Andy Lees’ The Weakest Link

Andy Lees heads up a small macro sales team at UBS. (I have occasionally included some of his quotes at TBP). Anyway he has written a book which he believes has some ground breaking ideas in Below are the accompanying notes he sent with it to his clients yesterday.

The Right Game: The Credit Crunch – Treating the disease rather than the symptoms.

The best book you will ever read…or at least the best book I will ever write.

It looks at the structural issues that explain the build-up in credit and the subsequent crunch. By putting things in a structural context, it suggests that a lot of the policies that governments are pursuing are adding to the imbalances and inefficiencies rather than addressing them. Governments are effectively repeating the same mistakes that got them in this position in the first place.

The world’s shortfall of energy is only going to intensify. Whilst economists dismiss energy as only accounting for 4% or 5% of the modern economy, they fail to understand that this is simply the cost of extracting the fuel. The value to the economy is many multiples bigger, and it is this energy subsidy that effectively explains most economic activity. Understanding how this energy subsidy affects the economy, and how it is collapsing, will explain how the world economy is set to change over the next few years. Even productivity growth itself is explained by the energy subsidy.

Unfortunately the EROIE (Energy Return of Energy Invested) of alternative energies is no more than 15% of the present EROIE of our existing fuel mix. To get the same net energy subsidy from this green energy would mean the energy industry and infrastructure growing from 4% or 5% of the economy to 25% and higher. Either the gross economy would have to soar or the net (non-energy) economy would have to shrink. The implications are huge and will affect every aspect of life, with implications for everything from relative prices to default and credit rates on debt.

The book looks at how this is likely to unfold. Whether we will all go down together or whether certain economies will outperform others. How can countries best protect themselves from the mess and what can investors do. Is there anywhere safe and what will central banks do?

Whilst the press is getting in a fluster about the merits of the Efficient Market Hypothesis and the Capital Asset Pricing Models at the moment, this looks at the “dismal science” of economics in a different light, simply applying some of the most powerful laws of physics to the economy and re-establish simple relationships that over-complicated hypothesis’s have forgotten about.

It is not a 5 minute read but hopefully it is worth the investment of a few hours.

Kind regards

Andy Lees


Andy Lees The Weakest Link


Author Bio:

Andy Lees heads up a small macro sales team at UBS looking across all asset classes. He has been both on the investment management side at a leading UK life assurance company from 1985 to 1992, and since then on the sales side at SG Warburgs through all its various guises to the present day UBS. He likes to think of himself as applying common sense business and mechanical skills to an industry that has forgotton what it is; a source of capital for the real economy. His grounding was in derivatives which gave him access to Treasury, Foreign Exchange and Sovereign bonds, as well as European single stock fund management.On the sell side he helped build the institutional and hedge fund derivatives business into a dominant force before stepping up a bit further and setting up a specialist macro team 3 years ago which has allowed him to remove himself from execution but focus on much more idea generation with clients. Andy looks at short term ideas, but tries to put them in a structural theme; how for example changes in demographics meant that the tide of free capital was about to turn in 2008 and that trading should have that in the back of its mind rather than as one client once said; “so tell me how do I make money trading demographics over the next week”. He has been increasingly interested in the energy market for the last 10 – 15 years watching the declining spare capacity within the industry whilst most commentators looked only at inventory data rather than understanding what was going on beneath the surface. Andy had been asked for the last 10 years to write a book, bringing some of his thoughts and previous ideas and publications together. He wanted the right time to tell this particular story which the credit crunch offered him as he felt it emphasized the bigger story that he was looking at, acting as a focal point.

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