Alex Shahidi and Damien Bisserier discuss risk parity versus equity-centric and “crystal-ball” investing, the hazards of the 60-40 stock-bond allocation, crypto as a diversifier to gold, the reasons to hold Treasuries even at today’s low yields, the lessons of financial market history and other topics in this episode of “The Sherman Show” hosted by DoubleLine’s Jeffrey Sherman and Samuel Lau. Mr. Shahidi is Managing Partner and co-Chief Investment Officer at Evoke Advisors, a $20 billion registered investment adviser. Mr. Bisserier is also a Managing Partner and co-Chief Investment Officer at Evoke. The discussion was recorded on March 9, 2021.

The Sherman Show

TSS: S10 E5 - Alex Shahidi and Damien Bisserier Discuss Risk Parity Investing

S10 E5 - Alex Shahidi And Damien Bisserier Discuss Risk Parity Investing

DoubleLine’s Jeffrey Sherman and Samuel Lau welcome political risk expert Lawrence McDonald, a New York Times bestselling author and regular contributor to CNBC, to “The Sherman Show.” Mr. McDonald is the creator of a finance and politics talk show on RealVision and The Bear Traps Report, a research platform with actionable trade ideas, which he serves up in this episode, recorded March 23, 2021. In addition to tips on shaping your portfolio, Messrs. Sherman, Lau and McDonald discuss the possibility of a supply-side squeeze in commodities, the Federal Reserve addressing inequality by a refocus from supporting assets to boosting the labor force and trillions moving out of tech stocks into value stocks. Of that equity shift, Mr. McDonald says, “I’ve never been more certain about a high-conviction thesis than this.” He also anticipates the Democrat-controlled Congress in the fourth quarter will use the reconciliation process to pass another trillion-dollar measure in the form of an infrastructure bill, widening already historic debt. As far as the Fed instituting yield curve control, Mr. McDonald sees it as inevitable while Mr. Sherman is skeptical Fed officials want to go down that slippery slope.

S10 E6 - Larry McDonald Brings Together Inflation Risk, Yield Curve Control and Reconciliation

Louis Gave, founding partner and CEO of @GavekalResearch, tells DoubleLine’s Jeffrey Sherman and Samuel Lau that the price shifts of three key assets is not a “dead-cat bounce” but “the start of a new trend” in markets that will require investors to make fundamental changes in portfolio allocations if they are to succeed. Hong Kong-based Gavekal Research provides research on global macroeconomics, financial markets and asset allocation. This episode of “The Sherman Show” was recorded on April 6, 2021. 
In the past three to five years, Mr. Gave observes, the markets have been priced to a “structurally rising dollar. I think this is now over. We’re now in an environment of a structurally weak dollar. We were in an environment of bond yields that were flat to down. In the past six months, we are now in an environment of bond yields moving higher. We were in an environment really since 2013-14 of falling oil prices, and I also think this is over. So this means the investment environment is changing before our eyes.”
As a warning sign that U.S. policy is out of balance, Mr. Gave points to a moribund dollar despite a backdrop of rising Treasury yields, recovering U.S. economic growth and the country making better progress than most of the rest of the world in vaccinating its population for COVID-19. “The market is telling me that the policy settings in the U.S. are way too loose, both on the fiscal side and the monetary policy side.” Mr. Gave suggests that massive debt-financed fiscal deficits in fact mean the Treasury issuance has outstripped foreign investors’ and U.S. savers’ appetite for bonds and “captured” the Federal Reserve as the incremental buyer for the foreseeable future.
Summing up some of the implications of this context for investors, Mr. Gave says, “You’re in a structural bear market on the U.S dollar. You’re in a structural bear market on bonds. And you’re in a structural bull market on energy.”

S10 E7 - Louis Gave Of Gavekal Research On The New Structural Bear And Bull Markets

Lori Heinel, global chief investment officer at State Street Global Advisors, joins this episode of “The Sherman Show” in a wide-ranging discussion of State Street’s tactical investment allocations, the evolution of institutional and retail investing, the place of commodities and alternatives in portfolios, cryptocurrencies and blockchain, State Street’s organizational and decision-making evolution in a post-COVID-19/remote working world, and other topics. This episode was recorded April 20, 2021.
Ms. Heinel oversees SSGA’s investment capabilities from index funds and exchange-traded funds to active, multi-asset class solutions and alternative investments. She leads an investment team of more than 600 professionals.

S10 E8 - Lori Heinel, Global CIO – State Street Global Advisors

DoubleLine’s Jeffrey Sherman and Samuel Lau welcome highly rated and much awarded analyst Jim Reid, Deutsche Bank Global Head of Credit Strategy and Thematic Research, to “The Sherman Show,” recorded June 15, 2021. The inflation debate quickly takes center stage, and Mr. Sherman praises Deutsche’s analysis for putting out both the transitory view and the higher-over-time perspective. Mr. Reid says that in his 17 years doing Deutsche research, he’s never experienced such as divisive subject. The bottom-up numbers support the transitory view, he says. However, other analysts on his team see a structural change going on that while hard to model points to a new economic orthodoxy “that is quite tolerant toward both high government spending and money printing.” The trio also discusses, among other topics, if debt still matters, whether the boom-bust cycle is over, pricing power and wage pressures, and will the Fed be stuck holding its large balance sheet forever. On that last subject, Mr. Reid says, “I’ve had a longstanding view that central banks will be buying government bonds for the rest of my career,” as the once extraordinary use of QE measures has become ordinary.

S11 E1 - Jim Reid Discusses a New Economic Orthodoxy Under QE

Entrepreneur, author, philanthropist and world-famous life and business strategist Tony Robbins joins DoubleLine’s Jeffrey Sherman and Samuel Lau for a special edition of “The Sherman Show.” Perhaps best known for his efforts to empower millions of people through his audio programs, educational videos and live seminars, Mr. Robbins also owns through his holding company more than 100 businesses with annual sales of $8 billion. He has been honored by Accenture as one of the Top 50 Business Intellectuals in the World; Harvard Business Press as one of the Top 200 Business Gurus; and American Express as one of the Top Six Business Leaders in the World. In a cover article on Mr. Robbins, Fortune magazine named him the “CEO Whisperer,” and he has been named in the Top 50 of Worth Magazine’s 100 most powerful people in global finance for three consecutive years.
 
Among other topics in this episode, Mr. Robbins discusses his daily morning mindset and physical-conditioning regimens to prepare him for the day ahead, modeling super-successful people to uncover the clues to their success and the three fundamental pieces to the creation of businesses that thrive for the long term. In his conversation with Messrs. Sherman and Lau, Mr. Robbins shares moments from his life as a child and as a young man that transformed his understanding of life. Among these, the direct experience of communism during a tour at age 23 of the Soviet Union opened his eyes to the creative power of free enterprise. And at age 8, at a time when his family could barely afford to feed itself, he tells how the kindness of a grocery deliveryman showed him some people do indeed care for the lives of complete strangers. That epiphany would grow into a philanthropic campaign that feeds millions in the U.S., and one day, Mr. Robbins believes, billions of people around the world.

TSS S11 E2 - Tony Robbins Points to the Keys to Fulfillment

S11 E2 - Tony Robbins Points to the Keys to Fulfillment

Paul Christopher, Head of Global Market Strategy for Wells Fargo Investment Institute (WFII), covers with co-hosts Jeffrey Sherman and Samuel Lau his macro outlook for growth and inflation, the case for cyclicals, small caps and value in the U.S. stock market, commodities as a current “tactical favorite,” shortening duration for fixed income allocations and the suitability of a managed allocation to cryptocurrencies for qualified investors among other topics. While Mr. Christopher suggests the reprise of inflation might be stickier than foreseen by the Federal Reserve, he does not expect a return to 1970s rates of rising prices. “Inflation is really going to go with growth,” he notes. “And if we’re at peak growth, then you have to figure we’re at peak inflation.” The WFII, he says, expects inflation settling in at 2% to 2½%. “We don’t think that the market is worried about the Fed letting inflation go too far. That’s why the Treasury curve flattened the way it has.” Thus, Mr. Christopher likes stocks better than bonds, although he still recommends some allocation to shorter duration munis, corporates and preferreds to provide some ballast against the volatility of equities. This edition of the Sherman Show was recorded July 13, 2021.

TSS S11 E3 - Paul Christopher of Wells Fargo Investment Institute Covers Macro and Asset Allocation

S11 E3 - Paul Christopher of Wells Fargo Investment Institute Covers Macro and Asset Allocation

Gregory M. Dowling, Chief Investment Officer and Head of Research at FEG Investment Advisors, joins The Sherman Show. FEG is an independent investment consultant and provider of outsourced chief investment officer (OCIO) services to primarily nonprofit institutional clients throughout the United States. In this episode recorded July 27, 2021, with hosts Jeffrey Sherman and Samuel Lau, Mr. Dowling discusses among other topics how he entered his career, the quest for alpha in a time of overvalued public fixed income and equity markets, FEG’s approach to selecting active asset managements, developing individual profiles of clients to manage within their risk tolerance and time horizons, the new momentum to social awareness in client investment objectives and macro and market outlooks.

S11 E4 FEG’s Greg Dowling Discusses OCIO Services, Markets and Macro

S11 E4 - FEG’s Greg Dowling Discusses OCIO Services, Markets and Macro

Elizabeth Burton, Chief Investment Officer of the Hawaii Employees Retirement System (HIERS), discusses her management of the pension’s $21 billion in assets with DoubleLine’s Jeffrey Sherman, Deputy Chief Investment Officer, and Samuel Lau, Portfolio Manager. Among other issues, Ms. Burton discusses her objective as CIO (3:57) “to achieve our target return within the given level of risk the board sets out, which would be 7% target return…. At the end of the day, the Number One thing I have to do is protect retirement benefits.” That task, she says, is “getting more challenging,” particularly given the prospect for higher inflation. Whiles HIERS a couple years ago increased its private equity allocation from 6% to 13%, she does not anticipate a further increase given signs of froth in that asset class (17:36). “I don’t want to call a bubble here,” Ms. Burton says, “if you look at the definition of a bubble, there’s a lot of signals that might be happening.” 

Regarding her macroeconomic outlook (33:54), Ms. Burton doubts inflation will be “transitory. I do think it’s a little bit longer lasting. I don’t have a ton of faith in the Fed to reign it in.” She expects the “helicopter money,” and its flow into the equity market, to persist longer than many people expect (42:38). “My concern’s more on the regulatory side. What is this administration going to do if this does go south?”

TSS S11 E5 - HIERS’ Elizabeth Burton on Meeting Target Returns, Protecting Retirement Benefits

S11 E5 - HIERS’ Elizabeth Burton on Meeting Target Returns, Protecting Retirement Benefits

DoubleLine’s Jeffrey Sherman and Sam Lau welcome Emidio Checcone, the firm’s portfolio manager of actively managed equity value and core strategies. Mr. Checcone shares how his history in the business, including experience at both growth- and value-focused shops, informs his investment philosophy and influences his differentiated equity research approach. He also highlights how incorporating DoubleLine’s macro viewpoints into his bottom-up research process confers added insights. The trio discusses the equities market’s performance amid the pandemic and whether we have seen “peak earnings growth” (starts at 6:01), how this period of unprecedented fiscal stimulus impacts traditional valuation metrics (11:12) and what it would mean for equities if the Fed tapers its bond purchases (14:00). They also examine the risk of inflation and even stagflation (18:24); the relative performance and attractiveness of value versus growth stocks (24:37); and current portfolio positioning within each strategy, including a discussion of some larger individual holdings (28:25). This episode was recorded Aug. 24, 2021.

S11 E6: DoubleLine Equities Strategist Emidio Checcone on Process, Valuation and Positioning

S11 E6 - DoubleLine Equities Strategist Emidio Checcone on Process, Valuation and Positioning

Bob Froehlich, owner of the Kane County (Illinois) Cougars minor league ball club and a veteran observer of macro and markets, discusses with co-hosts Jeffrey Sherman and Samuel Lau, among other ideas, his favorable 12-to-18-month outlook for global growth and stocks (14:01, 24:32), the place for commodities in investor portfolios (22:00) and the re-imagining of corporations (31:02) as they evolve for hybrid home-office work environments and face the need to take stands on pressing societal issues.

The upbeat outlook for growth and equities comes with at least one caveat. While losing no sleep over what the Federal Reserve might or might not do (18:35), Dr. Froehlich keeps a weather eye for inflation (14:51). Rising prices, he says, form “a headwind that we really have to pay very, very close attention to because that changes the dynamics quickly for any long-term equity investor.”
 
As do all Sherman Show guests, Dr. Bob, as he is known especially among business executives and financial professionals in the Chicago metropolitan area, shares how he came to his career in markets and investing, a career preceded early in his adulthood with summer jobs working in Pennsylvania’s steel mills and two years playing center field for the Independent Minor League North Side Mets in the Greater Pittsburgh Semi-Pro Federation Baseball League.
 
The Kane County Cougars owner and CEO also talks about the business of pro baseball with Jeff Sherman, one of the San Francisco Giants faithful and, in his varsity days in Bakersfield, California, catcher for the South High Rebels. “I’ve always been a numbers guy,” Dr. Bob recalls (1:42). “So it was a natural transition for me to go from Wall Street to baseball. It’s just the type of type of numbers I focused on were way different. Instead of worrying about GDP and inflation, now I worry about attendance and how may beers are being sold on a given day. But it’s still a numbers game.”

S11 E7: Dr. Bob on “Woking Up” Corporations, Global Growth and a Bit of Baseball

DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau welcome Ted Seides, founder of Capital Allocators, a podcast ecosystem that includes gatherings, and advisory to managers and allocators. The episode kicks off with Mr. Seides recounting how he got his start in the financial industry working for David Swensen and the Yale Endowment (2:05), what led him to podcasting (11:14) and how that decision grew into a broader enterprise that draws on his diverse experience (12:49). “I didn’t know if they’d be interested in talking,” he says of his initial interest in speaking to CIOs. “Turns out there’s a lot of reasons why they would.”

The three also discuss, among other topics, how Capital Allocators advises both managers and allocators (19:01), what drives the investment decisions of allocators (24:55), new things under the sun in the industry (30:14) and the risks associated with new complex strategies being available today to the average investor (38:14). In discussing what has changed during his 20-plus years in the industry, Mr. Seides notes, “The thing that doesn’t change is an increase and drive for innovation and sophistication. If you looked at the average practitioner today, they are far more sophisticated than the average practitioner when I got started in the business.”

TSS Episode 134: Capital Allocators’ Ted Seides on Literal Rich Uncles, Platforming CIOs and more

Jen Wing, Head of Asset Management at GeoWealth, a proprietary technology and turnkey asset management platform (TAMP) to registered investment advisors (RIAs), appears March 28, 2023, with DoubleLine’s Jeffrey Sherman and Samuel Lau. Mr. Sherman asks Ms. Wing (0:59) to begin by discussing her career story in finance and how she came to specialize in due diligence on asset managers and asset manager selection. Ms. Wing then turns to explaining the role of TAMPs in general (7:56), most of which exist to serve broker-dealers, and then discusses the growing sector of registered investment advisors (RIAs) (9:43) and the story of GeoWealth, a TAMP devoted to serving RIAs. The discussion next turns (15:38) to GeoWealth’s suites of portfolio models and relationships with 40 active managers, including DoubleLine, to manage its models.  
                
While investment advisors by necessity must be cost conscious and fee sensitive, Ms. Wing notes (26:42) that by attempting to in-source all their roles, including investment management, can consume time needed to face clients and build their business. “You’ve seen a lot of this data start to come out that out-sourcers during COVID won more business and saved 10 hours on average a week by out-sourcing to investment management and usually had better investing returns.” She also explains that GeoWealth works with individual models with RIA firms to customize models to fit their business practices and then run those models for them, allowing their business to scale up.

TSS Episode 136: GeoWealth’s Jen Wing on TAMPs, Serving RIAs and Customized Portfolio Models

Morris Chen, head of DoubleLine’s Commercial Mortgage-Backed Securities (CMBS) and Commercial Real Estate Debt (CRE) team, on April 18, 2023, discusses the merits of his asset class with hosts Jeffrey Sherman and Samuel Lau. He describes CMBS-CRE both as a timely investment in the wake of repricing in 2022 and as a strategic portfolio allocation. With a primary focus on bonds rated A to AAA, Mr. Chen takes listeners behind the news headlines of defaults by commercial mortgage borrowers (2:39). In many cases, he says, these defaults, which began in 1Q2023, represent serious problems, especially in office mortgages, but have obscured healthy fundamentals in other property types. Many of these represent borrowers following necessary protocols to open the process of negotiations with lenders ahead of actual maturities. Often the better outcome for lenders will be maturity extensions and changes to loan covenants rather than foreclosure and property liquidation.

In the wake of the Great Financial Crisis, the capital structures of high-grade CMBS have undergone significant improvement (15:13). For example, Mr. Chen notes in 2007, “AAA bond had essentially had 11% subordination, which means the bond can withstand 11% of losses before that bond is impacted, at least in terms of principal. Today, an 11% subordination level equates to a single A rated security.”

Mr. Chen discusses (19:35) his team’s investment process, which includes research into the borrowers and loans securitized into CMBS; the properties securing those loans, including the tenants, utilization rates, leases and loan-to-value ratios; and bond structure. The discussion then turns to property types (26:53). Mr. Chen is most negative about office buildings. While some shopping malls are dying, other retail properties are doing well, notably grocery-anchored shopping centers. Mr. Chen and his team also are finding investment opportunities in mortgages secured by multifamily (apartments) and industrial properties.

The conversation concludes (38:58) with a discussion of the place of high-grade CMBS as a strategic allocation to a diversified fixed income portfolio. Among other factors, Mr. Chen says that investment grade CMBS at present offer attractive yields compared to corporate bonds carrying the equivalent letter-grade credit ratings while providing diversification to investors’ corporate exposures. In addition to the yield pickup, high-grade CMBS is backed by real property as collateral and beneath the subordinated debt is 30-35% equity.

TSS Episode 138: Morris Chen on Opportunities in Commercial Real Estate Debt

Russ Ivinjack, Global Chief Investment Officer of Aon Investments, discusses, among other topics, his management of Aon’s investment manager research teams, the discipline of selecting active managers and investment strategies, and the strategic and tactical dimensions of building portfolios to perform under a range of macroeconomic outcomes. The latter include a “dark-sky” scenario more severe than the Global Financial Crisis. DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau spoke with Mr. Ivinjack on May 23, 2023.
 
In his role as an outsource CIO to pension plans and other institutions (4:23), Mr. Ivinjack assesses how much volatility, illiquidity and other forms of risk the client is willing to bear in the portfolio as a starting point for building a strategic policy. The next level is how to implement the strategy in the asset classes suited to the client. Mr. Ivinjack notably oversees manager research teams in equities, fixed income, liquid alternatives, private equity, infrastructure and private credit.
 
In terms of the current opportunity set (9:21), Mr. Ivinjack notes that in the wake of the spike in interest rates in 2022, the markets offer “a better base to build portfolios from,” with “cash earning 5% and core fixed earning about the same.” He expresses concern that, amid higher inflation than experienced in decades, economic data used to guide investing “is far less reliable than it was just three, four years ago. I joke that we used to worry about the 0.1% difference in GDP or inflation, and now we’re worrying about one, two, or three percentage point differences in the reads that come out, and that causes much more volatility in portfolios.”
 
This necessitates (10:26) “numerous strategic studies with our clients, walking through those scenarios we call blue-sky scenarios, recessionary scenarios, stagflation or even dark-sky scenarios so they can gauge what’s the right portfolio to implement.” He defines a dark-sky scenario as “more or less a depression” involving “significant negative growth,” causing “significant impairment on financial assets in clients’ portfolios over a fairly short period of time.”
 
Mr. Ivinjack describes his teams (21:44) as “very disciplined about rebalancing, so we set targets,” rebalancing back within allocation ranges when they are exceeded. This is key in the direction of cash flows. “And we’re market aware about where valuations are. We will take that into account in terms of where to deploy new cash coming or where to take money out. That disciplined, I would say somewhat boring, approach has worked incredibly well over the last 10 years.”
 
Another issue Mr. Ivinjack calls to investors’ attention (23:57) is the concentration of risk in today’s financial markets. “If you pull back the S&P 500, it’s far more concentrated than what is five or 10 years ago. Pull back the investment-grade indices, you’ll see they’re more concentrated than they were years ago. Investors need to recognize where their unintended risks lie. People like to wring their hands about a 25 basis point position in certain securities when, frankly, their exposure to Apple is five times that, 10 times that in some cases.”
On the subject of manager research and hiring managers (25:26), he looks for stable firms, philosophy and approach, “but the key thing is they’re matching up with their philosophy and process and what their advantage is – so making sure those two stick together. Obviously, we spend a lot of time understanding the people who manage the money. It’s a lot of time on Zoom calls, in-person meetings. It’s monitoring portfolios even before we invest with them to know what they’re saying matches their actual actions.”

TSS Episode 141: Aon Investments’ Russ Ivinjack on Manger Selection and Portfolio Construction

TSS Episode 141: Aon Investments’ Russ Ivinjack on Manager Selection and Portfolio Construction

Robert Cohen, head of DoubleLine’s Global Developed Credit team, discusses navigating the waters of investment grade and high yield corporate bonds and leveraged loans as these markets enter the late stage of the economic and credit cycles. He speaks June 9, 2023, with DoubleLine’s Jeffrey Sherman and Samuel Lau.

“We’re in a period, probably the greatest period in the last decade, where credit selection matters,” Mr. Cohen tells Messrs. Sherman and Lau (25:00). “It really hasn’t mattered for a long time. We’ve been in an environment where beta trades worked. So you liked an asset class, you liked high yield or you liked emerging markets, or you’re putting on these beta trades where you’re just allocating to a sector. Now we’re seeing great dispersion amongst the constituents of these asset classes, and we’re seeing that the dispersion of managers is widening because it’s all about credit selection.”

For corporate credit, Mr. Cohen defines a late cycle (3:01) as an environment in which “companies try to defend their balance sheet, so instead of raising money and borrowing more, they try to pay down their debt. That tends to be when credit conditions get tight, lenders are more strict or more discerning about the companies that they lend to. You often see credit metrics deteriorating in that environment.” These phenomena are underway, he says, amid a raft of warning signs portending recession such as the inverted Treasury yield curve and a negative year-over-year change in the Leading Economic Index. Credit markets are not pricing for a recession, but Mr. Cohen thinks the next one is coming in early 2024 if not by the end of 2023. 

The next default cycle (5:47) has yet to begin in below-investment-grade corporate credit, although Mr. Cohen expects it to come with or without recession. With respect to investment grade corporates, rather than looking for the rare default, Cohen is on watch for changes in new issuance, leverage and risk-taking “as opposed to companies that are defending their balance sheets, borrowing less, paying down debt.”

The term “leveraged credit” (7:29) encompasses both high yield bonds (fixed rate) and bank debt (floating rate), both of which are below investment grade. “They work kind of in tandem with each other. There are often cases where borrowers will tap both markets for a senior secured term loan and an unsecured high yield bond,” he says. “Lately, really since the pandemic in 2020, you’re seeing borrowers tap the high yield market and loan market for both a secured loan and a secured bond.”

While leveraged credit defaults peaked at around 10% in the wake of the Great Financial Crisis (8:40), Mr. Cohen expects a lower peak in defaults if the next recession is less severe, but recovery rates on defaulted bank loans will be worse The reason? “In a prior cycle, maybe bank loans would recover 70% or 80% of their initial par value” post-default, he says. Due to a decadelong deterioration in protections for secured senior lenders, he expects “recoveries closer to 50% or even lower.” In contrast, high yield bonds (10:21), Mr. Cohen notes, appear in stronger shape than at anytime before. He cites growth in the BB share of the sector and the highest percentage of secured bonds in the sector’s history. “While the loan market has been getting worse in credit quality, the high yield market has actually been getting better in credit quality.”

TSS Episode 142: Robert Cohen on Credit Selection and the Coming Default Cycle

Jeff Mayberry, Portfolio Manager on DoubleLine’s Macro Asset Allocation team, on July 10, gets graded by Jeffrey Sherman and Samuel Lau on his forecasts for 1H2023 and shares his outlooks for the second half of the year. Jeff Mayberry gets a win on his prediction on federal funds rate hikes (2:44), shared on the Sherman Show at the beginning of the year. The podcast hosts ask him for his take on the June jobs report (5:18), which for the first time in 15 months came in below expectations. “Maybe you’re starting to see some cracks in the labor market,” he says. Mr. Sherman notes that, contrary to market expectations that tightening credit conditions would take a bite out of employment, manufacturers have continued to add jobs while “restocking of the services sector” has added payrolls in that part of the economy. 

One loss on Jeff Mayberry’s midyear scorecard (8:05) was view that the 10-year Treasury yield would not exceed 4% in 1H2023, although he did correctly predict that yield would settle into a higher range. The yield on the two-year Treasury, he thinks, could reach 5% (9:50), although he continues to watch out for labor market deterioration, which would send that yield lower. Mr. Mayberry’s 10% allocation to Treasury bills (11:56) proved a winner. He is keeping on his fixed income allocation for 1H2023 through 2H2023. That deployment forms a barbell between higher-yielding credit and longer-duration Treasuries, the government allocation aimed at offsetting a future widening of credit spreads if the economy enters recession. 

Messrs. Sherman and Lau give Mr. Mayberry a “solid win” for his bullish call on technology stocks (15:50), the best-performing sector of the S&P 500 year-to-date. One losing theme turned out to be his favoring commodities (18:16), which among other headwinds had to contend with China’s failure to re-open its economy. The hosts and guest discuss the macroeconomic outlook for the United States. Amid weakness in manufacturing but resilience in services, and low unemployment (21:18), Jeff Mayberry expects the Fed to keep rates elevated the remainder of 2023. “The Fed doesn't want to say they want a recession,” he says. They don't want to say they need unemployment to rise, they need wages to fall, but they do in order to get inflation back down. That's what they're going to be focused on: wages and the labor market overall.” If the economy remains resilient, he expects the Fed to raise rates in 2H2023.

Mr. Sherman and Mr. Mayberry agree that the resumption of student loan payments (28:11), coming after three years of forbearance, could become a new headwind for the economy. “That's going to hurt consumers, it's going to hurt consumption” in some households, Mr. Mayberry says. However, he describes the odds of recession this year as “very low.” Notwithstanding that outlook, he advises preparing for trouble now by including longer-duration Treasuries in one’s portfolio (35:07). “If we're not getting a recession this year, you still want to have that barbell side, that flight-to-safety side, your long-duration Treasury side to kind of take some of the edge off of the spread-widening that would occur before a recession comes.”

The discussion turns to Mr. Mayberry’s outlook for emerging market and developed market ex-U.S. equities (39:25), cryptocurrency (41:08) and overall asset allocations, including cash and credit (42:23).  As for fixed income, he would “avoid the investment grade credit market at 130 basis points over. I'd rather just go more high yield, more bank loans, more emerging markets, and then Treasuries to give you that duration. So one third in Treasuries, two thirds in credit.” As for U.S. equities (43:21), he does not expect the S&P 500 to match its performance in the first half of the year, and he advises some diversifying away from the market-cap-weighted large-cap index into other areas of the stock market, including mid- and small-cap stocks and value stocks.

TSS Episode 143: Mayberry’s Midyear Score Card and 2H2023 Outlook

DoubleLine Deputy CIO Jeffrey Sherman and Portfolio Manager Samuel Lau welcome Matt Forester, CIO of BNY Mellon Advisors, to The Sherman Show. Mr. Forester kicks off the episode by discussing the recent branding shift from Lockwood Advisors to BNY Mellon Advisors and the opportunities it will provide to the firm, which oversees about 550 strategies that it can provide to clients (0:53). Mr. Forester then shares his macro and markets outlook, including where we are in the cycle (8:08), how the Fed’s fight to lower inflation is going to get tougher the closer it gets to its 2% target rate (9:22) and what he calls the frenzy into AI stocks (11:10), which they then take a deep dive into. Mr. Forester notes that the companies that made money from the creation of a national electrical grid in the 1920s and the launch of the internet in the 1990s were not the beneficiaries of these productivity-enhancing technologies. “I suspect we’re there again, that the companies that are now leading the charge are not the same ones that are going to emerge,” he says. The three also discuss the hype around AI (13:44), and what these kinds of tools might mean for the investment world when everyone is using them (18:34).

They round out the episode with talk on recession probability (23:13), the pitfalls that Mr. Forester sees out there (29:07), his thoughts on asset allocation (33:41) and what the fiscal response mechanism could be in the next recession (37:19). On the latter Mr. Forester says, “I don’t think fiscal policy is going to be a big tailwind for markets for quite a long time. We’ve just got a really big hole to dig out of.” This episode was recorded July 17, 2023.

TSS Episode 144: Wading Into the AI-Stirred Stock Froth

Joseph Mallen, founder and CEO of Modelist, discusses with Jeffrey Sherman and Samuel Lau evidence-based investing, the integration of customized models with the securities and managers to implement them, the role of AI in his platform, and his take on the present state of financial markets and the macroeconomy. Modelist constructs model portfolios tailored to the needs of financial advisors. This conversation took place Sept. 7, 2023. 
 
After Mr. Sherman introduces (0:33) Mr. Mallen and they discuss the career that led him to launch Modelist, Mr. Mallen shares (4:00) his approach to modeling and the way Modelist works with independent financial advisors. Modelist develops and maintains models that implement a diverse array (9:01) of investment methods, including trend-following, relative strength, duration management, credit management and inflation expectations. Modelist’s models incorporate passive strategies as well as strategies that allocate among active managers. In the case of using tradeable securities (12:46), Modelist often relies on exchange-traded funds. At the end of the day, Mr. Mallen says, the objective, regardless of the choice of models tailored for the advisor, is “robotic-type investing based upon what the data says and taking emotion completely out of the equation” (17:09). Toward the end of the conversation (49:51), Mr. Mallen discusses Modelist’s use of artificial intelligence as an investment tool.
 
Turning to market and macroeconomic outlooks (29:45), Mr. Mallen observes markets have “churned up,” leaving equity valuations “pretty extended” amid a “severely inverted” yield curve and signals of a “recession that’s looming” but “still has yet to come.” He notes (30:44) that the Federal Reserve has “done a good job of putting itself in a position where if data does start to get pretty gnarly, they can reverse course. And I think that’s what’s kind of priced in and embedded right now is the fact that people are expecting economic weakness, and, in turn, they are expecting the Fed to react and loosen monetary policy.” 
 
With respect to U.S. stocks (31:15), Mr. Mallen would “like a little bit of a mean reversion” with value “catching up, maybe providing that leadership between now and the end of the year relative to growth. I think growth could use a little bit of a reset. We’ve had seven companies in the S&P drive most of the return so far this year.” In fixed income, he still favors short duration. “Just from an academic perspective, I’m getting a greater yield with less expected volatility than on the longer end of the curve. I’m not as insulated if rates do fall, but I like that kind of conservative approach. Take that 4½% and 5% on the fixed income side of the book – go value.”

TSS Episode 145: Modelist CEO Joseph Mallen on Evidence-Based Investing

Liz Young, head of investment strategy at personal finance company and bank SoFi, discusses markets, the investor movement to DIY investing, and her investment process and market outlook with DoubleLine’s Jeffrey Sherman and Samuel Lau in this episode recorded Sept. 12, 2023. Their conversation begins with a discussion of Ms. Young’s career (1:06) in the investment industry and her path to SoFi, where she dispenses her economic, investment and market insights to a variety of audiences. Then she discusses the evolution of investors (6:04), away from “high-touch advisory” investment professionals to DIY investing, a movement with which SoFi works to bring education and tools to enable investors’ success. She notes the DIY movement has especially taken hold among younger people and new investors (9:15). For example, while the average age of clients at older brokerages is 55 to 65, 60% of SoFi’s investment clients are 20 to 40.

Turning to the investment process at SoFi (16:35), Ms. Young begins with her assessment of the macroeconomic cycle and whether the market is reflecting that assessment or reflecting something else. If inconsistencies arise between macro and market signals, she says, “in my head it means one of the two is wrong. One of these two data sets is sending the wrong message or the timing is off and then you try to figure out what’s happening.” She warns (21:12) that investors have become conditioned to expect troubles in the capital system will be corrected by an “open-ended insurance program” underwritten by fiscal authorities and central banks. “OK, rates are now up, but (people’s thinking goes) we have this sort of never-ending punch bowl of stimulus if something ever goes wrong. In my eyes, that’s probably the next thing that can’t last forever.” While some observers have theorized the absence of a long-telegraphed recession points to a soft landing, Ms. Young points to historical data (24:23), noting the economy has only recently neared or crossed the average time lags between leading indicator warnings and the advent of recession. Mr. Sherman agrees, adding that even when such average time gaps are crossed, volatility around the average could allow for further delay before the next contraction begins.

TSS Episode 146: SoFi’s Liz Young on Markets, DIY Investing and Capturing Gen Z Investors

DoubleLine ETF Specialist Scott Thomson discusses his role at the firm and describes the growing use and evolution of exchange-traded funds as vehicles for trading and investment with DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Macro Asset Allocation Analyst Mark Kimbrough. The discussion begins (1:08) with the career of Mr. Thomson, who joined DoubleLine in 2022 after working as an ETF Capital Markets and Fixed Income Strategist with PIMCO. Mr. Thomson next discusses the history of ETFs (5:29) since the first of this vehicle launched in 1993 and their evolution, a trajectory that began with passive equities funds but now includes fixed income as well as active strategies and commodities, among others. 
 
ETFs (9:11) continue to evolve and diversify, Mr. Thomson says, noting the development of semi-transparent structures and derivative-based strategies. He foresees growth potential in  fund-of-funds strategies, which have long existed in the mutual fund universe, becoming available in ETFs as well as ETFs as a share class of mutual funds. 
 
Mr. Sherman asks Mr. Thomson to discuss his role heading up DoubleLine’s capital markets efforts in ETFs (11:34). Mr. Thomson breaks his role into four areas: primary markets, secondary markets, client execution services and relationship management between authorized participants and market makers.
 
Asked by Mr. Kimbrough to explain the drivers behind the growth in fixed income ETFs (17:09), Mr. Thomson points to a combination of factors, including advisors seeking new and different investment tools, among other reasons, to the implementation of ETF model portfolios, which have grown in number and variety. Asked for advice for people who wish to trade ETFs (22:18), Mr. Thomson advises, “Always use limit orders. Don’t use market orders. That just helps you avoid paying more than you want.” For financial advisors looking to trade more than a couple of hundred shares in an ETF, he recommends they work with their firm’s or custodian’s block trading desk to support best order execution.
 
Mr. Sherman, recalling Mr. Thomson’s comments on the efficiency of the arbitrage mechanism in ETFs, asks the ETF specialist to describe (25:13) the liquidity and efficiency of ETFs amid the dislocation of fixed income markets in March 2020.

TSS Episode 147: DoubleLine’s Scott Thomson on the Evolution of ETFs

Andy Constan, founder, CEO and Chief Investment Officer of Damped Spring, joins DoubleLine’s Jeffrey Sherman and Samuel Lau to discuss his approach to macroeconomics-driven investing. They also discuss, among other timely topics, Mr. Constan’s outlook for persistent inflation above the Federal Reserve’s 2% target. Damped Spring is a full-service macroeconomic research firm. This episode of the Sherman Show was recorded Nov. 20, 2023.
 
DoubleLine Deputy Chief Investment Officer Jeffrey Sherman opens the conversation (0:38), asking Mr. Constan to describe his 35 years in the financial markets, a career that began at Solomon Brothers in 1986 and spans roles at such notable names as Bridgewater Associates and Brevan Howard before the launch of Damped Spring. Then the discussion turns to Mr. Constan’s macroeconomic approach to investment decision making (4:45). Mr. Constan operates with a four-pillar framework. First, he focuses on how growth occurs in an economy and how inflation works on an economy. From those two starting points, he seeks to understand “the risk premium that assets contain and how policymakers and market participants can influence the risk premium, which is the return you get on assets.” Once those three factors come into focus, Mr. Constan overlays a fourth pillar his framework: positioning. “When those three other things are moving, it still matters how people are positioned, what's priced into markets and what's going to cause investors to change their positioning.”
 
Mr. Constan warns against decision-making based on taking risk premiums as objective levels for trade exit or entry (7:18). “There's no level that is the correct level.” Attempting to buy or sell based on perceived whether a term premium is too high or too low can land investors “in a lot of trouble – just as most investors get themselves in a lot of trouble” buying and selling simply because assets are priced above estimates of fair value. “Markets overshoot all the time. It's very difficult to be an investor to base your investment thesis just on the level of valuation. And so the level of risk premium is not that important to me because nobody knows what it is. The only way you can interpret risk premium is through a model. All models have assumptions. All models require assumptions of forward-looking information which is unavailable.” 
 
Instead of focusing on estimated risk premium levels, Mr. Constan’s framework “just focuses on what could change term premiums because that's what you need to know to be an investor. If you think term premiums are going to fall, you want to own assets. If you think term premiums are going to expand, you want to sell assets. And so my framework just focuses on the factors that would cause term premium to change” (8:50). He then describes variables that can change risk premiums. These include changes in the supply of an asset vs. demand for it as well as changes in credit availability and monetary conditions.
 
Jeffrey Sherman then asks Andy Constan for his thoughts on inflation (12:32), noting “perhaps people have not been thinking about the inflation component for, let's call it, over a decade. What are your thoughts about inflation today? What are your thoughts about how investors should incorporate some of this into estimates that raise premiums and hence thinking through the allocation process?” Mr. Constan starts with the fact of falling inflation, under the twin drivers of correcting supply chains and “less easy” monetary policy. A naïve extrapolation of those trends forward would point to inflation soon falling to the Fed’s 2% target or even undershooting it. Mr. Constan, however, expects inflation to a plateau well above 2%. Factors driving resilient above-target inflation, he says, are “a still-very-strong job market,” ample residual reserves “that will keep liquidity high and support demand” and “the three Ds” of de-globalization.

TSS Episode 148: Andy Constan on Macro-Driven Investing, Inflation and the 3Ds of De-Globalization

Jim Bianco, President of market and macroeconomic research firm Bianco Research, appears Jan. 11, 2024, with hosts Jeffrey Sherman and Samuel Lau to discuss among other issues his outlook for a “no landing” U.S. economy in 2024, sticky inflation of 3% to 4% and his theory on Fed Chair Jerome H. Powell’s dovish turn on Dec. 13. “The problem with the economy is there isn’t a problem,” Mr. Bianco says. “My biggest concern is too much growth and sticky inflation.”

Between a hawkish Powell speech on Dec. 1 and Powell’s softened stance on Dec. 13, the data showed no change in economic fundamentals. So what changed his mind? Mr. Bianco notes that Federal Reserve officials prefer unanimous or near-unanimous votes on monetary policy and bank regulations. He suspects “a bunch of doves” among the FOMC’s voting members let Chair Powell know they were prepared to vote in dissent, “and I think he acquiesced.”

Mr. Bianco thinks the biggest change in the economy coming out of 2020 was remote work. On economic fundamentals, he sees little case for “a macro problem with the labor market” or trouble with the consumer. He does note warning signs in credit and the potentially problematic rise of the U.S. government’s interest expense.

Asked about exogenous risks, Mr. Bianco points to attacks on commercial shipping in the Red Sea and the consequent rerouting of 30% to 40% of the world’s cargo shipping from that critical Asia-Europe route to around Africa. Mr. Bianco warns delays will spell inventory trouble not only in Europe but in the U.S.

Mr. Bianco has some criticism of the Federal Reserve. “The Fed first raised rates in March of 2022. What was the year-over-year inflation rate when they finally got to the first rate hike? It was 8.6%. Boy, they waited way, way, way too long before they got it.”

Messrs. Sherman and Lau also discuss with Mr. Bianco why the bond market sometimes is “smarter at sniffing out disaster” than the stock market, the absence of recession despite protracted recessionary warnings from leading indicators and complacency in the credit market.

TSS E149: Bianco on a “No Landing” Economy, Sticky Inflation and Powell Pivot

TSS Episode 149: Bianco on a “No Landing” Economy, Sticky Inflation and Powell Pivot

DoubleLine Deputy CIO Jeffrey Sherman and Portfolio Manager Jeffrey Mayberry welcome back David Zervos, Chief Market Strategist for Jefferies and Head of the Global Macro Division of Leucadia Asset Management. The last time Mr. Zervos was on in May 2019, he discussed Federal Reserve Chair Jerome H. Powell’s tenure in harsh terms, so this episode kicks off with what’s changed with Chair Powell, and Mr. Zervos believes he has come a long way. The group then gets into how the Fed acted in March 2020 (7:45), with Mr. Zervos noting that Fed officials think of their reaction as a success, setting up a framework for future intervention. He says areas that could draw Fed attention are private equity and commercial real estate (22:39), “two areas that have gorged on zero rates more than anybody.” 

Mr. Mayberry then turns the conversation back to Chair Powell and the specific way he has improved in his role (26:43). In discussing the performance improvement, Mr. Zervos notes, “I look at the evolution from what happened in ’18 and ’19, he really got caught up in the politics of the time and tried to stand his ground at a time when economically that wasn’t a very smart thing to do, and he looked kind of foolish.” The episode also includes discussion of the market’s eagerness for cuts (31:52) and whether there will be one before the election (34:36), what Mr. Zervos likes out there (38:19), the Fed framework shifting from average inflation targeting to nominal GDP targeting (45:53) and what Mr. Zervos thinks are the risks that are not being talked about (47:40). This episode was recorded May 7, 2024.

Jefferies’ David Zervos on Evolution of the Fed Put and Jay Powell’s Learning Curve (E150)

Jeffrey Sherman, DoubleLine’s Deputy CIO & Sam Lau, DoubleLine’s Asset Allocation Analyst, sit down & chat Emerging Markets with Luz Padilla, DoubleLine’s Director of Emerging Markets Fixed Income

S2 E7 – Luz Padilla Emerging Markets

S2 E7 - Luz Padilla, DoubleLine, Emerging Markets

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine Portfolio Manager talk commodities, the Fed and fiscal tenability with Peter Schiff, founder and chairman of SchiffGold

S4 E3 - Peter Schiff, Founder - SchiffGold, The Sherman Show

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine Portfolio Manager welcome to the studio Josh Emanuel, CIO of Wilshire Funds to chat about diversification, risk and managing expectations within the wealth management business

S4 E6 - Josh Emanuel, CIO - Wilshire Funds, The Sherman Show

S4 E6 - Josh Emanuel, CIO - Wishire Funds, The Sherman Show

In his return to The Sherman Show, Peter Cecchini, global chief market strategist at Cantor Fitzgerald, discusses the unfolding intersection of the end of the secular decline in interest rates and the next recession. Mr. Cecchini, DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and portfolio manager Sam Lau also delve into the dilemma confronting the Federal Reserve and the European Central Bank: the difficulty of raising rates and reducing balance sheets before economic slowing turns into economic contraction. (Cecchini was one of the few last year to predict the Fed would put its rate-hiking plans on hold.) Cecchini regards the recent surge in stocks as a bear market rally. He expects the dollar and interest rates to “push and pull against each other,” resulting in both staying range-bound in 2019. The Sherman Show discussion also popularizes an insider’s term for an especially violent episode of market volatility: the notorious “face-ripper-offer.”

S5 E4 Peter Checchini, Global Chief Market Strategist – Cantor Fitzgerald, The Sherman Show

S5 E4 - Peter Cecchini, Global Chief Market Strategist – Cantor Fitzgerald, The Sherman Show

Dr. Robert Shiller, Sterling Professor of Economics, Yale University, returns to the Sherman Show to discuss his latest research in behavioral finance and his new book, “Narrative Economics: How Stories Go Viral and Drive Major Economic Events”. The podcast, hosted by DoubleLine’s Jeffrey Sherman and Samuel Lau, was recorded on October 23, 2019.

S7 E2 Dr. Robert Shiller, Sterling Prof of Econ – Yale

S7 E2 - Dr. Robert Shiller, Sterling Prof of Econ – Yale

Bill Campbell on Global Bond Markets over the Near and Medium Term
 
In this episode of the Sherman Show, recorded the morning of May 6, 2020, Sam Lau does the weekly macro and market update; then DoubleLine’s Bill Campbell joins the Sherman Show to discuss the global markets. Mr. Campbell organizes the discussion by timeframe, for he sees the near-term risks giving way to a very different picture in the medium term, and by region, including breakouts for Europe, emerging markets and China. As he tells Mr. Lau and co-host Jeffrey Sherman, Mr. Campbell warns that risk managers may be misdiagnosing today’s investing conditions. 
 
“We’ve been in a late-cycle phase for several years, and we’ve been waiting for the crisis that would take us into the cyclical downturn. In 2018, it was the Fed over-hiking interest rates. In 2019, it was trade. Then finally in 2020, we get the COVID crisis,” Mr. Campbell says. “And now, people have pulled out the cyclical playbooks and said, `OK, the government has come in and given a bridge loan to a lot of businesses and to individuals to try to get us to 2021.’ And then if we look out, and there’s GDP and activity repair, maybe there are a lot of good investments. I think that cyclical playbook needs to be used with an element of caution this time around. There are some serious structural changes happening in the global economy” outside of the business cycle. Among these are the rebalancing of the global supply chain away from U.S. dependence on China, changing work behaviors and consumer preferences in response to the COVID-19 pandemic, and the buildup of U.S. debt to the point of constraining economic activity. “These are big structural items that may disrupt that the cyclical playbook,” he says. Furthermore, the “full stop,” government-ordered shutdowns around the world, he notes, are different from the cyclical downturns of the past. Another medium-term factor: the Federal Reserve has injected a massive dollars into the financial system, not only via quantitative easing, but also by extending its dollar swap lines and repo facilities, including to emerging market central banks. 
 
In contrast to rebounds in U.S. equities and corporate credit, emerging markets have less policy power to cope with crises, including the COVID-19 pandemic and related economic shock. “Emerging markets are a derivative play on growth,” Campbell says. They “need to have those growth prospects for investors to get excited to deploy capital.” Emerging markets in fact have been hit by three shocks: the COVID economic shock, the collapse in industrial commodity prices, and record outflows of foreign capital. One EM debtor Mr. Campbell likes: Peru (for its stable currency policy).
 
In developed markets, central banks and governments appear to have room in the near term for further monetary and fiscal action. However, looking out to the medium term, Mr. Campbell warns the debt load threatens “to hamper the ability of global growth to rebound back to the levels of even pre-crisis.” Europe faces an interesting crossroads this summer. In response to a lawsuit brought by German businesses against the European Central Bank’s asset purchase program, Germany’s constitutional court this week ruled that the ECB must explain how the program is “proportional,” i.e., not intruding into the domain of fiscal policy. The ECB has three months to respond. Mr. Campbell cautions against treating Berlin as a rubber stamp. If the German court is dissatisfied with the ECB’s answer, he believes it could stop the Bundesbank of purchasing Bunds (the sovereign bonds of Germany). This would seriously crimp ECB’s ability to implement quantitative easing. In the near term, Mr. Campbell’s developed market positioning favors investments which he thinks can weather another leg down in the risk markets. This includes “avoiding Italy completely” and exposures to the Japanese yen and to Australia while hedging out that country’s currency.

S8 E11 Global Economy, Policy Responses, and Global Markets with Bill Campbell

S8 E11 - Global Economy, Policy Responses, and Global Markets with Bill Campbell

David Rosenberg joins DoubleLine’s Jeffrey Sherman and Samuel Lau to share, among other topics, his view on the (dim) prospects for a sustained V-shaped recovery; his choice of indicators for how the economy is progressing; the 10-year divorce between the U.S. economy and stocks; and, beyond the COVID-19 crisis, a future of stagflation. Mr. Rosenberg is the President and Chief Economist & Strategist of the economic consulting firm Rosenberg Research & Associates Inc. The podcast was recorded June 8, 2020.
 
In regard to his near-term view of the markets and the economy, Mr. Rosenberg argues, “The stock market and the economy became divorced a decade ago.” The rally off the March low, he says, “is all about Fed-induced liquidity.” “We have a lot of hopes over a vaccine,” he says. “Maybe the ‘V’ recovery stands for ‘vaccine.’ But let’s face it: This is the mother of all liquidity rallies that we’ve ever seen.” To illustrate, he cites M2, an important Fed measure of the size of the U.S. money supply. He notes that the Fed has boosted M2 by $2½ trillion since mid-March. “And what do you know … the market cap of the S&P 500 has gone up in that same time period by $2½ trillion.” 
 
Mr. Rosenberg expects the economy, as measured by conventional economic metrics and data points, to stage a “reflexive rebound” in the months ahead with the turn in the weather and all 50 states out of lockdown. “The question is, beyond the third quarter, will it be prolonged? And that’s going to be dependent on demand,” Rosenberg says. Rather than looking at coincident indicators, he advises watching spending intention surveys and consumer confidence. He was unimpressed by the prior week’s positive nonfarm payroll report, which was fraught with reporting irregularities and other problems. The critical determinant for demand, he says, is the timely arrival of a vaccine or effective treatment. 
 
Over the long term, Mr. Rosenberg sees no return to the state of the economy pre-COVID-19. “There is no such thing in this business as a get-out-of-jail-free card,” he says. “This is only a business of Newtonian physics where every action has an equal and opposite reaction, but there are lags.” At some point in the future, he expects aggregate to stabilize, and “we’re going to be left with a regulatory, (flatter) world and shrinking globalization that is going to mean cost-push inflation, and localized supply chains taking precedence over globalized supply chains. The corporate cost curve is going to look different, and the aggregate supply curve is going to be looking a lot more inelastic or sclerotic than it has in the past. So, we’re going to supply-side inflation. We’re going to have a form of stagflation in the future.”

S8 E16 Economist David Rosenberg Returns as Guest on The Sherman Show

S8 E16 - Economist David Rosenberg Returns to The Sherman Show

Bob Brinker, founder and publisher of the Marketimer Investment Letter, comes on The Sherman Show to discuss “Quantitative Easing Infinity” under Federal Reserve Chairman Jerome Powell, the consequences of a Biden versus Trump election victory for the federal deficit, “free money” in times of negative interest rates, his investing concept of “critical mass” and other topics with podcast hosts Jeffrey Sherman and Samuel Lau. The podcast was recorded July 8, 2020. 

Now in its 35th year and listed on the Hulbert Financial Digest Investment Letter Honor Roll, Marketimer covers the economy, Federal Reserve Policy, technical analysis of the markets and market timing. Among Mr. Brinker’s outlooks is the idea that as long as real interest rates remain negative, the Federal Reserve will continue to buy the U.S. government’s debt. “The question here is going to be whether interest rates are going to stay near zero forever, which would, by the way, accommodate Modern Monetary Theory because, what the heck – if you don’t have to pay for the money, who cares?” Mr. Brinker tells Messrs. Sherman and Lau. “That’s where we are right now in my opinion…. The reason Modern Monetary Theorists are getting away with this right now is because we’re not paying for the money. The real interest rate on the 10-year Treasury is negative. So we’re getting paid to borrow in real terms, which is a good way to borrow if you can figure it out.”

Of course, how long rates can stay negative in inflation-adjusted terms is the open question. “Where does this all come to, one way or the other? Interest rates,” he notes. “If we ever get into a situation where interest rates go up, you do the math, the interest on the national debt is going to be a really big number. That is going to drive whether Modern Monetary Theory has legs or not.”  

Asked for a few of the most valuable lessons from his long career investing in securities markets, Mr. Brinker replied, “The most important thing is to keep emotion out of your investment decisions. That’s what we did this year – well, we always practice this, but we showed that this year when we maintained our fully invested position even though there was that very brief panic in March. We maintained our fully invested position; we told our subscribers to dollar-cost average additional money into the market as they wished. And look what’s happened in the market. The market is back near all-time record highs.”

S8 E20 Bob Brinker Joins Sherman Show as Special Guest

S8 E20 - Bob Brinker Joins Sherman Show as Special Guest

Ryan Simonetti, CEO and cofounder of Convene, joins “The Sherman Show” to discuss the future of commercial real estate, particularly in the office and hospitality sectors. Convene designs and services premium places to meet and work. Founded in 2009, Convene has transformed the workplace and meeting place by bringing together trends in technology, service and amenitization, which is the lifestyle movement that transformed hotels and luxury fitness clubs.

Convene also set out to provide businesses with a more-flexible and better-aligned real estate model. Key to Mr. Simonetti’s approach was to provide businesses “access” to workspaces without the need to own them or enter long-term leases. The ownership/long-term lease model, he realized, leaves companies with either too much or too little real estate. “If I was a company,” he notes, “would I rather design, build and manage all of my own hospitality space, my own meeting event and conferencing facilities that I use a few times a year? That’s not really my core business. Do I want to lease an extra 50,000 square feet of space that I may or may not need? Or do I want to sign a 10-year lease when I’ve only got a business model that gives me visibility for the next 18 to 24 months? … [I]t’s a shared consumption model, right? It’s outsource over insource; it’s shared infrastructure over owned infrastructure, and I believe pre-COVID and then coming out of COVID, access is the new ownership.”

Due to the COVID-19 pandemic, Convene, like many firms, had to close its locations in the U.S., and plans to open operations in the United Kingdom have been postponed. The process has been a tough one, but Mr. Simonetti and his team used the opportunity to reassess their strategic vision of the future of their economic sector.

“We had to close our entire portfolio in early March,” Mr. Simonetti tells podcast cohosts Jeffrey Sherman and Samuel Lau. “We’ve only chosen at this point to open up a portion of that portfolio. And we had to make all the really tough and hard decisions that companies that are, you know, I think kind of at ground zero of this crisis have had to make around cost cutting. And I’m sure for you guys, even as leaders, like the hardest conversations to have are the human ones. And this has been really, really tough on our team and our leadership team. But I’d say the hard part for us is over. We had a strategy called Survive and Thrive when we started, and I’d say the first 90 days was really about survival and doing the hard stuff like cutting costs and closing locations, raising capital restructuring deals that we had with landlords. 

“And the last, I’d say, 90 days has been this amazing opportunity that I think most companies never get, especially at our stage. I mean, we were high flying about to do a pre-IPO around growing 60-plus percent a year. When do you ever get to take a giant step back and really question everything you’re doing and you just don’t? And so I think what we’ve done is really taken this as an opportunity to really ask ourselves in a post-COVID world, knowing that there’s going to be new challenges and new opportunities, where do we really strategically want to take the business? What are the core competencies and capabilities that we can leverage knowing that although the world is not going to be radically different, it’s going to be different enough that we need to think different? And where are the opportunities where we can invest in innovation to really position us while moving forward? And I’m really appreciative of our team and our board for not letting a good crisis go to waste, and I think have really positioned the company to be successful coming out of this.”

This podcast was recorded on Sept. 29, 2020.

S9 E1 - Ryan Simonetti on the Future of Workplace and Meeting Space

DoubleLine Capital’s Jeffrey Sherman and Sam Lau welcome Dr. Ben Hunt, co-founder and chief investment officer of Second Foundation Partners, and creator of Epsilon Theory, a newsletter and website that examines markets through the lenses of game theory and history. This episode was recorded on Dec. 15, 2020. Messrs. Sherman and Lau and Dr. Hunt discuss, among other topics, market narratives versus market fundamentals, common knowledge versus public knowledge, fiat news versus fake news and the value of working on social issues on the community level. 
 
Dr. Hunt explains the focus of his professional career for 35 years: How are we as social animals, particularly in this biggest game in the world, public equity markets, systematically impacted by the messages and words we hear? And, why has that become a much more important driver of what happens in markets than anything to do with fundamentals? As an example, he cites Marc Benioff of Salesforce.com framing the firm’s quarterly performance by using the firm’s own metric “pro forma net revenue growth” to great effect. These types of executive performances take advantage of the 24-7 “news channels,” such as CNBC, which do not have a lot of fundamental financial news to cover every day. In response, to fill the time, you have a series of people come in and present their opinions as if they were news (“What’s your story about this sector?”). According to Dr. Hunt, it’s a “constant flow of what I like to call fiat news. It’s not fake news, but it’s opinion presented as if it were news.”
 
Abetting this dynamic, says Dr. Hunt, is a change in technology with “dopamine machines” that we are hardwired to respond to. They include “the dopamine machines that we all carry around in the form of our smartphones that present us this megaphone in our ear” that delivers narratives. There are also the always-on trading vehicles, such as Robinhood, that you treat like a game. “It really is a dopamine machine, right? … ‘Oh, you’ve mastered your first equity trade. Want to level up and try some call options?’”

S9 E7 - Dr. Ben Hunt Immerses The Sherman Show in Market Narratives, Fiat News and Jolts of Dopamine

S9 E7 - Dr. Ben Hunt Immerses Us in Market Narratives, Fiat News and Jolts of Dopamine

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine’s Asset Allocation Analyst, host a series of podcasts with distinguished guests, giving listeners insight into DoubleLine’s strategies, Portfolio Managers and industry innovators.

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