Aubrey Basdeo: More Coupon, Less Duration
Insight is Capital™ Podcast
In this episode, our conversation with Aubrey Basdeo, Head of Fixed Income at Guardian Capital LP, we focus on the fixed income landscape and the outlook for interest rates in the US and Canada, the Federal Reserve's approach to inflation and interest rate cuts, as well as the differences between the US and Canadian economies, the impact of mortgage rates on consumer spending and the potential for rate cuts by the Bank of Canada. Overall, the conversation highlights the importance of maximizing optionality
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Doomberg Decodes: Pumpamentals, Market Riddles, Energy, Gold/China, Uranium & Canada
Insight is Capital™ Podcast
In this conversation, Doomberg (https://doomberg.substack.com/) joins Pierre and Mike to discuss various topics including Bitcoin, the parallel between Michael Saylor and Hugo Stinnes, speculative mania, the parallels in the borrowing strategy of Hugo Stinnes and Michael Saylor, pumpamentals driving distortions in the market and the flywheel effect, the geopolitical implications of the Russia-Ukraine conflict, the dangers of do-gooders and climate newspeak, and t
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Bill Bamber, BMO GAM CEO: "A generational shift in accessing structured investment payoffs"
Insight is Capital™ Podcast
This is one of the trickiest times in investing history marked by heightened uncertainty, distorted valuations, regime change and increased volatility in both equity and bond markets. For good reason, advisors have increasingly turned to shifting parts of the portfolios they manage away from traditional equity and bond assets in return for exposure to structured note and investment strategies that provide structured investing outcomes from those same asset categories.
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Vanguard's Mario Cianfarani: Three Challenges for 2024
Insight is Capital™ Podcast
This episode with guest Mario Cianfarani, Head of Distribution at Vanguard Canada kicks off delving into 2024's First Challenge: Bond yields and the importance of re-positioning cash for the long term given the likelihood of central banks shifting towards rate cuts in 2024.
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Fidelity's Ilan Kolet – 11 Questions for 2024
Insight is Capital™ Podcast
Ilan Kolet, Institutional Portfolio manager in Fidelity's Global Asset Allocation Team, joins us to discuss the most important questions he and his team mates, David Wolf and David Tulk have been fielding at the start of 2024. We delve into the unexpected shifts in monetary policy led by the Federal Reserve and mull over the repercussions of potential rate cuts on inflation volatility, weaving through the intricacies of the Fed's data-driven stance and 'pivot' toward a less restrictive monetary environment.
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John De Goey - Investing ahead of unknown market risks
Insight is Capital™ Podcast
John De Goey, Portfolio Manager and Investment Advisor at Designed Wealth Management joins us to discuss and explore the current investment landscape and the choices available to investors. He highlights the importance of managing risk and staying on the short end of the yield curve, for time being where fixed income is concerned. We also delve into the topics of optimism and pessimism, with a focus on the potential challenges and uncertainties in the market. We talk about the shifts in real estate markets,
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Fidelity's Ilan Kolet: 2024 Macro and Investment Outlook
Insight is Capital™ Podcast
Join us for this enlightening conversation with Ilan Kolet, Institutional Portfolio Manager, Global Asset Allocation Team, at Fidelity Investments, as we delve into the economic outlook for 2024. Kolet provides invaluable insight into the Canadian and US economies, the housing market, investment strategies, and inflation protection. We explore the impact of interest rates, consumer spending, and central bank policies on investments. Kolet's expe
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Dino Bourdos: Is the yield on your covered call fund too good?
Insight is Capital™ Podcast
In this insightful discussion, Dino Bourdos, Portfolio Manager & Head of Investment Solutions at Guardian Capital LP delves into the intricacies of investment strategies, particularly focusing on the use of derivatives, covered call strategies, and the impact of market dynamics on investment decisions. With his extensive experience in the field, Bourdos offers valuable insights into the challenges and opportunities in the current economic landscape, making this a must-watch for investors and financial p
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Deep Dive into Global Economic and Market Outlook, and AI's Role with Joaquin Kritz Lara
Insight is Capital™ Podcast
Join us in conversation with Joaquin Kritz Lara, Chief Economist at Numera Analytics, as we explore the intricate world of global economics and financial markets. Hosted by Pierre Daillie and Richard Laterman, the discussion delves into the nuances of macroeconometrics, the dynamics of inflation, and the complexities of investment strategies in today's volatile market.
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Michael Robbins: Ever seen a bad backtest?
Insight is Capital™ Podcast
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In this episode, our conversation with Aubrey Basdeo, Head of Fixed Income at Guardian Capital LP, we focus on the fixed income landscape and the outlook for interest rates in the US and Canada, the Federal Reserve's approach to inflation and interest rate cuts, as well as the differences between the US and Canadian economies, the impact of mortgage rates on consumer spending and the potential for rate cuts by the Bank of Canada. Overall, the conversation highlights the importance of maximizing optionality and the challenges of monetary policy in a changing economic environment, various topics related to central banks, portfolio construction, and fixed income investing. Our main themes include the shift in central bank narratives, the impact of inflation on monetary policy, the changing dynamics of portfolio construction, the shifting climate in holding duration for the sake of hedging portfolios, and the critical importance of using active management in fixed income. Our conversation also touches lightheartedly on the challenges faced by different generations in the current economic environment.
Timestamped Highlights:
00:00 Maximizing Optionality: The Federal Reserve's Approach to Interest Rate Cuts
12:10 US Exceptionalism: Strong Growth and Pro-Growth Policies
15:55 Challenges in the Canadian Economy: Higher Mortgage Rates and Slower Job Growth
17:54 American homeowners have tax deduction advantage.
21:16 Bank of Canada needs to pivot on inflation.
24:32 Bond market optimism can spell consumer pessimism.
26:43 Bank of Canada rate likely to rise.
32:32 Portfolio construction shifting due to global changes.
35:26 Hedging portfolio with fixed income shifted focus.
40:24 Fed should be less restrictive, economy speed-dependent.
43:20 Bank of Canada will ease rates moderately.
48:29 Central banks shift risk approach, requiring active management.
50:45 Focus on coupon, not duration, for returns.
54:12 Economic growth needs younger population to sustain.
"The mistake is that if they're going to make a mistake, it's that they're going to be focused on that two number (~2% neutral rate) and insist that they need to get to that, rather than you're on that trajectory towards two and you can start to ease at that point."
"The world that we're entering into in terms of how things are going to, the factors that we're gonna be reacting to are going to be different from those factors that guided portfolio construction for the past 30 years."
"If you're looking for duration as the hedge to the portfolio, that's not going to provide it in the same way that it did 10 years ago."
Takeaways
- The Federal Reserve is aiming to maximize optionality in its approach to interest rate cuts, with the possibility of three cuts, two cuts, or no cuts depending on the evolution of inflation and the economy.
- The US economy is showing signs of exceptionalism, with strong growth and pro-growth policies driving the outlook for interest rates. In contrast, Europe and China are facing slower growth and export-driven challenges.
- The Bank of Canada is expected to ease interest rates ahead of the Federal Reserve, as the Canadian economy faces challenges from higher mortgage rates and slower job growth.
- The impact of mortgage rates on consumer spending differs between the US and Canada, with American homeowners benefiting from tax deductions and longer-term mortgages.
- Bond investors are optimistic about the potential for rate cuts, while consumers may be more pessimistic due to the potential impact on disposable income.
- The Bank of Canada will need to carefully navigate the path of easing, considering the impact on inflation, the interest rate differential with the US, and the potential depreciation of the Canadian dollar. Central banks may shift their narrative from targeting a specific inflation number to being less restrictive in their policies.
- Portfolio construction needs to adapt to a changing economic environment and regime shift.
- Duration may no longer provide the same level of protection in portfolios as it did in the past.
- Investors should focus on the belly of the yield curve for fixed income exposure.
- Active management is crucial in navigating the risks and opportunities in the fixed income market.
- The current economic environment has different implications for different generations.
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