10 Things I Learned at Summer Camp
A few observations after spending most of the past week in the north woods with some smart and interesting people.
Bloomberg August 7, 2017
It is helpful every now and again to break away from your ordinary routine, enjoy a change in scenery, mix up your daily schedule, hang with different folks. That is what I have been doing for most of the past week at Leen’s Lodge on Grande Lake Stream in Maine, at an event often called the Shadow Federal Reserve Committee, but best known as Camp Kotok. 1
It’s an opportunity to spend some quality time in canoes thinking deep thoughts while occasionally catching smallmouth bass and pickerel. (I am strictly a catch-and-release angler.)
Allow me to share some of the insights I gleaned at this year’s event. The event is covered by Chatham House Rules, meaning I can’t quote people specifically without permission. Here are my top 10 takeaways:
• Don’t look at one central bank, look at all central banks: Just as the home-country bias tends to have individuals overexposed to equities of their home country, so too does a similar bias cause analysts to overweight their own central bank. Nowhere is that bias more apparent than among U.S. economists for whom it seems to be all-Fed-all-the-time.
Jim Bianco of Bianco Research pointed out that looking at any single central bank paints an incomplete and indeed misleading picture of inflation, the economy and interest rates. Taking a composite of all central banks correlates strongly with where interest rates are going.
• This market has confounded almost everyone: It is a cliche, but it’s true: This has been a tough market for just about everyone. Value investors are lagging, hedge funds are struggling, economists, bond managers, newsletter writers, even journalists are all having difficulty explaining this market. 2
• People have an infinite capacity to surprise you: I have been coming to this event for more than a decade. Just when you think you know someone, they reveal a side you have not seen before.
• If your only tool is a hammer, everything begins to look like a nail: The event invites a broad assortment of investment types, ranging from traders to stock pickers to quants to asset allocators to market analysts to economists. I like to take the meta perspective, seeing the world from a 30,000-foot view. Doing that made it clear that each subgroup viewed the world quite similarly, typically a function of professional training and technical instruments.
After a bit of introspection, I realized I am similarly guilty of this foible. We all need to recognize how easily we allow our tools and training to determine our perspectives.
• It is tough to be an active equity manager; it may be even tougher to be a active bond manager: Sure, it’s difficult to be a stock-picker today. Investors are fleeing high fees; closet indexers have been called out. Smart beta and passive indexing are the pretty new things. But imagine the bond manager’s dilemma: inflation is nowhere to be found; the Federal Reserve keeps raising rates while telegraphing more to come; and Treasuries have barely budged from where they were a year ago. None of the old rules seem to be working. Add to that the disappearance of bond desks on Wall Street, leaving a handful of giant counterparties like BlackRock Inc. and Vanguard Group Inc.
Add all that up, and it just possibly may be harder to be a bond manager today than an active stock manager.
• Trump’s hard-core supporters will remain loyal right up until and perhaps even past the moment the mushroom clouds appear. Say what you will about his polling numbers slipping, those who form his base will not be dissuaded.
• There is a glimmer of hope for bipartisan cooperation in Washington. The speaker Friday evening was Maine Senator Susan Collins. She told the tale of Senator John McCain’s “No” vote on repealing Obamacare, but also painted an encouraging picture of moderate Republicans and Democrats yearning to move beyond the toxic culture of Washington to areas where there is bipartisan interest in working together to fix what is broken. This includes health care, infrastructure, energy and tax reform.
• “Alternatives to alternatives” as a new asset class is garnering interest: Hedge funds, venture capital and private equity are not going away; however, they are becoming much less intriguing to institutional investors. Rising in interest are alternative investments such as farm land; environmental, social and governance (ESG); and other thematic approaches.
Originally: 10 Things I Learned at Summer Camp