INTERVIEW: Bilal Hafeez | CEO of Macro Hive | Former Global Head of Research Deutsche Bank & Nomura

All right, very good evening. It is Wednesday the 24th of February and we have our next masterclass with our special guest Bilal Hafeez. So great to have him with us, and he is a chap with pretty immense experience actually when you start looking at his resume. But rather than me kind of introduce Bilal, I think it's better to hear from Bilal yourself, and if you could explain a little bit about your background. And given, keeping in mind there are going to be a couple of university students that will end up watching this as well, it'd be great to know from right there at the beginning, you know, how did you identify your discipline? Where did you study? Did you have a direct clear path that you wanted to follow? What was that journey? And then talk us through the whole Deutsche Bank, Nomura, and then Macrohive, what you're doing now, would be great.

Yeah, sure. So I can kind of give you the full life story. I mean, I grew up in Oxford, but not in the nice part of Oxford, kind of the other side of Oxford, if people know Oxford. As a student, I was quite mathematically minded. And I also had a great economics teacher at high school. And he really encouraged me to pursue my interest in economics. So from that point, I really knew I wanted to either do economics or maths at uni. In the end, I decided to do economics at university, mainly because I felt it was a bit more applied. And I really did like kind of the questions economics asked. And then I went to uni to do economics. I went to Cambridge. So obviously a very good university. I did well academically, A-levels and all of that stuff. And so at uni, I did economics. Interestingly, while I was doing economics at uni, I wasn't 100% sure which career I wanted to pursue, you know, because I came from a background where, you know, people who I knew, you know, friends and family, weren't really in the professional world. You know, they're more likely to be sort of taxi drivers or work in mobile phone shops and things like that. So, um, so while I was at uni, um, I, you know, looked into different careers— management consulting, consulting, accounting, and banking. And I applied for internships in my penultimate year at university. Strangely, all the accounting and consulting firms all rejected me for internships, but banks accepted me. And so I did a summer internship at JPMorgan. This was back in 1997, so kind of a bit early, in a bit way. I feel really old now saying that. But that summer, If you look back, that was a summer where Asia had a financial crisis, where the Thai baht devalued, and that set off a whole chain reaction. And so I got into— my first exposure to markets was during a time of crisis, which is very exciting. And I was building models at that time, econometric models, trying to predict the next currencies to devalue. Now, as it happened, we built all these really complicated— I built all these complicated models, but it turned out the best predictor of whether a country would devalue was whether a neighboring country had devalued in the previous 3 months. So with all the high-power econometrics I tried to use, the single best predictor was just, has another country devalued recently or not? And that, that basically predicted it better than any macro variables. Um, so that also was kind of instructive to me. Um, so then after that, I got a graduate job at JPMorgan, um, you know, after I graduated, which was '98. And so I went on the JPMorgan training program During the training program, that's when Russia defaulted, and LTCM, which was a big hedge fund in '98, went down. That led to all, at the time, a massive panic in markets, which in hindsight looks like a tiny blip in the grand scheme of things. LTCM was essentially putting on huge relative value trades and carry trades, trying to earn, leveraging up their positions to try to magnify the returns on tiny returns. They weren't expecting Russia to devalue, and that's right, set off a chain reaction. So, so that was my start. And I actually had a short stint in mergers and acquisitions, which at the time was kind of hot area, but I absolutely hated it, you know, in the end.

So, so on that point, yeah, that, that's a good one because we— the students that we encounter and the underlying purpose of our technology, so I could explain to you on a call before, is about students really need to experience these different elements to really then know, ah, that's probably not what I want to do, or I really love this, this is the area. And so global markets to, to M&A, yeah, that's a huge, huge difference.

I mean, culturally it's very different, you know, working on the trading floor, the hours are different on the trading floor, whether you're sales, trading, or research. You tend to start very early, 6:30, 7 in the morning, and you work till say 5, and it's very intense. Day, you know, every hour is very intense. When you work on the banking side, like mergers and acquisitions or debt capital markets and that side of the bank, you tend to come in at 9:00. The day's a bit slower, but you tend to finish at 9:00 PM or 10:00 PM, or you work till 2:00 in the morning, you know, working on deals. So you'll, you'll, you know, the whole culture is very different. And, um, it's, you know, it's a, you know, you find on the banking side, people wear their suits, they wear their ties. On the trading floor, you know, it's more casual. People don't trying not to wear their ties, you know, people a bit more rude. And, uh, you know, so, so there's a very different sort of cultural difference between the two. But fundamentally, the reason I didn't like M&A was I just found the— first, the hours were terrible, but also the work I found intellectually wasn't that stimulating. And through that experience, I realized I do like kind of the intellectual side of the work I'm doing. And so that naturally made me think that I should go back into research, which was the area I'd done in my summer internship. The reason I did M&A was at the time that was the hottest area around tech M&A, um, at JPMorgan. That was like the area to be in, and I kind of got caught up with the hype. Um, but then I moved back in research, so I kind of crossed the line again from banking into, um, into, into markets. And I started off in foreign exchange at JPMorgan in '98-'99. What I did there was I focused a lot on indicators and models, building measures of positioning in markets, measures of sentiment. A bit more on the quantitative side, you could say. What was really important was that the head of the team, who is my boss, was a guy called Alfonso Prat-Gay, who is an Argentinian guy who later went on to become the governor of the Central Bank of Argentina and the finance minister of Argentina up until a few years ago. But I was very lucky to have him as a boss. And what I would say to people early on in their careers, don't get so focused on kind of the glamour of the role and those sorts of things, but who your mentor, who your manager will be, and your mentor is very, very important. And he was awesome as a manager. He trained me up really well. He really instilled a lot of confidence in me. He gave me a really good way of looking at markets. And that made a huge, huge difference for me and really kind of built me up to kind of become a good researcher. And in terms of how he made me relate to markets was that he kept pushing me back to think about whatever I'm researching, whatever I'm looking at, how does it relate to markets? You know, because in the research world, it's very easy to get hooked, you know, to get obsessed with the economic side, or the economy is going to do this or that, and have arguments about inflation. But what's really important is how's the market going to— what does it mean for markets? And what I find, and the academic literature supports this as well, is that one challenge is to, okay, predict which way growth is going to go or inflation. But the other challenge is to work out the relationship between growth, inflation, and the markets. Because you could have a perfect forecast of where growth is going to go, but its relationship to markets might be completely different. You know, it may not be the case that higher growth will lead to stronger equities, or it might be the other way around for some reason. Um, and so half the, half the job as a researcher is almost to kind of work out what is the relationship between the data you see and markets, you know. So, uh, so there's forecasting the data or trying to work out which way the data is going to go, but then the other side is mapping it to, to markets. And so I spend a lot of time doing work in that, in that area. So, you know, I started my career effectively at JPMorgan. Then JPMorgan got taken over by Chase Manhattan, which was a big commercial bank, and JPMorgan was this kind of very kind of elite kind of investment bank. And so Chase took over JPMorgan, the culture changed a lot, and within a year, most the old JPMorgan people had left. And then I also decided to leave, and I joined Deutsche Bank in 2002. That was the time when Deutsche Bank was really building up and powering up to become one of the biggest fixed income banks in the world. I started off there in 2002 in the foreign exchange department on the research side. I ended up becoming the global head of foreign exchange research there. I did a lot of work on building trading models, which ended up becoming ETFs, which today, we call it smart beta, you know, carry models, valuation models. But I kind of worked on some of the first ones ever off those in FX markets, um, uh, which now, you know, people call smart beta or factor models. So I worked on kind of very early versions. And that— and part of the reason I was able to do that was one, it was I was inclined that way as a researcher to look at markets in that way. But also we had a great structuring team, a great trading, trading team, and very innovative foreign exchange department there. And becoming the biggest market share bank in FX, you know, in the years I was there.

So on that point, just to jump and ask you a question, is when you start, you obviously would have gone through a series of different responsibility kind of roles, if you like, up to global head position. Do you move further away from being like in a traditional role when you move hierarchy to assume more responsibilities, you kind of move a little bit further away from the coalface of doing the actual nitty-gritty of, of work. Does that apply in the experience that you had, or is it that you're deploying your model and the others are then implementing that almost? How does it work?

That's a good question. I mean, it, it's, it's very personal to a lot of different people how they approach this. Um, my personal thing was I always You know, I always did my own research in the end. And the thing that does happen as you get more senior is that you end up spending more time speaking to clients. So you end up, you know, you're on the road traveling all the time, all the way around the world from Japan to the US to China and so on, speaking to clients. So what happens is you have less time to do the work, you know, to do the nitty-gritty work, but you have more time debating and having discussions with clients. And so in that sense, your work changes. You're having, you know, these kind of more open-ended discussions, which then means that you have to rely on your team to do more of the nitty-gritty work. So, so at some point in your career, you have to make that transition from being a junior to a senior, where you have to move away from having your, your self-esteem linked to spreadsheet work and you know, and you have to move away from that, say, okay, I'll now kind of have a, you know, overview of what's going on in that level, but I can't do the day-to-day. So you kind of make that sort of transition. At the same time, when you do end up traveling a lot, that does allow you to read people's research a lot more as well. So whether it's your own team's research or whether it's academic research or just any other research. So that's, you end up kind of absorbing a lot in that context. So that's what I ended up doing.

Yeah, I mean, one of the things is the— when I talk to— we're in a different, I guess, position where we don't have an in-house research with our view or house call and things like that. So what we do is we've always had the guys, they consume lots of different bank research or what they can get hold of now with regulatory change and so on. So The idea being there is that I try to encourage them to broaden their kind of view of the world on certain matters. What does X bank think? What does Y bank think? What are the merits behind their call for so on and so forth? So is it kind of a similar process that you would recommend in that formulating of a macro view? Because I always try to dispel the complexity around it for a lot of these guys because of, I guess, the training of where they're at in their development on that side to simplify it. You know, by consuming this, this content, and then, then find your own way to articulate your view, which is basically based on other people's research more than your own, so to speak. Um, for a retail investor, is that an appropriate—

Yeah, yeah. I mean, I think, um, one, it sort of depends on what style of trading and investing you do. Um, that's, that's important in terms of how you do this. Um, I think also it's important to follow certain people that you like so you understand how they look at markets. So if you follow a particular research provider, you know, whether it's a bank or an independent, just, just kind of follow their line of thought and see how it evolves over time. Because what you find is that everyone's got their biases. So some people— and the, the most fundamental bias is some people are optimistic all the time and some people are pessimistic all the time.

So generally, Deutsche are pessimistic. Yeah, yeah, payrolls estimate would always be at the bottom. Yeah, yeah.

And so you, you kind of have, have, have that. Um, and actually individual researchers have their biases. So like when I was at Deutsche, there was, you know, one economist who tended to be very positive all the time, and then one tend to be very negative. So you then have to kind of make adjustments for that. So, you know, okay, that person's always bearish on the world. Um, so when they become slightly less bearish, that's an interesting signal to you then. That means, okay, it's time to really load up on risk. Equally, when someone's optimistic and they, and they become slightly less optimistic, then that's an important signal. Um, so, so I think one thing is to, you know, have some consistency in who you follow and understand the ups and downs and follow somebody who you like, you know. So, um, so that's important. The thing I would say though is I think it is important to do some of your own research as well. It doesn't need to be anything too complicated. It could just be somebody, for example, could be saying, um, someone could be saying that, okay, uh, copper prices are going up a lot, you know, so you should expect bond yields to go up. Um, so what you can do is you can just download that data into a spreadsheet. You can get it in lots of different, you know, freely available websites and just do a chart yourself. And then you can see, you know, do the lines move together or not. And a researcher in a research report, they might compress the time horizon so it makes it look like the correlation is very high, but then if you extend it back, you end up seeing actually half the time they don't follow each other at all. So then you can then make your judgment, say, okay, I now understand how data moves, and that research is just zooming into one particular area, and maybe that's not so important. So a lot of things you can just do, very basic things like that yourself, and I think it's important to do some original work yourself.

Yeah, so talk me through then the, the transition going from DB Nomura to Macrohive, what you're doing. Yeah, I mean, having such a period of being in big institutions and then doing your own thing.

Yeah, so, yeah, so, you know, while I was at Deutsche, I did lots of other roles as well. I, you know, I was in Asia where I ran some, some of the Asia research groups there. Um, you know, I came back to London, I lived in Singapore for a period of time, I did cross-market research back in London. Then at Nomura, I ran the international strategy group as well, based in London in Europe. So I spent like, you know, almost like 20 years working for big banks and doing kind of research. But the reason I left to set up Macrohive was that, number one, I wanted to change. You know, having worked for big companies all my life, I just wanted something different. And I naturally have quite an entrepreneurial streak within me. So whenever I was within banks, I was always experimenting with new ways of doing research, new ways of communicating, just I was very experimental. Um, and so I kind of felt, look, I want to, uh, you know, scratch that itch. The other thing was that what I found after the financial crisis was that banks became more and more regulated, and there were more and more restrictions in how you could behave as a researcher, or indeed any other role within a bank. And philosophically, as a researcher, I, I find that while I think obviously I have fantastic ideas, a lot of ideas I get are just simply by interacting with other people, speaking to traders, speaking to investors, speaking to other researchers, speaking to colleagues at other banks. But with the new regulations, you're not really allowed to do that, or you're very scared of speaking to somebody that you're not allowed to speak to. So suddenly your universe contracts massively. And that was a big problem for me. And so I was grappling with that, while I was at either Deutsche Bank or Nomura. And so for me, it was kind of a natural step then to say, look, let me just set up an organization, a startup, Macrohive, where the DNA of the organization would be— well, first of all, research-centric. So it's all about the research and how research can help investors make money. Whereas when you're a bank, research is kind of a secondary role. The main guys are the traders and the sales guys, and research supports them. But within MacroHive, our job is research. Everything is research and how it adds value for investors. But then also culturally, what I wanted to do was I wanted to make sure we're as networked as possible so that we talk to our subscribers. We have a Slack room for subscribers. We all talk to each other all the time. I speak to lots of other independent researchers outside of MacroHive. I speak to our investors a lot more easily on WhatsApp groups and so on. So So it's a much richer conversation that you can have than I would have had inside a bank. And so we've been running MacroHive now for a year and a half. And it's really evident to me that the culture, the freedom, just all of that is just like 10 standard deviations better than being inside of a bank. So that was kind of the rationale from doing that.

Not to delve too much into personal life, but I mean, how has that been? I mean, I assume you have a family and, you know, you said you were traveling around the world, as I imagine in the position that you're in, to now doing what you're doing. I mean, just leave the pandemic aside for a moment because obviously we've been forced into this, but I mean, otherwise, how was managing that when you were traveling a lot? And then how is it now? How's it been over the last year and a half?

Yeah, no, that's a good question. I mean, I got married— I've been married for a long time, you know. I met my wife at university, so we've been together, you know, since, you know, the beginning of our kind of adult lives. And we had children relatively young, in our 20s we had our kids because we got married very young as well. So I have two kids now, one daughter who's 17, a son who's 13, almost 14. Um, when we— when I was traveling a lot, it— at a personal level, it's a challenge, you know, because you're, um— because it's one of those paradoxes where— in most people find this when they have families— that the, the time you reach your kind of your busiest in a work context, when you're managing teams and you're traveling a lot, is usually the point where you have young kids as well, you know, in a family. So all the pressure is, is coming at once. And so it was a challenge. Um, and so, you know, if I was away for 1 week or 2 weeks, my wife would be left alone with the kids and that would kind of drive her crazy. So what I then did was I tried to restrict the amount of travel I did. Um, and then the other thing I did was I also started to take like 1 or 2 days off after I came back from travel. So in the past I would have just gone straight back to work, but this time I took a day or 2 off and that kind of helped manage some of that distance. The other thing I've done for a long time now is I'm very disciplined about my work hours. So I typically try to finish work around 5 or 6 so that I'm at home to have supper and hang out with the family. And I continue that to this day even though we have a startup and there's a reputation that if you have a startup, you have to work. 24/7. My policy is, you know, I work 9 to 5 on weekdays. In the evenings and weekends, I don't do any work. It's family time alone. What that then means is that you have to make sure your productivity during office hours is very high. And, uh, it's very easy to increase your productivity. Most people waste, uh, half their day at work typically. You know, they're checking emails, they're talking to people, then pointless meetings. And so people's productivity is incredibly low. And so if you tweak your schedule a bit, your productivity can kind of quadruple and you don't need to work crazy hours, which then allows much more time to spend with your family.

So is that something that you've come to realize? What did you think if I was to talk to the 21-year-old, 22-year-old Billa? Would it have been, right, everyone else around me is doing this?

Yeah, yeah. I mean, it's for sure, it's an evolution. You know, early on when you're young, starting off in a career, you know, you're kind of scared half the time, and so you're just trying to sort of keep your head above water. But as time goes on, you have more confidence in yourself. But even when you're more senior, there still is this kind of culture of working long hours and outdoing each other. But if you believe in your way of doing things and your output is much higher than everybody else, you're— the results, you know, uh, you know, uh, you know, the results are the results. You know, you're, you're writing twice as much as everybody else, you're talking about more markets than anybody else. So, you know, so, so then it's very evident which, which approach works.

So talking about your experience and your skills, one of the things that you've talked about here is your, your kind of numerical ability, um, kind of born out of when you were young and you're kind of, I guess, picking up mathematics and, and kind of enjoying that. But then you talked about traveling around the world talking to clients and talking to traders and talking to investors Are these typically in your mind, I mean, these would be kind of the alternate skills that would one would typically possess because people tend to go interpersonal way or technical way. What's your view on that? I mean, is there in terms of career advice, I guess?

Yeah. Yeah. I mean, I think in the end you have to stick to your strengths. You know, work out what you're good at and just double down on that. You know, if you have some weaknesses, just do enough to kind of manage those weaknesses. But, you know, if you're really strong on something, then just go for it. So, you know, while I am mathematical, I'm not a hardcore mathematician, nor am I a quant. So in the kind of the stereotypical, you know, super geek, I'm not in that territory. So I wouldn't naturally kind of be on the spectrum in that, in that respect. Um, but the kind of the mathematical side of me would be more in terms of First, just being comfortable with numbers and just having this philosophy of verify ideas with numbers and just being comfortable with just the basic common sense around how to work with data. So I kind of have that. Now, in terms of interacting with other people, what's behind that is really I have a natural curiosity to learn, you know, which, you know, so it kind of goes back to the maths point where if you have a curiosity to learn, then, you know, it's not unnatural then to say, okay, let me verify it. Just let me check with the data. And so talking to other people, then for me, it's the underlying source of that is curiosity and wanting to learn. So when you speak to somebody, when you go into a different culture, learning about that culture, learning about how to gain insights from somebody else, you know, so everyone that you interact with almost becomes a teacher to you. So, so, so that, you know, that again is kind of part of that kind of student mentality or learning mentality to kind of keep that, you know, with you throughout your life and whatever context you're in.

Yeah, I mean, with the macro side, definitely when new people are coming to markets, that inquisitive nature I always feel is very beneficial because we live in a world that's so interlinked and there's so much crossover of politics and geopolitics and understanding the kind of layered effect of what the background history is and all these things. Like, the guy is trading Obviously products like WTI, for example, it's like there's a whole backstory of, you know, what you need to know that's really non-technical, uh, in many respects to, to understand that the drivers of that product. But look, we've got a couple of market-related questions, so let's, um, let's delve into the big one, which is obviously this week— well, right now he's wrapping up— we've just had Jerome Powell doing his semi-annual testimony to the in the House and the Senate. And there was obviously a lot of focus on this, rightly or wrongly. I don't know what you felt, whether any change was going to be this soon. I'm assuming not. But the big question then is when. And the move that we're seeing at the moment with this yield move higher— I think I saw the yield, isn't it, the 10-year moving above levels of where we were in beginning of 2020, and then the subsequent impact that has looking at some of the sector rotation we're seeing in equities at the moment, particularly emphasis on the— say, even I looked today on the heat map, big tech again a little bit soft, some of the industrial financial names a little bit firmer. Just your initial take on what's happening right now, really, and how you see it.

Yeah, sure. I mean, I think it's one of those things where if you get caught up in the day-to-day, it's easy to get very bullish or very bearish on things and alarmist. But if you step back and just look at the bigger picture, what you see is that right now, we're in this transition point between economies around the world being locked down to a point where we can reopen, which is being accelerated by the deployment of vaccines around the world. And at the same time, central banks in general are going to keep— have have rates close to zero, policy rates close to zero. There's lots of fiscal policy. So at that level, you just need to keep it simple. We're kind of at the— it's kind of like a V-shaped recovery, and we're in the kind of the second half of that V. We're in kind of in the acceleration mode right now in the next couple of quarters. So in that sense, I wouldn't try to be too clever and try to sort of fade these sorts of moves. In this context, when you have kind of accelerating growth in a very policy accommodative environment, what you should expect to happen is yields should go up, commodities should go up, equity should go up in general. That should be your base case, that trend, it's a very strong trend, and it should continue for a while. That should be the general movement. Now, there's some nuance within that. Some sectors are very sensitive to interest rates being very low. So the tech sector is sensitive to interest rates being very low. So when interest rates start to go up, then the tech sector won't necessarily perform as well. But then other sectors, like the financial sector, will do very well when the yield curve steepens, when interest rates go up. Or the energy sector will do well. But the headline equities, I still think, would just generally go up. But there is some sector rotation. So that's kind of a general context here. The other point is, when will everything correct? So when do you play for this big reversal? The time you play for that is when it's going to be very evident that data is going to start to roll over, that all the growth numbers are going to start to roll over, and so on. And this is, frankly, not the right time for that. We're about to reopen economies. Data is going to just skyrocket everywhere— growth data, earnings data, everything is. But maybe in the second half of this year, once everything reopens, data really improves a lot, and then it starts to, you know, then, then the, the rate of change of that improvement in data starts to fall. That's the point when you can start to sort of play for reversal trades. But that's going to be the second half of this year, you know. So, so I think it's, it's a question of timing, uh, but you don't want to necessarily try to be too early on that. Um, so yeah.

So, so is there any way that you can extrapolate from those forecasts as to when the forward guidance from the Fed will start to see that subtlety change toward, we're having the discussion of having the discussion about potentially reviewing bond buying and the volume of it or the composition of holdings and so on. Is there any way that you would go about determining the timeline of the Fed and how you play the Fed?

Yeah. I mean, I think the issue with the Fed is is that I think we're in a different environment from 2013 onwards, where people are looking back to 2013 and saying, OK, we're going to have another taper tantrum. But the difference today is that they've been through that. They've learned that it was a mistake to hint at taper tantrum. Also, they've realized that during the Trump tax cuts, when they started to hike rates 2015, 2016 onwards, that in hindsight was probably a mistake as well, because the economy kind of rolled over even before COVID it started to weaken. So both of those observations tell you that the Fed's going to be very, very, very cautious in hinting at any tightening of policy. Then on top of that, they've said they're going to allow inflation overshoots because of the new policy. So I think for me, that basically tells you that it's going to take a while for the Fed to indicate that they're going to, you know, to do anything on the rate side. But what's interesting now is that without the Fed saying much, interest rates are going up. So real yields are going up. So what that tells you is that the important thing today isn't so much what the Fed's saying. It's more like, what does the market think real interest rates should— what level they should be at? And so the market will actually drive— will be ahead of the Fed almost, rather than the other way around, which is different from the time before.

Yeah, I mean, often when, you know, doing the role I've always done as a career, I've often thought that, as you kind of alluded to at the beginning, there's one way of looking at the market, which is to kind of looking at macroeconomics and trying to derive some kind of expected outcome. But then there's also the behavioral element of just how how participants are talking about these subjects, the intensity of the talking point, if you like, it would often dictate then how channel-focused the market becomes on these singular kind of narratives. So yeah, it's just fascinating at the moment because, I mean, being involved in the intraday market, obviously, we're very sensitive to these types of what are kind of microscopic moves in the grand scheme of things. It's always interesting when the Nasdaq sells off 2% and it's blood on the streets kind of mentality. But as we've seen, actually, in the last 2 sessions, every dip— of course, Powell has spoken, reiterated the stance, but it just gets met with pretty aggressive buying. As we said before the call, the Dow— well, it hasn't stopped since we've come on the call, actually. The Dow's now up at approaching 32,000. Um, which is, what was the S&P— just out of interest, what was the S&P trading when you first started your career? It's probably like a, a ridiculous stat.

Yeah, I mean, I can't remember exactly, but it was very, very, very low compared to where we are today. And you know, the funny thing is, uh, almost every year I've been in finance, people have always said equities are in a bubble, you know.

Yeah.

Every year I've been in banking, there's always a bubble. Everyone thinks there's a bubble. There's a bond bubble, equity bubble, credit bubble every year. And then yet markets still go up, or sometimes they go down, or not. So there's kind of a lesson in that. I think there's kind of these high-level topics of bubbles and things like that, which are interesting. But often they're more conversation. It's not really that useful for when you're trading.

Is that because there's an innate human nature to kind of want to see that type of thing materialize? And I'm not even talking just human nature of, you know, we're drawn, it's like a moth to the flame, the volatility or the danger, and it kind of adds that appeal. Is there anything in that from a behavioral element?

Yeah, I mean, I think there's two things around this. Focus on bubbles. You know, one is I think that in the news media, um, and Twitter and those sorts of places, um, you're incentivized to talk about bubbles. It's just more interesting and fun to say, you know, there's a bubble, it's going to crash, it's going to crash. It's like, why is there so much kind of talk about, like, uh, you know, bombs and murders and stuff in the news? It's, it's, it's, you know, it's, it's— it gets eyeballs. So, you know, so one, from a cultural perspective, The news media tends to overweight talk about bubbles because it gets people's attention. Then from an investing and trading perspective, an awareness of a bubble is very important because rule number 1 in trading or investing is don't get wiped out. It's avoid the risk of ruin. I mean, that's just the basic rule that you have to follow. And so the easiest way to get wiped out is to buy on the highs and especially at the height of a bubble. And then when a bubble collapses, the definition of a bubble collapse is that the decline is so rapid that it's very hard to get out of that. And so you have a much higher probability of getting wiped out if you are in a bubble.

Presumably, do you find it beneficial then when you are talking to all these investors or fund managers, the kind of the people you talk to in your relationships at banks, Is it kind of that in itself kind of— it's like a circular thing where it's coming back and re-emphasizing and reinforcing then the consensus view? And how big is the threat of the contrarian materializing or the bubble bursting?

Yeah, yeah. I mean, I think that's an interesting point. You know, when I started off in finance in the late '90s, that was a time when the discretionary managers on hedge funds and asset managers were really powerful. They were the main players in the market. And so in that sense, understanding what they were thinking and having those conversations with them was, you know, give you some true insights. Today it's very different. You know, those discretionary hedge fund managers or active managers, they're the minority, you know. So, you know, there's a huge amount of money in passive. You know, there's sovereign wealth funds out there, there's, um, uh, ETFs out there, there's quant funds, uh, are out there as well. So the conversations I would have would be more with the active guys or with the quant funds. But the quant funds, it would be more about process and methodology. It's not talking about bubbles. It's about what's the new model you can play around with. And so when you hear about, OK, everyone thinks it's a bubble, or everyone thinks inflation is a problem, you're just talking about the viewpoint of a minority within the overall pool of money that's out there. And so I think today is a bit different. And that's why when people say everyone thinks the market is this way, that way, I'm always a bit suspicious of that. Because there's all these other types of funds out there and money that follows passive. So what are they going to do?

How much pressure will the ECB be under given the Fed's policy decisions and the potential higher borrowing costs that eurozone might be hit with? Will they be forced into further capital control?

Okay. Yeah, I mean, I think the question for the ECB— there's a few sort of different issues for the ECB. One is that ideally what the ECB wants is they want very accommodative policy. So they want domestic interest rates to stay low, and they want a weak currency ideally. And that will really help the eurozone. The challenge at the moment is US interest rates are going up, and that's pulling up European interest rates as well. Now, part of the rising European rates isn't just through the US, is also because people are expecting European recovery. Um, the larger issue then is in terms of how Europe thinks about the US will be more around the currency then, because if the Fed carries on talking dovish, um, and real rates in the US stay lower than European real rates then that's a problem for the Europeans. So the ECB would never engage in capital controls. I mean, first, it's not their remit. That's more of a finance minister thing. But Europeans won't do capital control. Instead, they could try to find ways of trying to talk their currency down. So they could talk up inflation, for example, to push their real rates down to try to promote the currency to be weaker. They could talk about the volatility in the currency, and so on.

Yeah. I know with that, talking about kind of jawboning currencies, and that was a thing not that long ago, obviously, when the euro broke out and saw it kind of through 120 and beyond. Do you have any view on that in terms of, say, euro area's upside, 125 above?

Yeah, I mean, I think the main way the euro will really break to the top side, beyond 125— move to 125 in the grand scheme of things isn't really a big deal. But a move to 130, 140, it will really have to be because of dollar weakness. For the euro to strengthen on its own back, you'll need to see higher European yields. There needs to be hiking rates, which isn't really going to happen. So then you really see a dollar weakening environment. And the way the dollar could really have a big weakening trend is if the US current account really blows out, and you have much bigger fiscal deficits. So you have a real twin deficit story. There are some signs of that right now, but we'll have to see if that continues after the economy reopens.

Yeah, and then just pivoting that over to, to the UK and the pound, obviously we're trading now. I mean, I've got the futures sterling chart up and it's tested 142 today. Um, so, uh, obviously this is a vaccination story. Brexit's kind of been put on the shelf for the time being, it would seem. Up again, upside from— we've already moved considerably higher in a fairly short period of time. Is there, is there much further for this to go to price in now that we have the kind of roadmap, we know the rough timings around the vaccination program?

Yeah, no, that's a good— that's a good point. I mean, it certainly is true that the pace has been very sharp in terms of the pound. I think there probably is scope for the sterling upside because I think that the gap between the UK vaccine rollout and the European one is huge. So we estimate, you know, at Macrohive we have these kind of projections of when will 80% of the population of the country be vaccinated. The UK, it's May this year. For Germany, it's like the summer or, or like Q3 next year. Wow, that's how slow the Germans are compared to the Brits. And similar, something similar for the French as well. So that's a huge difference. And so I think that, that really does provide a lot of tailwinds for the UK. On the Brexit stuff, I mean, for years the pound has priced in bad Brexit stories, so I think that story is old now. It's, it's more about how— who can recover the fastest out, uh, off the blocks after COVID. I think the UK is actually doing a really good job on that side, so I think that, that, you know, will give it further legs.

Yeah, I was doing my kind of daily market briefing as I did every morning, and it was so incredible talking about at the beginning— I remember in March, April, May— and the UK government's handling of the initial outbreak and the the, let's say, lack of speed comparative to the European, particularly France and places like that. And now, 12 months later, what a different dynamic we have.

Yeah, I mean, it's interesting. I mean, there's, you know, some countries did really well in the first wave, then other countries didn't do as well in the second wave. So the Germans did really well in the first wave, didn't do necessarily as well in the second wave. The Taiwanese and the Koreans did really well, you know, in terms of managing COVID, but they're doing terribly on the vaccine side. So, you know, there's all sorts of, you know, different narratives here. Only in years to come will we find out who actually did the best overall. And the other thing to remember also is what allowed the vaccines to be approved was that a large number of countries' population were tested with the vaccines. And so if every country had controlled the vaccine— had controlled the virus, there wouldn't have been a population to test. The virus— the vaccines on. So kind of in a funny way, you know, the fact that Brazil and the UK and the US didn't do as well early on allowed a large population to be tested for the vaccine, which then accelerated the approval of the vaccines.

I guess this is a good broad question away from markets. Do you think that actually we will see a behavioral change? I think I saw HSBC as a headline about their workforce numbers, or the office space that they're using, but the permanent change of the pandemic over how employers, even financial institutions, might operate generally going forward in terms of time in the office.

Yeah, I mean, I think, I think, you know, I think it will change quite dramatically. I think there'll be a lot of permanent changes, not, not, you know, exactly the same as lockdown, but I think if you look at surveys of managers before lockdown around whether they thought remote working would, would work most of them, the vast majority, said no, it wouldn't work. Now, surveys since the lockdown have shown that most of the majority now think it can work. It's one of those things where until it's— people en masse try it, they don't know that it can work. And I think that this has been a huge experiment in remote, you know, operations. And I think companies will, will for sure, you know, try to use this going forward, not least because they'll save money. You know, office space in central London or in big cities is expensive. And so if there's an economic imperative, that really accelerates all of these things. Now, there are some functions like trading and some types of sales which might remain, you know, in the office, but other functions, whether it's middle office, research, structuring in the finance sector, could certainly, you know, move to remote. And then other sectors as well, you know, outside of finance. You know, so I think this is a kind of a radical shock to the system, and I think all of us have just realized how much you can still function as an organization going remote. The one caveat I would say, um, you know, Macrohive, you know, we've been going around, uh, you know, we've been around for about a year and a half. Most of our life now as a company has been, uh, during the lockdown, and we've hired a number of people remotely you know, so there's some people in the team I've never physically met before, which is a bit strange. But what I do find is the biggest challenge is how do you train the juniors in your team? Because senior people, I think, can very easily operate fairly independently. But, you know, a lot of what you learn as a junior is like an apprenticeship model, where you sit next to somebody, you learn from them, and you can turn around and ask them a question. So I think that side is probably something that needs to be thought more about. So at MacGyver, what we're doing now is that You know, I have tutorials with people in my team, you know, where I have like special sessions where I go through lots of how to use Excel, what drives FX markets, and we're actually uploading this to YouTube for anyone to see. So if you go to Macrohive University, you can see it, um, some of these tutorials. Um, so I think that's probably the area I think that needs to be thought the most around, you know, how do you train people if you're remote.

Okay, great. Well, look, I'll stick to my promise. That's the last one. So, um, just for everyone who's tuned in, or if you're watching this on the recording, um, do encourage you to check out Macrohive. Um, you know, now you've met Bilal, who leads, steers the ship. Um, hopefully you can see, uh, the kind of value, the value that he can add in terms of his view. And he's got a whole team around him, and, you know, I'm part of their community. And, you know, there's great stuff coming on a daily basis. And it's the thing I love about some of the emails as well, I guess, as feedback, is that I love the short-form kind of bullet point, hit hard kind of short nature of it. Because generally, with everyone's pressed for time, there's always a time and a place for more in-depth reading, I guess. But, um, as I said, as short-term, generally intraday trading, um, yeah, it's great, the format. So do check it out. And those videos, yeah, I mean, they're There was a couple of questions here about modeling analysis and Excel and things like that. So yeah, the MacroHive YouTube channel, is that right? And it's got some videos there. So check that out as well. But Bilal, pleasure. Thank you very much for your time. Great.

Thanks. It was a pleasure. Yeah, look forward to hearing more from your audience as well.

Yeah, great. All right.

Thanks, guys.

Have a good evening. Thanks, Bilal. Take care. Bye.