Capital Flows and Asset Markets

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com Lets talk about macro. There are lots of big macro questions to answer, but I think we now have enough data, and market action to answer them in a coherent and simple way. There are two (or three) big macro conundrums which I think we can answer with a single model. First of all, why did JGB yields fall from 1990 o...

Markets have had a rough month in August so far. The favourite reason given is the unwinding of the carry trade - precipitated by rising interest rates in Japan. For most investors in the market, the idea of Japan ever being able to raise interest rates seems like a fantasy - and the episodic unwinding of the carry trade is seen as one reason. One popular carry trade has been long Mexican Peso fun...

I had been fairly relaxed about markets. Nothing much looked like it was unwinding, and yet we saw Nikkei VIX touch 70 this week, a level seen during the GFC and Covid. Current levels have tended to be associated with crises of some sort. The move in VIX is even more surprising to me as leading indicators like Japanese banks and JGBs were pointing to continued wage growth and inflation in my mind....

As I write this, markets have gone for a good old growth scare. It has also happened at a time when the BOJ is beginning to tighten policy. We are getting big moves. Yen has rallied substantially. Markets are pricing in much more rate cutting from the Federal Reserve. The two year yield has fallen substantially. While the market had been pricing in a BOJ tightening, the real surprise has been weak...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com Only a week ago I asked if it was time to bet on deflation again? As I pointed out, the biggest lead on inflation and deflation has been JGBs, which correctly pointed to deflation from 1990s onwards, and correctly pointed to inflation from 2020 onwards. With JGB yields at highs, I was of the view inflation was stil...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I spent most of July on the road in Europe. 11 days in Sweden, karting with my oldest son and then 9 days in Portugal with the entire family on a bit of rest and recreation. I try and avoid coffee when I am on holidays, and I find it allows me to think more clearly, if more slowly. Markets are heavily politicised t...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com Apologies for the radio silence, which has been driven by two things. First of all, US politics is in such a state of flux, it felt better to refrain from any “hot takes”. Secondly, I am currently in a state of caffeine detox. I drink a lot of coffee - the shirt I am wearing above was GIVEN to me by local coffee sh...

In the UK, Labour has the opportunity to introduce pro-labour policies. Given that the election was more about the rejection of the Tories than embrace of Labour, the new government should be under real pressure to deliver results in its 5 year term. If we assume a “neo-con” policy like the US is not possible in the UK, then what should we expect? Labour winning the election has been widely expect...

When I was 17 and learning Japanese, I read the entire series of Dragonball in Japanese. As a manga aimed at young boys, all the difficult Chinese characters would have the pronunciation written out in small characters next to it, so you would now how to read it (furigana). The recurring theme of Dragonball was that the hero, Goku, would face an enemy, lose, and then find a way to evolve into a st...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I am big believer in developing a theory on assets have traded - particularly when they trade in a way that surprises you. A good theory should produce forecasts than you can then apply. My first theory was “Japan as Saudi Arabia of savings theory” which basically showed that Japan had all this capital, and whereve...

I am a member of club in London that is somehow the best night out in London mid-week, while simultaneously the home of conservative thinking in the UK. I joined for the partying, but recently I have been frequenting this club to access their library of books on conservative thinking. Neo-conservative thinking has never really made sense to me. And as I thought it was not that important, and to be...

In my recent post, “Modern Marxist Theory” I argued that if Marx was resurrected today, he would predict an economic crisis from corporate and capitalists seeking to minimise and avoid tax, and hence hollowing out the financial capacity of the state. For me the obvious political response to this would be a enacting antitrust and tax reform, and restoring power to labour and unions. This was a left...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I was first interested in Restaurant Brands International (QSR US) when a huge disconnect opened up between its listed subsidiaries and the parent company. The listed Brazilian operator of Burger King restaurants (Zampa) is down 90% over the last 5 years, while QSR is flat. With Bill Ackman being a big owner of QSR...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com I have been thinking about the portfolio a lot recently. One reason is that I have been calling for higher inflation for a long time, and put a range of “inflationary"“ trades on - various long commodity trades, as well as long banks, while putting a range of short short interest rates sensitive trades on. The idea...

Much of my analysis on bonds highlights that the traditional centre of politics has lost its appeal, and voters are craving change, which has led to rising vote shares for extreme left and right with parties, or the takeover by traditional parties by extremist elements. I have expressed a wish for a modern day FDR who could forge a new political consensus and centre. This may seem like wishful thi...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com My gut instinct for the last few years is that you want nothing to do with bonds. This has been correct. And just as the lead market for the bond bull market was Japan, it has been the lead market for the bond bear market. And Japanese 30 year yields continue to say bear market to me. I see plenty of analysis of wh...

I only read the Communist Manifesto last year. I was trying to understand, how the Chinese planners think about economics, and I found it extremely illuminating. I had often heard people talking about Marx, without ever being interested enough to read it myself. All I knew was he was keen on collective ownership, which as everyone knows, doesn’t work. However, my favourite historian, Eric Hobsbawm...

Back in January I wondered if semiconductors were the new oil . The price action this year probably says yes. Just as the Soviet Union tried to cripple the US in the 1970s through helping organise an oil embargo, the US is trying to cripple China through creating a semiconductor embargo. The US “war” with China was always about keeping China as a smaller economy than the US. From that perspective,...

Since pushing the big red button , I have started talking to allocators, and financial professionals again. I have found it invigorating. I feel like I should apologise to the financial world. It is very easy to be prejudiced against finance people - “banker w****r” is almost the universal term. But after spending the last four years talking to parents worried about the 11 plus (high school entran...

I was state school educated in Australia, so I missed out on an education in “classics”. But whenever I hear a good turn of phrase, I bring it into my vocabulary. “Hubris before nemesis” is one such phrase - basically meaning arrogance precedes a fall. I have seen many investors suffer from it, and I have also suffered from it myself. As it happens I was in the Midlands this weekend - Peaky Blinde...

I will admit, I have only started taking a close interest in politics in recent years. Like many of the “elite” I was shocked by the Brexit vote, and the election of Trump. But having spent a few years reading and thinking about politics, every election this year has conformed to exactly the same message - “show me the money”. The market and the Economist where surprised by recent election results...

This is a free preview of a paid episode. To hear more, visit www.russell-clark.com Back when I first started writing this substack, I was greatly influenced by the idea of systemic food inflation leading to rising wages and rising interest rates. The key driver was that China was no longer self sufficient in grain due to structural shortage of land and labour. It suddenly became the world’s bigge...

The other day I saw my wife had this photo on her lock screen. I asked her why she had this photo - the double chin makes me look terrible in this photo in my view. She replied, “Oh no - this is a wonderful photo - it sums up all the things I love about you.” This was not the only photo that we had disagreed about for the same reason recently. I wondered why our views differed so much. I gave it s...

I often describe myself as lazy - although this is not quite the right word. The more correct word would be efficient. I tend to calibrate effort to potential reward. Back in 2011, the entire financial community was convinced that inflation was going to surge, and if anything, there was a preference for commodities over financial assets. At the time, China was obviously heading for trouble, and po...

I used to get asked by young fund managers for advice in making it in the hedge fund industry. I always gave the same advice. There are two key jobs, making money, and raising money. Of the two, the second is the most important. Most young managers think of themselves as proto-Warren Buffett’s, and just want to focus on investing. I then point out, as great as an investor that Warren Buffett is, h...