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Guest Interview: David Belle
(Edition Number: Eleven)
Today, we are bringing you the eleventh edition of the Investment Talk Guest Interview series, whereby I bring you some discussion with a selection of my favourite investors in the Fintwit environment.
In today’s interview, we have David Belle with us, who is the founder of Macrodesiac and current Growth Director at TradingView.
David is a sharp guy, who has a knack for outlining complex processes in a manner that is free from jargon, and understandable to the layman. I have had the pleasure of connecting with David on several occasions, and I appreciate his candid nature.
So today we have David Belle with us, who brings with him a wealth of experience in public markets, after having acting as a broker for many years, as well as running his own holdings with an emphasis on macro trading. David is also a parabolic tweeter, and you can find him under the handle @davidbelle_.
David is the founder and chief director, of Macrodesiac. Macrodesiac is a service that allows members to receive jargon-free market news and views in order to level up their market IQ. Information congestion is a serious issue for investors. There lies a vast sea of information for us to consume, allowing us to run the risk of overconsumption. In reality, more consumption does not equal more knowledge. It is critical that we, as investors, are able to discern which information is relevant. A lean information diet leads to superior results.
I have to acknowledge that I am incredibly biased in my opinion of Macrodesiac. As a lifetime subscriber, for well over a year, this publication is one of the first snippets of information I read each morning. Covering the important market news, in a digestible and conversational format helps me start my day more informed.
There is a surprising amount of content that you can grab for free, in exchange for your email address. I personally have the full package, but for those of you wishing you dip your feet, I’d recommend giving it a try.
I will leave a few of the recent articles that I have most enjoyed below. I often find myself chuckling when reading them. Learning about complex financial topics, whilst being able to laugh. Imagine such a thing.
The below pieces are somewhat longer in length, but there is also a plethora of short-reads that come from Macrodesiac each morning before the market open.
Just to be clear, this is not an advert. I get no benefit from sharing this. During each guest interview, I like to make readers aware of the work that guests are doing, for more context into their backgrounds. Very simply, I enjoy the service, so I feel compelled to share that view.
As well as his work with Macrodesiac, David also serves as the UK Growth Director for TradingView.
TradingView is similar to the likes of KoyFin and Ycharts, in that is offers an impressive batch of tools for fundamental research and charting, but leverages social networking capabilities on top of this core use-case. The platform allows users to discover investment ideas, as well as showcasing their own ideas to a community of investors.
Without further adieu, let’s move on to the interview.
Good morning David, and thanks for being here. Excited to have you here, given your expertise on the broader market, as opposed to a specific focus on equities. So, with that in mind, I plan to take advantage of that fact and ask some appropriate questions.
However, I typically kick these things off with a quick introduction from yourself to outline some context for the readers who may not be aware of you, and for continuity too.
So, if you could introduce yourself, perhaps a little flavour into your backstory, and take us through the events that have led up until the present day. Perhaps also detailing what factors influenced your life in such a way that allowed you to discover investing.
Hello mate. Sure. I started getting an interest in financial markets when I was doing my A-Levels. YouTubing interest rates, the economy, stocks etc gives the Youtube algo enough information to then fire adverts for brokerages at you. 'Free $10,000 to trade' was one that popped up. So I clicked it. 10 years later, and I've worked as a broker and in research all whilst trading my own account, and most recently, as Growth Director for TradingView UK. I've always considered that having another job and doing other things as a vital part of risk management, especially when you trade longer-term themes.
During my opening segment, where I introduce the guest, I informed readers of your founding of Macrodesiac.
I think it would be interesting to gain some insight into the motivation for founding this company. So, if you could provide a brief overview of the history of the company, as well as your motivations for founding it, and perhaps some insight into what services the company offers, that would be great.
When I was broking, I would write a morning note every day on LinkedIn. Just my observations of markets and what's going on. A few people said that they were great and that I should charge for my views since people tend to attribute more value to something they pay for.
Two years later and here we are.
My focus has been on providing insight in a way that is more digestible than the mainstream media, making it fun and conversational, since a lot of what's out there is exceptionally boring, and it doesn't have to be. If you've been in a dealing room, no one speaks how a lot of notes and research is written – it's like you've got a whole section of people who simply want to make research seem very strenuous so they remain in a job!
Typically on this guest series, the guests are those who are primarily in the field of equity research and/or investing. From what I understand, it appears that you frequent various asset-class markets.
It would be great to get a sense of your investment process. So, could you perhaps outline the broader skeleton of that process, detailing the desired outcomes/goals, and method of attaining that outcome?
Sure. I tend to start with the dollar at the top of the tree and work backwards. The dollar is the king of financial plumbing globally, so it makes sense to begin here. Specifically, I try and make a judgement on where we are sitting in a dollar smile framework. Is the US currently outperforming compared to the rest of the world? Is there a period of risk-off that we are coming into?
Basically, what context are we in with the dollar. From there, I take a peek at what narratives are currently going on; who is wrong, who seems right and what can change these narratives in the future. The market is telling a story, and sometimes you are able to pre-empt the next part of the story by looking for whether the trade is cheap (e.g Uranium would have high optionality and be 'cheap' relative to where Uranium firms are trading versus perhaps what the future entails for nuclear) and what the duration of the said narrative will be. I am mostly wrong – however, when I am right, I am very right.
I tend not to write so much about crypto, as it is not an area that I have exposure to. Moreover, I do not feel I understand it well enough for me to possess any real conviction. I can identify the bull case, as well as the fact that bitcoin exhibits some of the functions and qualities of money.
I am wondering if you could answer a few quick-fire questions on crypto:
You have stated publicly that you believe the ‘top’ for 2021 in Bitcoin is ~$65,000. Any colour on why you believe that to be true?
I'm looking at the z-score of past BTC tops. BTC is highly leptokurtic – that is, it has a higher probability of extreme outlier values. Where a normal distribution would have 3 standard deviation maximum moves. which contain 99.7% of the price data, BTC and most other cryptocurrencies do not exhibit this. Instead, they can go 8-10 sigma to the upside, which is completely mental, but who cares? Make money, protect your downside. The $65k call is just a judgement of what happens if BTC hits 8 sigma. But perhaps for more engagement, I should have used 10 sigma and said, like $100k or something.
What, in your opinion, is the end-state for bitcoin? Put differently, what do you feel the ultimate use-case for bitcoin is as it becomes more mature?
It's a speculative asset. It can't be a store of value since it has such massive excess kurtosis as discussed above. I don't see anything wrong with calling it what it is. Like, who buys anything with gold? Why is that considered such a store of value, outside of being used in a doomsday scenario, which, even by the current world's standards, hasn't happened due to pretty cohesive societies and technology still allowing money to transfer? And most gold is paper traded – about $9tn of it per year, so few people relative to the actual amount transacted actually hold gold. Bitcoin is just something to trade.
What is your take on alternate cryptocurrencies, and do you see crypto as a speculative asset-class or a legitimate digital asset?
Again, it's just a speculative asset. One problem I see, though, is that altcoin projects are 'short convexity'... to fund their projects, alt-coin teams have to sell as the price goes up, reducing their exposure. They become less exposed as the market moves favourably for them. That's a bond trader's worst nightmare. This is naturally problematic for the longevity of projects and notwithstanding the fraudulence of 99% of ICOs, will be a problem they contend with for a while. This is why I am a big fan of Utrust – check them out.
But another issue I see is this furore around DeFi. I do not understand how you can be receiving a yield of 20-30%... 2000-3000 basis points above the base rate of interest... simply for parking some capital somewhere. The answers I have received as to why it is so high are flimsy at best, and I hope people don't think that a market that pays out yields based on trading fees on a protocol has any real strength. In my opinion, it reflects the credit risk of the asset.
What is your take on the battle between public and private adoption of bitcoin? We are seeing a rise in adoption in the private sector, coinciding with a rising tide of caution from the public sector, any thoughts on that?
I think they're battling two different things here. The private sector views it as a speculative asset, and the central wankers view it as a way to impose negative rates more effectively on a currency. I don't really have an opinion on this apart from that. Tim's done a good write up on central bank digital currencies though.
The current environment is one that follows the narrative that capital is being ploughed into equities because there being a little alternative for returns elsewhere. In recent months, the yield on junk-grade debt has reached further lows.
This leads to the question of what happens when yields eventually rise. What, in your opinion, will potentially happen to the equity when yields eventually rise?
I think we have to look at yields rising as 'what is the driver of the yields rising?' For me, I don't buy the inflation argument. I think to note that whilst breakeven inflation measures have risen, real yields have not, so it's more the expectation that inflation will come that is driving yields higher, rather than actual inflation. Now if the market were truly buying the inflation narrative, then yields would have affected equities adversely so far. Something to note is the velocity of the move in yields – it's been pretty fast and brutal – this is something you would expect from a shorter duration shock rather than a broader inflation pressure environment. So from my perspective, I feel the market is looking at the short and long term and forgetting the midterm where monetary policy effects tend to be felt.
Another question on everyone’s lips is inflation. Could you provide us some colour on where you see inflation heading over the medium-term, and perhaps outlining some of the benefits or consequences that stem from your outlook?
Sweet – so as I mentioned in the last segment, I see there being no real reason for inflation to rise in the mid-term. Take this for example... One big issue that I have is people don’t look deeper at the data. Take the recent ‘pent up demand from savings will lead to inflation’ argument.
Yes, the personal/household savings rate shows that households do have higher savings, but if we look at the income thresholds of households and see what their savings changes over the past year have been like then it paints a fuller picture. Low-income households have the highest marginal propensity to consume, but their savings have been decimated, as well as labour force participation dropping which has affected the lower incomes the most.
Caveat: highest-income households with low liquid savings but high illiquid savings have the highest MPC overall, but there's currently pretty much an equal split between illiquid and liquid savings amongst this cohort. On top of this, people seem to be forgetting that shipping costs are totally abnormal right now, which has led to producers increasing prices of food and other goods. I’d expect once shipping lines normalise in 6-9 months this inflationary pressure will subside.
Personally, I think inflation expectations are increasing due to base effects – we're coming from a low base due to the pandemic, and 'mean reverting'. I wrote an article on this too.
Moving on to Brexit now. This question is not intended to be one that requests you disclose your favouring between leave or remain, but more so one that looks to gather an objective overview of the benefits that might stem from Brexit.
So, could you please detail the brief thesis for why Britain leaving the EU is a good idea?
I voted Leave. I see no shame in saying that. My view on things is entirely different from many Leave voters. I take the perspective that the EU is there to satisfy German interests, and people talking about 1992 have the incorrect view on the EU – the EU from Maastricht is not the same EU from 2002 when the euro was introduced – just look at the rise in the German surplus since 2002 to see this.
The euro cannot simply be seen as a monetary tool through this lens, but a political tool for power centralisation, which is why the retort 'but we aren't part of the euro' doesn't cut it with me quite frankly. When you see a press conference from the European Commission, why do you always see Angela Merkel and Macron involved, but very rarely any other EU states? I thought the EU was about unity, not about Germany?
I'd encourage people to read Jean Jacques Rosa's 'Euro Error', written in 1999 to see his predicted effects of the euro's introduction. It's astoundingly accurate. Many leave voters don't go beyond the 'sovereignty' argument, which is where they come unstuck in debates with FBPE nutcases. This is a clear reason as to why we should breakaway, and then when you factor in the EU's vaccine response and how they're treating us over financial regulations equivalence (we are entirely equivalent, by the way, since we adopted MiFID and are unlikely to diverge too far away from it – they recently accepted US clearing firms who have Dodd Frank regs, for example, why not us?) you can see that they are playing a bullshit hand to try and maintain some power.
It won't work in their favour though since Biden and Russia are pissed off with them, whilst they play into China's hands.
'David, tell us how you really feel.'
Ben Graham’s famous quote concerning the market mechanism being a voting machine in the short-run and a weighing machine in the long-run is one of my favourites.
It speaks to several things, but for me, the main takeaway is that the market loves a narrative. Sometimes narratives fade, and other times they exist long enough to become factual.
Could you perhaps explain why you feel this sense of narrative is so important to asset prices in the short run?
Firstly, Ben Graham would have baulked at the idea of buying the NASDAQ over the last 10 years and would have been akin to the Twitter bears calling for a market top because, checks notes, valuations or something (without factoring in the context of yields).
I think having a view is important because it allows you to reject or accept information easier. You can either deviate or continue with your assumptions. Secondly, humans thrive off stories. Without a story then you have nothing. And finally, narratives can prove who is emotional and who isn't – a great indicator.
Speaking of narratives… This recent debacle with Gamestop, Robinhood, and Citadel has opened some investors eyes to why their broker's ‘free trades’ are not actually free. The recent data from Acuiti on respondents’ thoughts towards GameStop and payment for order flow shows that they do not want brokers to engage in payment for order flow.
This has always been public knowledge and highlights that some investors are acting without truly understanding the motives for brokers such as Robinhood.
Do you feel that payment for order flow ought to be allowed? Moreover, if you have any additional opinions on this whole fiasco, that would be interesting to hear.
Response: I think PFOF is BS, that's why it's banned in the UK and EU. Sorry to plug again, but I've written on this too. For me, PFOF is less of an issue though – people are gonna lose anyway, the stats tell us that. What I think is a bigger issue is how gamified the Robinhood platform is. It's ridiculous. I've seen casino apps that look less 'gamey' than it – and they don't have leverage.
But, the reason that brokers went to close only was simply due to clearers not wanting to take credit risk on board. Simple. No shady stuff going on between the SEC and the Fed.
Lastly, I like to round-off this segment with my favourite quote, which comes from Graham. The one concerning the short-term voting machine and the long-term weighing machine. I find it helps me reconcile the irrational price action in the near-term.
I do not know who first coined it, but another of my favourite quotes is “If you don’t laugh, you’ll cry”. I find this quote helps me appreciate the randomness of life and the lack of control we have over external factors.
What is your favourite quote, and why? Feel free to pick a few if you like.
'Don't be a dick for a tick'
It epitomises trading in my opinion. If you've made money, bank it. Don't move your stop to breakeven, don't try and irk out another 1% when you're up 20%. At the same time, don't risk manage so tightly that you don't capture a move. Set a stop based on expected daily, weekly or monthly moves (ATM implied volatility/square root of 252(daily), (52 for weekly and 12 for monthly)) and use that as your take profit to get out on the downside rather than picking an upside target to get out on because no one knows what a market will do and if they say they do then they're full of shit.
Questions from Twitter:
In this segment, we collected questions from the Twittersphere, and present them to David.
@adventuresinFI: “What is your view on the correlation between having a great understanding of the macro and being a successful investor?”
You put yourself at an advantage by understanding more of anything, but it's how you apply it that's key.
@themacrotip: “Why does the appeal of trading seem to lure in so many young individuals?
The way it's marketed and how brokers provide lucrative affiliate payments to those who market trading. Some firms pay out $1000 if you bring a verified client onboard!
@UrbansoftwareEng: “What made you want to pursue finance as a career?”
It was the difference in theory and reality for me. What was taught at uni was totally different to what I was experiencing by watching the market in the early stages. It was fascinating.
That concludes today’s guest newsletter, which marks the eleventh edition of this series. I want to thank David for taking the time to answer these questions today.
It has been great to have a macro specialist join us today.
Stay tuned, as we have some excellent calibre guests lined up for you in the coming weeks.
You can find previous editions of the guest interview series below:
• Edition One: Bill Brewster
• Edition Two: Kris FromValue
• Edition Three: ValueStockGeek
• Edition Four: AdventuresInFI
• Edition Five: Brian Feroldi
• Edition Six: Brad Freeman
• Edition Seven: Mostly Borrowed Ideas
• Edition Eight: Richard Chu
• Edition Nine: Kermit Capitál
• Edition Ten: Liviam Capital