GM06: The hidden danger of Passive Investing ft. Michael Green - a podcast by Niels Kaastrup-Larsen

In today’s episode, we are joined by Michael Green, of Logica Capital advisors. Michael has over 20 years as a portfolio manager, mainly in the global macro space. Recently he has become well known because of his work on the shift to passive investing, and inevitably this was one of the topics we wanted to ask Mike about. Our conversation wasn’t limited to that however, and we also discussed comparisons between the present day and previous historical crisis (going back to the Roman Empire!), as well as many other interesting subjects.

Topics Discussed in this Episode


Passive investing
ETFs and target date funds
Intergenerational inequality

“(The) growth of passive is now basically built into the system. From a regulatory framework, all the new money that comes into the U.S Savings and Investment accounts (primarily in the form of 401Ks and IRAs), are coming in passive vehicles.”

Real interest rates over history
Mean reversion and momentum
Negative interest rates

“I think negative interest rates are absurd and that they're a view that I articulated back in 2015 and is now, I think, increasingly accepted that they're ultimately harmful to the banking system. They create a tax on the banking system.”

Leverage: recourse vs no recourse (limited liability)

“I think another component that people generally under-appreciate is that while we all complain about leverage and we complain about the high levels of debt, the flavor-de-jour of how we solve this is something like risk parity which says, "OK, let's lever our portfolio 10X in the fixed income space, and let's add..."

MMT

“MMT is right but it offers almost no prescriptions for how that money should be spent. So, by handing it over to the politicians, we're at least in a situation where you could see outcomes of how that money gets spent that we have never predicted.”

Yield enhancement strategies

Links
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Logica

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Full Transcript
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Michael
If I’m running a discretionary program and that’s going into some form of a structured product (and this doesn’t happen for precisely this reason), if I choose to do something that is different than I would have done historically, then the results of that product could be very different than I have advertised them for and I’d become liable. So, I’m forced into a quantitative system. That's actually part of the reason why I partnered with Wayne is that I realized that until the rules change there is, actually, no substitute to a documented quantitative process.
Niels
For me, the best part of my podcasting journey has been a chance to refine my own investment framework through a series of conversations with extraordinary investors in every corner of the world. In this series, I along with my co-hosts, Robert Carver and Moritz Seibert, want to continue our education by digging deeper into the minds of some of the thought leaders when it comes to how the world economy and global markets really work to try and learn how they think.
We want to understand the experiences that have shaped them, the processes they follow, and the historical events that have influenced them. We also want to ask questions outside our normal rules-based playground. We're not looking for trade ideas or random guesses about an unknown future but rather knowledge accumulated over the course of decades in the markets to try to make us better-informed investors and we want to share those conversations with you.

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Website of Niels Kaastrup-Larsen