ESPRESSO | Macro Musings with the W1M Multi Asset team

**Luke** (0:01)
Welcome back to the Why Invest podcast. Today, I welcome two colleagues onto the show to host our very own multi-asset, Macro Musings. The aim is to discuss markets, investing, economics, politics, and more. We hope to bring to life our investing journey, share what we have learned to date, both positive and importantly, the negatives. Firstly, James Me, who co-heads the multi-asset team here at W1M with myself, and Matt Parkinson, Multi Asset Fund Manager. Look, guys, before we get into the topics today, why don't you each introduce yourself to the listeners and provide one quote that you think every investor should remember and why it resonates with you.

**Matthew Parkinson** (0:38)
Thanks very much for that kind introduction. I am Matthew Parkinson. I joined the team six years ago. So my quote is Stanley Druckenbiller, earnings don't move the overall market, focus on central banks and focus on the movement of liquidity. It's liquidity that moves markets.

**Luke** (0:57)
And how about you, James?

**James Me** (0:59)
Yeah, James, me, joined in 2012 So that's 13 years and counting. I'm now co-head of Multi Asset with you, Luke, manage the Multi Asset Fund, sit on the Asset Allocation Committee, growing that Multi Asset Portfolio Strategy, segregated mandate book here at W1M as well. Quote, I'm going to throw it out there right off the bat and say this is not a sexy one. So it's so unsexy in fact that it's from a CFA blog in 2015 So this is a quote, many analysts labor under the belief that the game is about getting the cash flows right. It's not. Alpha is not in your cash flow estimates, it's not in your discount rate and it's not in your cheap multiples. The game is about variant perception. Your ability to distinguish your perception from the market successfully bet on where there is a difference. Divergence between your perception and that of the market is where you should dictate the lion's share of your time. And if I may, there was another quote that's kind of related. It's not from the same blog, but if you have a similar view and a similar way to the market portfolio, you are wasting precious time. Remember, everything interesting in economics and investing happens at the margin. And it goes to where to focus your attention. It's not the average. The interesting things are in the tails, they're off the beaten track. And so where to spend your time. It's not about how much time you spend, but it's about how well you allocate it.

**Luke** (2:14)
Yeah, very interesting.
I've also chosen a Stanley Druckenmiller quote. So the quote is, I've learned many things from George Soros, but perhaps the most significant is that it's not whether you're right or wrong that's important, but how much money you make when you're right, and how much you lose when you're wrong. And I think that resonates because everybody in the market spends so much time thinking about are we in the right securities? Have we bought the right company, asset class, et cetera? That is obviously critical, but in conjunction with that, as that quote highlights, you are going to get things wrong and hopefully you're going to get things right. And the important thing is to wait and get your portfolio construction tailored and indeed positioned correctly to benefit hopefully from your correct calls and minimize the losses and the incorrect decisions that will invariably come.

**James Me** (3:03)
And it goes to the psychology of investing, knowing when to hold them, knowing when to fold them, knowing when the probabilities are slightly tilted in your favor and therefore when to back it.

**Luke** (3:12)
Let's get on to some of the sort of current market environment. There's ever no shortage of political, economic market events to assess markets. Certainly US all time high. Bitcoin near enough all time high. Gold, physical gold price near enough all time high. But actually underneath things, US employment picture appears pretty weak. So James, how would you frame the current macro backdrop?

**James Me** (3:36)
So if you think about US growth, it's been solid, right? I mean, everyone's been calling for a recession basically since 2020 And it may be technically we did have a recession briefly at one point, but not really in terms of two courses of negative growth. But it's pretty solid today. So you look at the consumer balance sheets, pretty strong. Wage growth is solid. You look at income tax receipts, federal income tax receipts from the government. You look at credit card data and spending, that's all holding up pretty well, notwithstanding the negative jobs report. On the investment side of things, it's been absolute boom time, particularly AI denominated and information technology related non-residential construction spending has been extremely strong. Government spending has been extremely strong. So the IIJA and the IRA in particular, some of that money is only just getting into the system now. And you've got the One Big Beautiful Bill Act, whose money should start getting into the US economy probably early next year. So government investment has been very strong and then net trade is clearly the thing that has been the drag, but now the government is making money off it. So they're going to make 250 to $300 billion this year off that Atlanta Fed GDP now is an up-to-date best guess from the Atlanta Fed as to what GDP will be in this quarter and it's running at something like 3.4%, which is where it was running this time last month.