Luke Kawa on the Macro Situation Right Now

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, you know, every once in a while, I feel like every few months, we have to do like a sort of macro episode. I mean, we talk about topics and macro, but it's also good to just sort of take stock of like where we are right now with the economy fed and markets.

Tracy Alloway (0:36)

Yeah, that's fair enough. But I feel like at this moment in time, I mean, I should mention we're recording on March 15th. There is a Fed meeting coming up, so maybe things will change.

But at this moment in time, the macro environment is really interesting because of course we've seen this big backup in yields, which has impacted stocks. And now we're watching out to see what the central banks actually do about it.

Joe Weisenthal (0:59)

Yeah, it's just a very interesting environment for exactly that. In addition to the backup and rates, we've seen this fairly dramatic rotation, the likes of which we haven't seen for a while, where we have a lot of banks and energy companies leading the way and a lot of the tech darlings for the last year, if not the last decade arguably, pretty severely underperforming. We're seeing this commodity boom ongoing, something that we recently talked about with Jeff Curry.

We're seeing expectations continue to get ratcheted up for what growth is gonna look like in 2021 and maybe 2022

So we're definitely at a turning point, which makes a, of some sorts, which makes a good time to take stock of the macro right now.

Tracy Alloway (1:46)

Yeah, and I guess whenever you have these big turning points in markets or when it feels maybe like you're seeing a turning point in market, the question always comes up about how you should actually position for it.

And it does seem in this particular environment, I don't know how you feel about it, but I feel that it's more difficult than normal, I guess, because bonds are selling off because people are positioning for growth. And at the same time, all the stock market winners that we've seen for the past couple of years are also selling off. So I don't know, it feels a little bit tricky at the moment if you're in charge of allocating assets.

Joe Weisenthal (2:22)

Yeah, I mean, I think for a long time, you could have had a real sort of set it and forget it portfolio, like a 60-40 type thing, where you have a bunch of stocks, you have a bunch of treasuries, and you just don't worry about it. But A, there's a lot of talk that maybe the treasury component isn't going to work that well, especially in an environment that's reflationary, higher rates, that has impact on the stock. So there is a broad reckoning or at least questioning of whether a lot of the strategies that have worked well for a very long time, longer than a decade, really, are just going to continue to be so easy.

Anyway, the good news for us is that we're just journalists. And so we don't actually have to answer these questions ourselves, because it's not our job to get it right.

Tracy Alloway (3:07)

That's true.

Joe Weisenthal (3:08)

But our guest, this is a very special episode today. So our guest not only used to be a journalist, but actually used to work for me and you, Tracy.

Tracy Alloway (3:17)

This episode makes me very happy, because we're going to have one of our old colleagues on. And not only was he an excellent journalist, but he's gone on, I think, to be an excellent journalist. He's an excellent strategist at a real bank. And it's really nice when you see someone who has expertise in markets, who sort of translates that expertise into, I guess, something other than writing about it and actually takes an active role or position in it. Putting theory into practice.

Joe Weisenthal (3:47)

Right. So we just write about it, we just talk about it, but our guest today used to do that, and now he actually has to make these calls.

So we're going to be speaking with Luke Kawa, our longtime colleague.

He is an Asset Allocation Strategist at UBS Asset Management. We reference his work a lot. We talk about his business. We cover ones which will probably come up today. Luke, thank you very much for joining us.

Luke Kawa (4:11)

Guys, it's my pleasure, and the warm, fuzzy feelings are very much mutual here.

Joe Weisenthal (4:16)

Aw. So is this a tough time, like as Tracy set out, does this seem like a particularly sort of tricky moment for thinking through problems in the question of asset allocation?