I went a little selfish with this episode and geeked out with a super smart person on the Fed, the markets, tech, fintech, lending and the economy. I’m talking with one of my favorite financial bloggers, Marc Rubinstein. Marc is retired from Lansdowne Partners, one of Europe’s largest hedge funds. While there, he advised on a US $4 billion global long/short financials equity fund. Now Marc is an active value investor and early-stage fintech investor, as well as the author of the popular weekly financial newsletter, Net Interest. He’s also a contributor to Bloomberg Opinion. I hope you enjoy this conversation as much as I did.

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Guest: Marc Rubinstein

Profile: Former Hedge Fund Advisor, Author of Net Interest, and Bloomberg Opinion contributor.

Where to Find Him: Net Interest, Bloomberg Opinion, Twitter

What’s Marc Panicked About?: The Fed panicking

The Big Ideas:

The Fed drives monetary policy around the globe. With the dollar being the reserve currency, the Fed determines its value —and that has global ramifications. Many people think what’s currently going on with the Fed is the first time this stuff is happening, but it’s been going on for 40 or 50 years. The whole idea of the ‘Fed Put’ and predictions of where the Fed is going to be six months from now has improved with communication and likely lowered the propensity for a surprise, yet the flip side of that is we’ve all become immune to it. We’ve had zero rates for so long lived under the ‘Fed Put’ that it’s begun to breed a degree of uncertainty. And this has all coincided with a period of phenomenal tech innovation. The Fed is a wild card now as it seems we’ve lost tech -maybe because interest rates and inflation have valuations coming down. At the end of the day, the Fed drives the interest rate and the interest rate drives the valuation of everything. We’re now dealing with a bout of inflation. Clearly the pandemic plays a key role, but we’ve never had this kind of situation with so much hinging on low rates and inflation; maybe nothing will go wrong, but we’re walking a tightrope.

Private investment should be driven by the IPO market, yet right now the opposite seems to be true. You would have expected the private markets to react much quicker to the IPO meltdowns and reprice. In fact, and this could obviously change tomorrow, the private market valuations have kept going up. This begs the question of what’s the point of being in the private market if they’re not recognizing the valuations in the public markets? Why take the risk? You can buy great growth companies at 10x sales in the public markets and have liquidity.

Show Notes:

• (00:39) – Intro
• (04:33) – Welcome Marc
• (05:07) – Best part of living in London
• (06:14) – Getting started in the markets
• (09:05) – Top-down thinking about risk
• (11:47) – Panicking about the Fed panicking
• (16:17) – The lending side of fintech
• (23:15) – Private investment & the IPO market
• (29:43) – Growth and the cloud-based economy
• (33:17) – Multiple disruptions of Western Union
• (34:40) – Circling back to the Fed
• (37:06) – Banks actually do go bust
• (38:54) – Wrapping up
• (40:31) – Closing thoughts