Behind The Markets Podcast: A Conversation with Samuel Rines

On a recent episode of Behind the Markets, we had the opportunity to speak with Samuel Rines, Managing Director of CORBU, about the latest thoughts on PolyMacro and the implications for the markets and asset allocation today.

Back in July, we launched the WisdomTree x CORBU PolyMacro Models. After the first quarter of live performance, this is a good time to check in on the major themes reflected in the Model allocations and how the latest geopolitical developments impact CORBU’s thinking.

As we outlined in our launch post, the current PolyMacro Model has three investment themes at the core of its allocations:

• Regionalization

• De-escalation of China Risks—for now

• Fed Miss Takes  (aka MonPolVol)

Now, for CORBU’s update on each, starting with the last.

Fed Miss Takes (MonPolVol)

CORBU’s view this year has been:

     1. The Fed was likely to make a mistake at some point

     2.  The market is likely to have many “miss”-takes as to what the FOMC is going to do

Both miss-takes lead to opportunities in the bond market. CORBU does not see another rate hike in 2023, and 2024 is becoming more interesting, as the data is being driven by fairly volatile dynamics. There is something in the economic data for everyone’s priors.

You could look at CPI ex-shelter, energy, food and it's sitting at 2%. Or you could look at core CPI and see it is not decelerating as quickly as the Fed wants.  

How long the Fed holds rates at current levels is the real debate as we head into 2024.  

Portfolio implications: CORBU does not see value in the long end of the curve, based on the inverted yield curve and a view the long end could see more pressure.

Corbu’s Models remain short and focused on the 2–5 year segment of the duration curve for their fixed income positions.

Rates above 5.25% at the long end would get more attractive and potentially impact their allocations. Our podcast discussion covered some of the hot-button drivers of rates: quantitative tightening, productivity improvements impacting real rates, and the outlook for budget deficits and refinancing of government debt.

Oil and the Middle East Risk

The terrorist attacks on Israel, and the retaliation, interrupted the downward slide in oil and commodities. But if you had told Sam two years ago that we would have a land war in Europe involving Russia, as well as a significant conflict in the Middle East, he would have thought that oil would be significantly higher that $85–$87 for WTI.

But it is a much different energy market today than it was even two years ago. Europe was then significantly at risk of a complete shut off of natural gas from Russia, but it pivoted toward liquefied natural gas (LNG) and other forms of energy it could get very quickly from the U.S. The U.S. is the world's largest producer of LNG, and we've been shipping a tremendous amount of it to Europe.

The Qataris and the Germans signed a significant LNG deal. Qatar, the third-largest producer in the world, has threatened to shut off LNG deliveries due to the current conflict in Gaza. This could create further pressure on LNG prices if the conflict escalates.

Offsetting the disruption possibilities is a major explosion in U.S rig productivity and U.S. output that is surpassing previous highs. Our podcast discusses this huge increased productivity dynamic in greater detail, and is a very interesting listen.

Portfolio implications: CORBU remains overweight in its Energy exposures in its selection of which ETFs to allocate to, particularly for the U.S. market.

Regionalization and Preference for the Allies

CORBU’s Model allocations to emerging markets have favored an ex-China orientation. But through the end of 2023, CORBU expects a thawing of relations.

However, as we approach 2024, CORBU thinks the risks are going to significantly escalate around the Taiwan election and the possibility of pro-independence Taiwan candidates winning.

That is where the thawing reverses straight to ice and elevated risks.

CORBU believes there are better ways to take indirect China exposure than direct China risk.

Portfolio Implications: The recent conflict in the Middle East has furthered CORBU’s views on international allocations centered on the Western allies. If you want China beta for any temporary political or economic positivity, position for it elsewhere. Japan is one of these allies in Asia, as is Australia for its commodities—LNG in particular.

Attention Financial Advisors:

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