Thematic Edge Podcast

This week Mark and I discuss how “we’re all state capitalists now” but that both new Japanese Prime Minister Takaichi and US President Trump make an error when they try to include central banks in that effort. We discuss what markets are missing — inflation — and how that’s likely to be a key risk theme for 2026, and we touch upon whether the current equity boom is Dot.com 2.0, or something different.0:07 The message of new Japanese Prime Minister Takaichi and what it means for Japan and the yen.6:23 We’re all state capitalists now, but where do governments need to draw the line.12:43 Can we run economies hotter? And what did we learn from Stephen Miran?15:57 Does President Trump want a housing refi cycle or does he just have a time-inconsistency problem?23:18 Will we see a pivot from President Trump early next year? What form will it take?27:33 President Trump is delivering the relative price changes his voters want.33:31 Current central banking philosophy may be a bigger problem than fiscal authorities’ interference.36:07 Why are central banks getting the labor market so wrong?49:08 How much of a constraint is slowing labor supply growth on the economy?52:09 Why aren’t markets more worried about central banks’ continuing mismanagement and pricing more inflation? Is inflation the risk theme for 2026?59:53 Are markets’ fears about equity valuations valid? Are the comparisons to the Dot.com bubble valid? This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thematicmarkets.substack.com/subscribe

Mark and I covered a lot in this episode. We start with a quick recap of the Bank of Japan meeting Friday and the Federal Reserve meeting two days earlier. But we spend most of our time discussing a new piece by Mark, Dollar upside gamma: Systemic pressures, that mostly aligns with my long-standing views but raises both some critical differences and questions about the future.0:00 Intro1:18 The Bank of Japan pauses but October is live for another rate hike.4:53 Mark calls 25 and done for the Fed; Marvin thinks it was a Train wreck, a clear policy error that raises the risks that they will further compound it with more cuts before being forced to reverse. Both of us agree the Fed doesn’t understand what “risk management” means and is no longer really an inflation-targeting central bank.17:03 Mark defines and explains his “dollar gamma” thesis: the end of “monetary extremism,” rising geopolitical risks, and a “tech super cycle” are combining to create fundamental divergence between the US and others that contradicts the narrative of the “end of US exceptionalism” and sets the stage for a snapback on a significant risk event.22:06 Where our views align on his thesis: a dollar reversal is coming based on fundamentals that counter the dominant market narrative and the trigger may be something innocuous..33:10 But there are also areas where we differ: equities as an inflation hedge, the risks from a large balance sheet, the efficacy of Quantitative Easing and potential for adverse effects from Quantitative Tightening.49:10 When Western central banks veered into “monetary extremism” and the lagged effects on yield curve shape that are now manifesting.53:55 What will be the effects of the “Great reckoning” beyond the dollar and term premia?58:40 Energy’s role in the realignment and sorting winners from losers.61:17 “Western-centric” circles of Global bifurcation and value in asset prices and FX. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thematicmarkets.substack.com/subscribe

Mark Farrington of the Global Watchtower and I have kicked off our own podcast on the Themes driving markets. Mark was practicing thematic investing as a portfolio manager long before it became a “thing” and a thematic approach to analysis of the global political economy has been my modus operandi for a quarter century. Mark and I have been debating markets for over twenty years and thought we’d bring that debate into the public.In this, our first episode we talk about the shifting sands of geopolitics in the wake of China’s Shanghai Cooperation Organization meetings, what it means for the global economy, for emerging markets, and for digital assets. We discuss the surprising and amazing insights into President Trump’s policies from the Bank of Japan, President Trump’s assault on the Federal Reserve and its meaning for markets, and put the recent yield curve steepening in context.Here are some of the topics and questions we cover:0:00 Introductions: who we are and why you should listen to the Thematic Edge Podcast.3:30 Did Donald Trump really drive India into the arms of China and Russia?14:59 Message and effects of China’s 80th Anniversary military parade.17:29 Accepting a Russia-India relationship to help separate the former from China.21:31 What does the Great Game of geopolitics mean for emerging markets?23:19 Japan as the first “emerging market” and the myth of higher EM returns in a world without globalization.26:24 2008 to 2012 as the high watermark for emerging market investing.30:15 Emerging markets in the new world order: FDI, not portfolio, flow driven and the importance of navigating the Chinese versus American spheres amid Global bifurcation.32:08 The opportunities that crypto and digital assets open for emerging markets, especially Africa.36:03 Bank of Japan Deputy Governor Himino provides best description of the Trump policy agenda, its motives and its aims.43:24 When breaking convention becomes necessary in national and international policy.46:04 Trump’s attack on the Federal Reserve and the need for reform.51:21 Fed independence versus legitimate democratic oversight.54:03 The propriety and effects of pursuing criminal and ethical investigations of central bankers.55:16 Is Jerome Powell the worst Fed Chair in history?57:04 The effects on the yield curve and swap spreads. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thematicmarkets.substack.com/subscribe