Aitken Advisors Founder on Macro Markets

Bloomberg

Watch Aitken Advisors Founder on Macro Markets - Bloomberg on Dailymotion

Transcript

00:00We've had a bit of FAFO. We've had a lot of taco. And certainly, let's be clear,

00:05the market is betting once again that this is another taco episode. I'm not so sure. But before

00:10we think about the path ahead, let's think about the conditions that prevailed as recently as the

00:16middle of last week. So unsurprisingly, people were all in. Systematic investors were all in.

00:22Everyone was all in and levered long equities, which makes a lot of sense. It's the right thing

00:27to do. But Wednesday last week, per the Bloomberg terminal, 10-day realized correlation on the S&P

00:35500 fell to zero, which is about as low as it can go. 10-day implied correlation on the S&P 500 fell

00:42to about five or six, which is as low as it has been. And the point I'd make is that the conditions,

00:47the initial conditions ahead of Thursday, Friday last week were already very stretched. It didn't

00:53particularly matter what might come up to disrupt that, that we were primed for some kind of

00:58disruption. And of course, it got knocked over by resumption of the rare earth contest, which is

01:03what it is. And look, I know it sounds a little bit dramatic, but we have been in a rare earth cold

01:09war now for a long, long time. It's just that it's only burst to the surface. And what we're seeing of

01:15late is a taste of what's to come. How do you see this situation evolving? Because we heard from

01:20JP Morgan today, he's going to funnel another one and a half trillion into that rare earth sector.

01:25And Jamie Dimon saying, look, this isn't charity. This is just a sensible move. So is this an

01:31opportunity here? Or is it more, as you sort of referred to with the FAFO, chance for damage

01:37limitation? Let's differentiate. Markets want to bet that there's a dip, you buy, the party

01:43regimes. Okay, that's a path. But what we're actually seeing, and whisper it, is that everything

01:49is being subjugated to national security, which I'd argue is long overdue. So all this debate,

01:55which we've talked about, about inflation targets, spending dependence. Look, if it's all about

02:00national security, which I think it should be, then everything is subjugated by that. So inflation

02:06targets are important, but we've got a whole bunch of investments we need to make, to make ourselves

02:11more resilience across the West, more resilient even. And that's barely started. So yes, it's an

02:17opportunity for all sorts of investors to participate in, let's call it a national security

02:22rebuild. It's long overdue. It starts first and foremost with critical minerals and rare earths,

02:28and Australia has plenty of those. But it's more broader than that. It expands the supply chains.

02:32And I think what Jamie Dimon announced yesterday is commendable in the extreme, and I think it's a

02:36taste of what's to come. Now, you mentioned a moment ago a number of S&P metrics that suggested

02:42what happened was predictable. However, the only metric that really matters to investors is, well,

02:47we saw it again this morning, the S&P hitting a level that we haven't seen since May. So that rally

02:52just keeps on rolling on. But are you seeing any warning signs longer term that that could come

02:57undone? Because typically the only thing that would stop it is a recession, but is there anything else

03:01you're watching? Now, you're right at a headline level, happy clappy, let's muddle through, let's

03:07continue to play the game. Absolutely right. And that's the implied bet of the market. But you dig

03:12beneath the surface or under the hood, and you see absolute turmoil. We've just had one of the

03:17biggest factor smash-ups in a long, long time, shades of the GameStop debacle in 2021. So on the

03:24surface, it looks serene and calm, and the game rumbles on. But under the surface, it's been

03:29massively disruptive. And unsurprisingly, any time correlations rise and realized volatility rises,

03:37that's very difficult for the leveraged market participant. And regrettably, there was an awful

03:41lot of damage across an awful lot of risk-taking silos on Friday. And again, as much as the sentiment

03:47is, let's put the party back on, up we go again, I think risk appetite is going to be fairly subdued

03:53for a little while to come.

03:54How much confidence do you have in this AI rally? Because that is something, and I just

03:58noticed your eyes widened there. We have Broadcom signing a deal with OpenAI today. Very exciting.

04:04OpenAI doesn't make a profit. Do you see it in shades of .com?

04:08When you're out there buying a lot of things and you don't have money, you have to be creative.

04:14So hats off to OpenAI and their team for being very creative financial engineers. What else are

04:19they going to do? But Paul, to go back to first principles and to put my plumbing hat or helmet,

04:24I guess, back on, look, what's the collateral that underlines the AI boom? Is it data centers?

04:30Is it cross-share holdings? Is it all these things that people are rightly a bit curious and concerned

04:34about? It's actually GPUs. It's actually GPUs. And the world is short GPUs in the context of the AI

04:42CapEx build-out, which is going to continue for some time to come. There are reports that the cost of

04:48renting GPUs is going up. And to state the obvious or remind viewers of the obvious,

04:54if you understand the collateral that underwrites any credit or CapEx boom, then you're well on the

04:59way to understanding what works and what doesn't. And if the price of the underlying collateral GPUs is

05:05steady, people will feel confident leveraging that. And of course, if the rental yield goes up because

05:10the world is short of them, people will feel even more confident leveraging those GPUs. So look, I agree

05:15with anyone who says it looks a bit fishy, it looks a bit odd, but my bet would be that we just keep going.

05:21It feels like a good moment to ask you what the rally in gold prices means to you, and can it continue?

05:27Look, I'd love to give you a really clever answer. Frankly, I don't know. All I can see is walking down

05:34Martin Place, there's people queuing up outside the gold bullion shop. Now, I don't know if they're buyers or

05:38sellers, but there's clearly something going on. Look, I'm watching it with interest. I'm watching

05:44it in the context of a broader rally in commodities. Historically, if gold did something

05:49like this, Paul, you would have said, uh-oh, watch out, the dollar's going to go down as well. But so

05:53far as we can see, the dollar's holding in. So I view gold as a special situation. It's interesting

05:59in the recent past that implied volatility on gold has started to shoot up as well, which hasn't

06:04happened for a while. Maybe suggesting this gold rally is a little bit long in the tooth.

06:09But look, to state the obvious, it's very difficult to sell.

06:12Well, of course, gold price in US dollars as well. And we've seen the US dollar gaining in

06:16the Bloomberg dollar spot index about 1.5% give or take on month. But considering the trade tension,

06:22the rolling government shutdown, Fed easing, ballooning US debt, AI bubble risk, what's driving

06:28dollar strength right now? And can it last?

06:30Inertia. What's driving it is inertia. But there's two big decisions that

06:34global savers, global investors have had to make in 2025 and probably 26 and beyond. It's like,

06:41A, what do I do with my underlying US dollar asset exposure, private credit, equities and so forth?

06:46And B, what do I do about the dollar? And these large pools of capital can, you know, move money

06:52around, but no market offers the capacity that the United States does across a range of instruments.

06:58And you remember 10 years ago, the world made a very smart bet. Collectively, the world went

07:03overweight, unhedged US assets and equities in particular. It worked really, really well,

07:09which means the bar to changing that allocation is very high. There was a big test of that in

07:15February, March and April, as we all recall. But again, those cumulative gains are so large

07:19that there's this inertia that drives strategic asset allocation around the world.

07:24So are people nervous, apprehensive? Absolutely. Are there some conversations around town about how

07:30should we think about dollar hedging and everything else? Absolutely. But by and large, so good has

07:35been the performance of the underlying asset exposure, the people have decided that they'll

07:40take the option of waiting and seeing. And that, I think, explains a large part of the dollar

07:44resilience. So the fast money ducks and wheeze through foreign exchange markets, the really big

07:48money is just sitting back and watching and enjoying their enormous cumulative rolled up gains.

Category

Transcript

Be the first to comment

Recommended