Trends Watch: Macro Outlook
- Jun 4, 2020
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Michael Storm Jeske, Founder, III Macro.
What is your outlook for the economy?
This being our second write-up for EisnerAmper, it is interesting to reflect on last year’s post. At that time, we outlined the novel idea that the global economy was “early” in a “completely renewed long up cycle,” as we were just coming out of deep dips into the first quarter of 2016 (oil, emerging markets, the Euro, and China) and the fourth quarter of 2018 (China, S&P500, and global equities). That thesis played out strongly over the remainder of 2019 and into early 2020.
While today the COVID-19 pandemic so darkly clouds the short-term view, it can be hard to think of anything else. The same novel economic cycle thesis is perhaps even more helpful today. Why have stocks, especially the S&P500 index, been so resilient? Because they were cheap, and in the early stages of a second renewed long upcycle. Thus, the Federal Reserve move to 0% rates has provided massive short-and long-term support to temper the natural disaster effects of COVID-19.
Following on from here, I believe the market continues to underprice the long-term upside in stocks. The 0% rates should force this, and we find ourselves often asking clients, “What is a fair index price-to-earnings (PE) ratio in light of modern 0-1% long-term global rates?” I find it hard to argue with a new framework where ~25x PE is “baseline fair value,” with much higher PE multiples reached in periods of euphoria.
What is your outlook for alternatives?
Again, looking back on May 2019 adds depth to our views here. I continue to see a “golden age for long/short equity and macro investing,” and we have lost zero focus on the continuing opportunities in global technology, consumer trends, and “ESG” investing. Across asset classes we remain wary of “asset heavy” and “credit heavy” sectors. These seem to have eroding returns and relevance.
Here the COVID-19 crisis coincides with this thesis also playing out in a fairly substantial way. The price of oil was already struggling to stay above $50/barrel well before the pandemic, and real estate values were coming under stress with the unwind/failing of Anbang Insurance Group and WeWork among others. Now with COVID-19 those same trends quickly ignited a vaporization of trillions in hard asset value across airplanes, hotels, commodities, etc.
To summarize, both the “challenges” and the “greatest opportunities” lie in staying flexible to see the next great global growth opportunities. The U.S. equity markets remain THE place for world-shaping ideas in technology, consumer brands, and innovation. We continue to believe some large U.S. technology companies remain early in their global move into “natural monopolies.” We are pretty active looking for “true ESG” themed companies in the vein of Tesla and Beyond Meat. Another upcoming industry we are watching closely is “beauty tech,” where Allergan and Align Tech provide roadmaps.
What keeps you up at night?
Here looking back on our May 2019 write-up is not so favorable. Back then we said, “I don’t write Hollywood-style risk management scenarios,” and for the first time in two decades we got one – the COVID-19 pandemic.
Still, given the amount of worry one has heard over those years, this again played out as expected. Those spending much time on esoteric “scenario” risks mostly miss the simple upside in great growth companies with new beloved products or global sweeping dominant tech. That imagined “fear” of everything that can go wrong holds one back from seeing so much upside beyond all the simple small short-term risks around us.
This is a good metaphor for how society is handling the modest risk of a new virus – COVID-19. Life is inherently risky. But living (driving, eating, hugging, kissing) has so much upside. I worry that we will let the small risk of the unknown get repeatedly overplayed in our mind, as we wash our hands. And that in so doing, we will hesitate to embrace all the growth opportunities around us. While the future always come with small risks – it is “the new” and “the bold” upon which so much magic and so many smiles, and true fortunes are built. I hope that the recovery will be swift and complete, and that we will mostly learn and grow from this crisis, and continue to embrace risk and seek upside in both investing and in our relations with each other.
I look forward to the swift, steady return of a normalized world, “better,” and “more friendly,” and “more forgiving” even than pre-COVID-19. I worry that we will learn the wrong lessons, but I am hopeful and confident that global community has a long growth run still ahead.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.
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Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.
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