#26 - Jeremy Schwartz - "You Should Be Hedged a Lot More Than You Are"

52 minutes

If you’re ready to dive straight into the deep end, Episode 26 is for you. The guys waste no time, starting off with complicated topic of currencies. Jeremy takes issue with the currency-stance belonging to some former, unnamed Meb Faber Show guests. Specifically, he challenges the idea that currency hedging is expensive. Not true, he says. It’s only “selectively” expensive. You can actually get paid to hedge certain currencies. He gives us more details, leading to his overall takeaway: You should be hedged a lot more than you are. Meb then asks about any rules that might be applied when using a dynamic currency-hedging strategy. Jeremy gives us his thoughts, telling us when we want to be hedged versus when we don’t, as well as two good signals to use – interest rate differentials and momentum. Where are we overall today? Well, Jeremy says that there is no country so cheap that his shop would take their hedge ratio to zero. Eventually, Meb switches the topic to factor investing. Jeremy gives us his take, noting that minimum vol is where things are most expensive. The guys then discuss factor investing as it pertains to the bond space – in essence, moving away from market cap weightings. Why is that important for bond investing? Well, do you want to give the most weight to the countries issuing the most debt? Unlikely, but that’s how market cap weighting works with bonds. Next, Meb steers the conversation toward liquid alts, specifically managed futures. That’s followed by a great discussion on corporate buybacks. Gotta watch out for that dilution from new share issuance. Interestingly, it turns out that buybacks are largely a U.S. phenomenon. Jeremy agrees, but points out some spots around the globe where that might be changing. As we near the end of the show, Meb asks about the opportunities Jeremy sees going forward. His response in a nutshell? “People are underinvested overseas.” There’s plenty more, including an asset class that is coming up on being down a whopping six years in a row, as well as how Meb hacked a VPN service that enabled him to watch the last Super Bowl from a tiny village in Japan. How’d he do it? Find out in Episode 26.

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