Renowned economist, portfolio manager and author Daniel Lacalle sat down recently with Hedgeye Founder & CEO Keith McCullough to discuss Keith's approach to risk management, investing in today's financial climate, modern monetary theory, and much more.
Enjoy the entire interview below. We’ve also transcribed key excerpts from their conversation for your convenience.
* * *
TRANSCRIPT
Lacalle: One of the things that our friends and audience, who are mostly small investors and people who follow the finance world, they tend to look at the world today and the way to invest very much from the perspective of investment banks and the perspective of news that they receive.
Basically, they are talking about following central banks and trends, what you and I know as beta-chasing.
I would like, if you could, summarize the importance of investment process and what is in particular your investment process when navigating such a complicated environment we are in today.
McCullough: I think that beta-chasing is a great way to say it. It is a more polite way of saying "macro tourism," I think you and I both agree. If you want to be a macro tourist, you just jump from headline to headline, and you use what I affectionally call "Old Wall" research, which basically uses linear models and a lot of assumptions that start with things that are also linear.
Where is what we do, is instead of jumping from headline to headline where you are constantly reacting, what you are trying to do is proactively predict what they are going to be reacting to by jumping from data point to data point on a time series.
So all I do, to really boil it down, is I use rate of change or I believe in gravity. I don't believe that the earth is the center of the universe, like valuation and how some people think that's what makes markets go up and down (cause it doesn't).
What makes things go up and down is the Rate of Change, of both GDP Growth and Inflation, accelerating or decelerating.
