades. People like that have done that, and I really respect it, because at the end of the day this is a hard job.

Tobias: Yeah, I’m a huge fan of Druckenmiller’s too. He’s been quite critical of some of the policies that the Fed has adopted, but his criticism has gone on for quite a few years now. I don’t know how long it is, but it could be 5 or 10 years. So, I like the fact that she used the word ‘pragmatic,’ because there’s really no other way to describe him in the sense that, despite the fact that he’s been quite critical, he has still managed to outperform when there are a lot of guys out there who they go down with the ship, they’re critical and then they’re positioned in a way that has been unhelpful. Do you have any views?

Colin: I think that’s such an important lesson in markets, because he clearly doesn’t agree with things that are happening, but he doesn’t get stuck in his own head. He says, “Look, here are the rules of engagement. Here are how the central banks want us to play this game, and I’m going to play it as well as anyone else.” And his performance reflects that… because a lot of people get stuck in their own views, and they’re going to defend them to the death, and it really causes their own performance to suffer, and they can’t get out of their own way.

At some point in time, he’ll be right, and I have confidence that he will trade those markets really well, because that will be a more risk-off type of environment.

Investors Never Get Out Before It’s Too Late

There’s a famous economist, a guy named Rudiger Dornbusch. He’s got this famous saying, “In economics, things take longer to happen than you expect, but then they happen much faster than you ever thought possible.” It’s really true about the market. You can have this view for some time and be wrong, be wrong, be wrong, and then it just happens, poof.

It’s funny, because people always think that they’re going to be able to prepare, that there’s going to be these signs that tell them, get your portfolio to cash, do something different. That’s not the way the markets work. Typically, when that selloff happens, people are just, they’re stuck in what they have, and that is such a painful feeling, such a painful experience.

There’s a scene in the book where this is happening. It’s from last March, where I felt that the markets had really done the same thing. They had trapped people. At that point in time, you’re along for the ride. There’s no way you can just cut or get out of anything that has any hint of illiquidity to it. It’s a really painful thing, but markets tend to trap people on that, and the writing typically is not just on the wall to give you a heads-up to get out.

A New Macro Hedge Fund

Tobias: And so, you’re launching a macro hedge fund subsequent to the launch of the book. What’s the focus of the fund?

Colin: Yeah. I really love the multi-PM PM model. I just said what that means is, you end up having separate pods of risk takers, all focused in different asset class, in different geographic region, but the secret to this is you have each of these uncorrelated return streams that you put together. I just think that model can produce such a unique and needed return stream for investors with where bond yields are now and these types of structures are– really the hallmark of them is the consistency of the performance you get and these correlations in that they tend not to be correlated with other asset classes, and certainly not the broader equity markets, but they’re very similar to the types of firms that I’ve worked in the past, and I just have a tremendous amount of respect for those firms and that type of return profile, and I think it’s something that every allocator, every investor needs in this day and age.

Tobias: Colin, we’re coming up on time. If folks want to follow along with what you’re doing, get in touch, or read the book, how do they go about doing those things?

Colin: Yeah, no, please follow me on Twitter. There is a web page for the book, just punch into your local Google search engine Fed Up, Colin Lancaster, and you will find it. But I love talking about the markets. I’m really passionate about investing, and I love to share my views.

Tobias: What’s your Twitter handle?

Colin: It is @ColinLancaster.

Tobias: That’s great. Well, Colin Lancaster, the book is Fed Up!. Thank you very much for your time.

Colin: Thank you.

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