Markets
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Episode 153
Featuring Tim Lee, Jamie Lee, & Kevin Coldiron
Our guests explain how the behavior of financial markets is no longer a function of the economy or interest rates but rather a manifestation of “the rise of carry." This can be understood as part of a much broader phenomenon, with implications for all aspects of human affairs and profound consequences for society and the world.

In Episode 153 of Hidden Forces, Demetri Kofinas speaks with authors Kevin Coldiron, Jamie Lee, and Tim Lee, as they explain how the behavior of financial markets today is not, as is commonly believed, some function of the economy, interest rates, or political developments, but rather a manifestation of what they call “the rise of carry” or the suppression of volatility. 

In finance, a carry trade is typically thought of as an interest rate arbitrage expressed as a trade between two currencies, where the more historically stable currency is used to fund the purchase of an historically less-stable but higher yielding alternative in exchange for taking on currency risk.

The authors extend this principle across every facet of the economy in an effort to show that the logic of carry has increasingly become the dominant force driving market behavior and by extension, asset prices. 

If we are to agree that financial markets play a vital function in a capitalist economy and that their value ultimately derives from the underlying businesses and cash flows that their prices should reflect, then the rise of carry in a highly levered, fiat economy represents an existential threat to all aspects of human affairs.

The authors argue that we appear to be closer to this eventuality than ever before, but what will the collapse of carry or its ignition create? What will it look and feel like? What could allow it to continue? How might we stop it? Or is it already too late? We tackle all these questions and more during the course of this nearly two-hour-long conversation.

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Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

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Episode Recorded on 09/01/2020

Tim Lee is the founder of the independent economics consultancy pi Economics, serving financial institutions from hedge funds to traditional asset managers. Previously he worked for global asset managers including GT Management and Invesco in Hong Kong and London. He is the author of the highly regarded Economics for Professional Investors (2nd edition, 1998) and his commentaries and analysis have been widely quoted in the media. Tim was educated at Magdalene College, Cambridge University.

Jamie Lee works for investment guru and philanthropist Jeremy Grantham, focusing on environmental research and volatility trading. He previously worked as economist and analyst for asset management companies in Boston and London. Jamie holds a B.A. in Mathematics and English from Dartmouth College.

Kevin Coldiron teaches the Masters in Financial Engineering course at Berkeley (Haas Business School), having previously had a very successful career in asset management with Barclays Global Investors and the hedge fund Algert Coldiron, which he co-founded.

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Morbi interdum mollis sapien. Sed ac risus. Phasellus lacinia, magna a ullamcorper laoreet, lectus arcu pulvinar risus, vitae facilisis libero dolor a purus. Sed vel lacus. Mauris nibh felis, adipiscing varius, adipiscing in, lacinia vel, tellus. Suspendisse ac urna. Etiam pellentesque mauris ut lectus. Nunc tellus ante, mattis eget, gravida vitae, ultricies ac, leo. Integer leo pede, ornare a, lacinia eu, vulputate vel, nisl.

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