David Cervantes of Pinebrook on the Increasing Importance of Political Economy
Our guest this week was David Cervantes, founder of Pine Brook Capital Management. With a rich and diverse background within the investment industry, in the last few years David has dedicated his time to managing his family office and has been developing a macroeconomic framework that considers the objectives and incentives of policymakers as the primary economic drivers. Our conversation included topics such as:
- Empirical economic analyses and insights from the ‘school of hard knocks’
- Fundamentally, a process of elimination – determining first what not to do
- Less theory, more data
- Where his approach materially diverges from traditional economics
- Cognitive Perspective – treating models with respect, but never reverence
- Macroeconomics is basically ‘political economy in drag’
- A dynamic process of incentives and decisions made by political actors
- The role of ‘timing luck’ (or misfortune)
- A stroll down history lane – from WWII and the Great Society to the present
- A closer look at the gargantuan US federal budget deficit
- Current backdrop – an ‘inflationary supernova’ fueled by fiscal impulse
- The Fed’s current reaction function
- Home prices, OER and how they affect CPI
- Why interest rate volatility matters significantly more than absolute levels
- How interest rate vol spills over into the risk premia continuum
- And much more
This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management Inc.
*ReSolve Global Inc. refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global Inc. is a registered person with the Cayman Islands Monetary Authority.
