SI417: What Happens When AI Starts Trading the Markets ft. Rob Carver

Niels Kaastrup-Larsen (0:01)

Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next. It comes from being prepared for what you can't predict.

In each episode, we go deep with some of the world's most thoughtful minds in investing, economics and beyond to understand how they think, how they prepare and how they decide, and the experiences that shaped how they see the world. No noise, no shortcuts, just real conversations to help you think better and invest with confidence.

Niels Kaastrup-Larsen (0:35)

Welcome back to this week's edition of the Systematic Investors Series with Rob Carver and I, Niels Kaastrup-Larsen, where each week we take the pulse of the global market through the lens of a rules-based investor. Rob, it's great to be back with you this week after hopefully a long, relaxing summer holiday. How are things in the UK?

Rob Carver (0:55)

Yeah, it has been a long summer and we were having a discussion before we started and my brain's really not got into gear yet after having such a long break and not thinking about markets or trend following or programming or anything for a few months. So, but yeah, it's been a hot summer. Last few days it has started to rain again, which is very welcome indeed, although it wasn't particularly welcome for me on Tuesday when I went on a very long bike ride and got very wet, but yeah, swings and roundabouts.

Niels Kaastrup-Larsen (1:24)

That's how it is.

Rob Carver (1:25)

So yeah, apologies if I'm a little bit slow during this podcast, because as I said, my brain's still not quite in gear yet.

Niels Kaastrup-Larsen (1:31)

No, I'm sure you will get into the speed of things very quickly.

Now we've got a great lineup. Again, thanks very much for sending over some papers that I certainly had not noticed. So that's great. But before, and I'm sure you remember this Rob, before we do anything else, we talk about what's been on your radar the last couple of weeks now. Granted, you've been away. So, but maybe something did catch your attention.

Rob Carver (2:03)

I mean, I think we both started in finance in the fixed income markets. So I think we've both got a sort of a bit of a love for the bonds, you know, a bit of nostalgia about when we were pumping and we're out, you know, throwing around yield curve trades and whatnot. And it's very interesting to see that normally, the bond market gets nowhere near as much coverage as the equity market does, because, you know, the equity market is cool and sexy and interesting, and the bond market is just boring maths, right? But I'm very pleased to say that bonds are getting a lot of coverage at the moment, although not necessarily good coverage. So people are very, very worried about, particularly about government debt, although corporate debt as well, particularly by the sort of AI complex, and they're issuing a lot of debt to fund all of these things that they're making. But people are very worried about government debt, especially the UK is particularly worried, and also very worried in the US. And I see that the current leader of the US is promising to give everyone some money. If the Republicans can get re-elected. I'm not going to comment on the politics, or the ethics, or the morality, or the legality of that. But economically, it seems a pretty interesting idea, given they're already quite a lot in debt in the US. So all this is pumping up yields, and making the life of central bankers quite difficult.

And I noticed just this morning, that in particular that the Norwegian Sovereign Wealth Fund, which is the biggest fund in the world, basically, they have all the money, are proposing to reduce the allocation of government debt in their bonds portfolio by 20%.

So that's not their whole portfolio, but so it's from whatever they've currently, they've got about 25% of fixed income. So it's 20% of 25%, which is 5% obviously, which doesn't sell very much, but 5% of an enormous amount of money, which is what the Norwegian Southern World Fund has, is going to have quite a big impact. So yeah, people are worried about interest rates and worried about inflation and worried about government spending and about existing stocks of debt. And so it's cool to see fixed income in the markets news again.

Niels Kaastrup-Larsen (4:27)

Yeah, I mean, you did send me a quote and I just want to make sure we are looking at the same article because in the quote it says, last week it proposed chopping the weight of government debt in its bond portfolio from 70 to 50 percent. So that seems like a little bit more than 5 percent reduction.