In this podcast episode, Aahan Menon, founder and Strategist at Prometheus Research, a systematic macro research firm, joins us to discuss his work, his firm’s unique approach to providing real-time insights into the evolution of markets and the economy through a data-driven, rules-based process, his model’s economic outlook, and resulting ETF model portfolio.<\/p>\n
*****<\/p>\n
Aahan’s background and founding of Prometheus Research [00:02:59] Aahan talks about his career journey and how his experiences led him to found Prometheus Research, a systematic macro research firm.<\/p>\n
Unique approach of Prometheus Research [00:03:27] Aahan explains how Prometheus Research provides real-time insights into the evolution of markets and the economy through a data-driven, rules-based process, and how they aim to help investors of all sizes navigate macroeconomic cycles.<\/p>\n
Navigating the tension between market and macroeconomic modeling [00:06:31] Discussion on how to navigate the tension between the market’s forward-looking discounting mechanism and the utility of macroeconomic series.<\/p>\n
Opportunity set in macro investing [00:07:48] Explanation of how understanding the likely gap between a potential acceleration and what’s discounted in terms of a linear path is the opportunity set in macro investing.<\/p>\n
Factors driving the forecast [00:19:33] Discussion on the factors driving the current forecast, including monetary tightening and debt service burdens.<\/p>\n
Housing activity and employment contraction [00:20:45] Discussion on the contractionary condition of the economy, the impact on the housing sector, and the potential for a recessionary condition.<\/p>\n
Softening of the labor market [00:26:34] The potential for a recessionary contraction despite historically low unemployment rates, and the projection of sub 2% unemployment rate by the end of the year.<\/p>\n
Employment and Inflation [00:34:25] Discussion on the recent pulse in employment and its impact on inflation, as well as the unlikelihood of it continuing in the future.<\/p>\n
Productivity and Economic Growth [00:37:42] Mention of a recent McKinsey paper on the potential impact of productivity increases on inflation and debt, and how it could affect economic growth.<\/p>\n
Retirements and Wealth [00:40:46] Discussion on the excess retirements due to windfalls and wealth, especially in housing, and the possibility of retirees returning to work.<\/p>\n
Labor Force and Profits [00:43:46] Analysis of the impact of labor force participation and employment growth on the economy, and the squeeze on profits due to businesses’ own reinvestment.<\/p>\n
Recomposition of the economy [00:51:04] Explanation of the shift towards a services-oriented economy and the impact of income injection on the economy.<\/p>\n
Navigating the cycle [00:53:02] Discussion on navigating the cycle and the relative strength of cyclical sectors.<\/p>\n
Investment decisions [00:53:46] Explanation of how Prometheus Research’s algorithmic work informs investment decisions.<\/p>\n
Investment Framework [00:54:22] Aahan explains the economic forecasting framework used by Prometheus Research, focusing on growth, inflation, and liquidity. They also discuss the challenges of forecasting and the importance of market regime confirmation.<\/p>\n
Portfolio Construction [00:56:02] Aahan discusses the timing tools used by Prometheus Research to create stable return streams that are impervious to any particular regime or auto-correlation structure. They also talk about the importance of managing volatility and risk in the current tightening liquidity environment.<\/p>\n
Current Positioning [00:57:57] Aahan shares Prometheus Research’s current positioning, which includes a high level of cash and a focus on relative value trades such as being long the dollar and long T-bills. They also discuss potential trades, such as shorting the two-year and being long bonds.<\/p>\n
Term Structure Dynamics [01:17:01] Discussion on the impact of the Fed’s manipulation of the term structure on asset prices and risk premia.<\/p>\n
Private sector credit creation and liquidity [01:20:42] Discussion on the impact of private sector credit creation and liquidity on the economy and financial markets.<\/p>\n
Improvement in banking and corporate activity [01:22:16] Analysis of the improvement in lending and issuance of commercial paper, high yield, and IG in 2022.<\/p>\n
Factors affecting liquidity creation [01:24:00] Explanation of the rush to issue commercial paper in anticipation of rate increases and the impact of nominal activity and inflation on liquidity creation.<\/p>\n
Pro-cyclical liquidity and economic activity [01:25:04] Discussion on the potential effects of quantitative tightening and responsible treasury policies.<\/p>\n
Where to find Aahan Menon:<\/strong><\/p>\n <\/strong>Prometheus Research Substack<\/a><\/p>\n Where to find the RYA crew:<\/strong><\/p>\n Adam Butler on Linkedin<\/a><\/p>\n Pierre Daillie on Linkedin<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" In this podcast episode, Aahan Menon, founder and Strategist at Prometheus Research, a systematic macro research firm, joins us to discuss his work, his firm’s unique approach to providing real-time insights into the evolution of markets and the economy through a data-driven, rules-based process, his model’s economic outlook, and resulting ETF model portfolio.<\/p>\n *****<\/p>\n Aahan’s background and founding of Prometheus Research [00:02:59] Aahan talks about his career journey and how his experiences led him to found Prometheus Research, a systematic macro research firm.<\/p>\n Unique approach of Prometheus Research [00:03:27] Aahan explains how Prometheus Research provides real-time insights into the evolution of markets and the economy through a data-driven, rules-based process, and how they aim to help investors of all sizes navigate macroeconomic cycles.<\/p>\n Navigating the tension between market and macroeconomic modeling [00:06:31] Discussion on how to navigate the tension between the market’s forward-looking discounting mechanism and the utility of macroeconomic series.<\/p>\n Opportunity set in macro investing [00:07:48] Explanation of how understanding the likely gap between a potential acceleration and what’s discounted in terms of a linear path is the opportunity set in macro investing.<\/p>\n Factors driving the forecast [00:19:33] Discussion on the factors driving the current forecast, including monetary tightening and debt service burdens.<\/p>\n Housing activity and employment contraction [00:20:45] Discussion on the contractionary condition of the economy, the impact on the housing sector, and the potential for a recessionary condition.<\/p>\n Softening of the labor market [00:26:34] The potential for a recessionary contraction despite historically low unemployment rates, and the projection of sub 2% unemployment rate by the end of the year.<\/p>\n Employment and Inflation [00:34:25] Discussion on the recent pulse in employment and its impact on inflation, as well as the unlikelihood of it continuing in the future.<\/p>\n Productivity and Economic Growth [00:37:42] Mention of a recent McKinsey paper on the potential impact of productivity increases on inflation and debt, and how it could affect economic growth.<\/p>\n Retirements and Wealth [00:40:46] Discussion on the excess retirements due to windfalls and wealth, especially in housing, and the possibility of retirees returning to work.<\/p>\n Labor Force and Profits [00:43:46] Analysis of the impact of labor force participation and employment growth on the economy, and the squeeze on profits due to businesses’ own reinvestment.<\/p>\n Recomposition of the economy [00:51:04] Explanation of the shift towards a services-oriented economy and the impact of income injection on the economy.<\/p>\n Navigating the cycle [00:53:02] Discussion on navigating the cycle and the relative strength of cyclical sectors.<\/p>\n Investment decisions [00:53:46] Explanation of how Prometheus Research’s algorithmic work informs investment decisions.<\/p>\n Investment Framework [00:54:22] Aahan explains the economic forecasting framework used by Prometheus Research, focusing on growth, inflation, and liquidity. They also discuss the challenges of forecasting and the importance of market regime confirmation.<\/p>\n Portfolio Construction [00:56:02] Aahan discusses the timing tools used by Prometheus Research to create stable return streams that are impervious to any particular regime or auto-correlation structure. They also talk about the importance of managing volatility and risk in the current tightening liquidity environment.<\/p>\n Current Positioning [00:57:57] Aahan shares Prometheus Research’s current positioning, which includes a high level of cash and a focus on relative value trades such as being long the dollar and long T-bills. They also discuss potential trades, such as shorting the two-year and being long bonds.<\/p>\n Term Structure Dynamics [01:17:01] Discussion on the impact of the Fed’s manipulation of the term structure on asset prices and risk premia.<\/p>\n Private sector credit creation and liquidity [01:20:42] Discussion on the impact of private sector credit creation and liquidity on the economy and financial markets.<\/p>\n Improvement in banking and corporate activity [01:22:16] Analysis of the improvement in lending and issuance of commercial paper, high yield, and IG in 2022.<\/p>\n Factors affecting liquidity creation [01:24:00] Explanation of the rush to issue commercial paper in anticipation of rate increases and the impact of nominal activity and inflation on liquidity creation.<\/p>\n Pro-cyclical liquidity and economic activity [01:25:04] Discussion on the potential effects of quantitative tightening and responsible treasury policies.<\/p>\n Where to find Aahan Menon:<\/strong><\/p>\n <\/strong>Prometheus Research Substack<\/a><\/p>\n Where to find the RYA crew:<\/strong><\/p>\n