We Study Billionaires - The Investor’s Podcast Network - TIP495: The Changing Composition of Money w/ Alfonso Peccatiello

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Starting point is 00:00:37 We study markets, where we'll announce the winners. All entries can be submitted to the email, newsletters at the investorspodcast.com. Good luck. On today's episode, we welcome back Alfonso Pekitello. Alf is the former head of a $20 billion investment portfolio and now the author of the Macro Compass, which is an awesome free newsletter. Alph and Preston discussed some major macro topics back in August on episode BTC 089, and Alph made some very accurate predictions, so we had to bring him back. In this episode, we discuss why banks are at serious risk of losing deposits, why the ECB is changing their tune on their monetary policy, the recent Fed meeting, the underlying risk with pension funds using interest rate swaps, expectations for the current yield curve inversion, and much, much more.

Starting point is 00:01:23 I really enjoyed getting into the weeds on some of these very technical topics like interest rate swaps, TLTRO loans, pricing and inflation and other tools and metrics that Althe uses. I hope you enjoy it as well. So without further ado, here's my conversation with Alfonso Pekatielo. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Welcome to the Investors Podcast.

Starting point is 00:02:04 I'm your host, Trey Lockerbie. And today we have back on the show Alfonso Pekitello, also known as Alf, especially on Twitter. Alf, welcome back to the show. Hey, Trey, a pleasure to be on this show, particularly in the list of shows you guys do are, is impressive, I would say. It's very happy to be back. I want to jump right in here and highlight something around banks that's been happening recently and get your opinion on it. but banks are at a serious risk of losing deposits and reserves to higher paying yield products like money market funds.

Starting point is 00:02:37 Today, households could make 4% just by investing in treasuries or money market funds backed by treasuries. But you highlight that if households decide to flow out of banks and into money market funds, it could change the composition of money. Can you walk us through how this works? Yeah, Trey. So let's start by defining what kind of money. can a household actually use. For a household, money nowadays is mostly bank deposits. Ninety-seven percent

Starting point is 00:03:06 of the transactions that happen in the real economy is not cash anymore, but it's rather transferring bank deposits from a bank to another. That's how we move money between households nowadays. So, bank deposits are one form of money, but what are the other forms of money that we can own as households? Well, there are a couple, especially in the US, you can decide to allocate to a money market fund, which nowadays is a highly regulated relatively liquid instrument where you park short-term cash, and these money market funds can only buy treasuries effectively, which means you're parking money effectively in treasury investing vehicles that are highly regulated. That's another way to park your money.

Starting point is 00:03:44 The third way would be directly to invest in treasuries. Now, when you think of money tray as a household and you think of the safety of your money and the liquid form of this money, you move along with two axes, and you need to ask yourself every time whose liability is your money. Now, if you park money in a bank, this is the liability of the government up until the FDIC insurance, right?

Starting point is 00:04:10 Because effectively up until 100K, I think in the US, or 250 is the level at which the government basically would guarantee a potential default of the bank, which means that inherently that money is the liability of the US government. Above that amount, above the FDIC threshold, the money you park in a bank, it's the liability of a commercial bank. It's an unsecured risk that you're taking that the bank doesn't go belly up above the FDIC insurance.

Starting point is 00:04:39 Now, alternatively, you can buy treasuries or invest in a money market fund who buys treasuries, basically, and there you are directly having your money, your form of money that you own as the liability of the U.S. government. You might want to argue that the U.S. government is a better credit than an unsecured a bank exposure, commercial bank exposure, which means as a household, of course, the bank deposit is more liquid than a treasury, but it also comes with some additional risk, a layer of risk. But obviously, if there is a return that you can generate there, you will also put that into the equation when you decide how to allocate your money. And you are correct when saying that

Starting point is 00:05:15 today, if you're a household, a bank deposit exposes you to some risks, especially above the FDIC insurance, and it does not reward you enough. The alternatives are money market funds and treasuries that basically are the liability of a government, so a safer form of money, perhaps a tiny bit less liquid than a bank deposit, but they're yielding much, much more today. So money market funds is yielding roughly almost 4% in the treasury, especially even at the short end, T-bill, six months,

Starting point is 00:05:45 one-year exposures will give you a 4% return against bank deposits that will give you a 0.5, 0.6% return. So one of my thesis is that quantitative tightening itself is already shrinking the amount of bank reserves in the system by definition. The Federal Reserve shrinks its asset side and with it it shrinks its liability side, with bank reserves being one of the liability items that gets shrunk as well. But those bank reserves will shrink even faster than in a normal QT process if households decide to take away deposits from banks, which also shrinks the amount of reserves they own

Starting point is 00:06:20 and to allocate these deposits elsewhere, which can be buying a treasury bond or parking money in a market fund. Now, is the impact of that simply that the velocity of money slows way down and that, loans are not generated as frequently in the economy just kind of tightens up that much faster? So what we would be doing in that circumstance, if my thesis is correct, is that real economy money will be destroyed alongside with financial. financial money. So you need to think about money as two different tiers, two different channels, two different buckets, right? So let's talk about real economy money. What I define as real

Starting point is 00:07:00 economy money is the money that tray of corporates, real economy actors actually use. And that money is mostly bank deposits. But as we said, if we outsolds, actually withdraw our bank deposits from banks and go and allocate and buy treasuries on exposure in money market funds, we are basically eliminating a source of real economy money. Those deposits could be used to buy a car, to buy a house, to boost nominal spending. And what we would be doing is we draw them from this real economy money bucket and parking them in the financial sector, which means allocating to money market funds or buying treasuries. So that will be a form of destruction of real economy money and transfer, changing the composition of this money back into financial type of money, a type of money that cannot

Starting point is 00:07:49 be spent and used in the real economy. Now, remember trade that we also discussed about quantitative tightening. And what quantitative tightening does is that it shrinks the amount of financial economy money on top of the change of composition we just discussed. Why does it do that? Because it removes the amount, it reduces the amount of bank reserves in the system. And bank reserves are money for banks. They are a financial form of money that banks use to exchange transactions between each other, settle them, repo against each other, buy securities from each other, you need to think about it as the lubricant of the financial system. Now, if households also withdraw deposits from bank and turn that real economy form of money,

Starting point is 00:08:35 they destroy that basically within this operation, you will be basically destroying both forms of money. The Federal Reserve will take care of killing reserves, of draining these reserves from the system of basically stop the lubrication of the financial sector and stop the flow of this financial form of money. And on top of that, households will be taking care of withdrawing real economy money from banks to allocate the money market funds or treasuries and governments, which are the other producers of real economy money. They also stop the tap.

Starting point is 00:09:10 The last time that the US government sent Chebs-a-domer people has been April 2021. It's been one and a half here since we have seen a fiscal stimulus that boosts the amount of disposable money for us, which means the real economy is getting starved of dollars, and the financial sector is getting starved of financial dollars, as I call them, which are bank reserves. And when these two happens at the same time, actually, you have to expect either liquidity systemic events or economics lowdowns or both at the same time. So speaking of bank deposits, the European Central Bank, the ECB, just hiked raised by 75 basis

Starting point is 00:09:48 points, which brought the deposit rate to 1.5%. And they're acknowledging that inflation might stay higher for a lot longer, and that probably further interest rate hikes are underway. Walk us through what happened, though, at the most recent ECB meeting and why you suggest that central banks sound like they might have a change of heart related to their current monetary policy. I think what we are getting here is a non-FED pivot, which means that all other central banks, which are not the Fed, seem to be much more willing to be nuanced right now than the Federal Reserve is nuanced about its monetary policy. The European Central Bank was a point in case.

Starting point is 00:10:26 We have seen them coming, especially Lagarde, coming to the press conference and telling us that, yes, of course, they are still serious about fighting inflation, but they also see a sharp economic slowdown ahead. And therefore, that they are going to be more than once going forward. We have heard that not only from the European Central Bank, but also from the Bank of Canada, from the Reserve Bank of Australia. So what do all these jurisdictions have in common? And the answer is inherent fragilities. Now, think about Europe. What would be European inherent fragilities? It's its own architecture, its own infrastructure, which is built on 19 different jurisdictions being under one umbrella when it comes to monetary.

Starting point is 00:11:05 policy, but not under one umbrella when it comes to fiscal policy, right? We all know that. That creates inerrant fragilities within the system. Think about Canada or Australia. What are there fragilities? It's very simple. It's the housing market. It's private debt. Just to give you statistics about Canada, Canada private debt to GDP. So that's not the government, that's citizens, that's corporates. Private debt to GDP in Canada is now higher than it was in Japan at the peak of the real estate bubble of the 90s. Back then, private debt in Japan had grown so fast that the Imperial Palace of Tokyo was worth more than California, the entire state of California. That's the level of private debt injection that in Japan led to the real estate bubble. In Canada, today, we have a higher

Starting point is 00:11:49 private debt to GDP than in Japan at the peak of that bubble. Now, that makes raising interest rates a very complicated exercise for the Bank of Canada. And we have seen therefore Bank of Canada, Reserve Bank of Australia, European Central Bank, and all these policymakers in jurisdictions that have in our fragility is being much more nuanced about their tightening path ahead because they're now looking at financial risks, financial stability risks that are coming and looming on the horizons and they go hand in and together with their mandate of fighting inflation. When it comes to the Federal Reserve, the story is different for two reasons. The first is the US economy is in general in a much better shape than anywhere else.

Starting point is 00:12:32 And that's basically the byproduct of a gigantic stimulus that the US true at its economy in 2020, 2020, 2021, as a percentage of GDP that's unparalleled in any other jurisdiction. And so the US is still basically living off that aggregate demand boost that we saw in gigantic amounts being thrown at the economy in 2020, 2021. The labor market is still relatively strong, balance sheets are still relatively healthy, etc, et cetera, et cetera. The second reason is that you need to think about our monetary system as a dollar-centric system. So it's a pyramid, basically, and at the epicenter of the pyramid sits the dollar.

Starting point is 00:13:08 The dollar, despite being only 10% of GDP, the US being only 10% of GDP and dollar representing roughly 15, 20% of world trades, the dollar basically takes a lion's share between 60 and 80% of all FX transactions, cross-border payments, trade invoicing, so on, and so forth, which basically means that the dollar sits at the epicenter of our system. Now, when the system becomes shaky, the first impact, it's not at the epicenter of the pyramid, but it's at the very top and at the fringes of the pyramid. And the top at the fringes of the pyramid are all other jurisdiction that basically leave off and benefit from this dollar-centric system we have created until there is a little bit of stress

Starting point is 00:13:50 being thrown into the system. The US sits at the very center of it, which means it feels the stress, late in the cycle, while the peripheral parts of the system actually tend to be stressed first, including and especially the ones that have inherent fragilities like Europe or Canada or certain emerging markets. And that's why these central banks and not the Fed are the ones that are looking like ready to pivot earlier than the Fed itself. So interesting.

Starting point is 00:14:17 You know, back in August when you were talking to Preston, it was the Bitcoin episode 89, you highlighted that 70% of the CPI components were running at over, 4%. Eurozone inflation recently soared to a new record. And prices have jumped by a record of 10.7% in October and far exceeding the expectation of 10.3%. Core inflation also accelerated to a new record of 5%. So I'm curious, how will this impact the current ECB policy? Yeah, so we are talking about the soft pivot stance from peripheral central banks, which are not the Fed, and the European Central Bank can be effectively qualified as one. Now, if the solution would be as simple as to say, hey, instead of only focusing on our inflation mandate, we also want to take into account

Starting point is 00:15:05 financial stability risks that we see on the horizon. Therefore, we are going to be much more gradual from now onwards when it comes to raising interest rate. Yes, you can do that, tray, but the problem is that you will be sending a signal to markets that you are not overly serious about inflation. And what happens then is that real interest rates start to drop all over again. And as real interest rates drop, actually investors appetite come back and they start buying houses, buying equities. Borrowers have an easy life again. They can borrow. The economy starts to run hot again and we run the risk of basically feeding this inflationary mechanism that we saw being very vicious in the 70s under the Volcker tenure and that led basically

Starting point is 00:15:47 Volcker to be overly aggressive later on to be able to actually bring inflation down once and for all. So there is always a release valve in this process. When real rates drop very aggressively as the central bank is not that committed about fighting inflation anymore, the currency can be one release valve. We have seen that happening in the UK. We have seen the sterling actually drop. You've in the euro drop against a dollar. So it's not that easy for a central bank during a period where inflation runs way beyond their mandate to simply say, hey, all of a sudden, we also want to take care of our financial stability risks, because bond vigilantes, effects vigilantes, they will come back and actually haunt policymakers by going after the release

Starting point is 00:16:27 valves, be there the bond market, be there the effects market, or whatever other release valve they find. So in this setup, I think, there is no easy policy. that the central banker can implement, as Powell was very clear about, one very coherent monetary policy take will be to just be very strong and committed in fighting inflation. But that means that households will need to go through some pain. That means the housing market goes basically to a halt. House prices have to go down. Stock prices need to go down. And households need, unfortunately, to feel the pain for this monetary tightening exercise. There is this idea of a soft lending, this idea of a nuance, this idea of a nuance, this idea.

Starting point is 00:17:06 of perfectly navigating a gradual interest rate increase in a world that runs at 400% that the GDP summing up the private sector and the public sector. In a world that is highly leveraged, it's really a complicated concept to unfold and to successfully land, I think. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating sun. Sondas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom

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Starting point is 00:21:27 That's Shopify.com slash WSB. All right. Back to the show. We have another Fed meeting coming up this week. I mean, this episode will probably drop a couple weeks after this, but tomorrow the Fed is meeting again. And, you know, I'm hearing lots of different narratives or lots of speculation around whether they're going to ease up on their rate hikes now or if they're going to go ahead with 75 basis points and then kind of talk about maybe. slowing down the rate hikes moving forward. I'm kind of in the camp of the ladder. So I'm kind of, that's what I'm predicting. What are you predicting about this week's Fed meeting? I think they'll do 75 basis

Starting point is 00:22:06 point, tray. And of course, this episode will be released after the Fed meeting. So I'll make a fool of myself by calling this wrong. We're honest man. But the most important part of the Federal Reserve meeting is not necessarily 75 or 50 basis point at this meeting itself, but whether and how Powell responds to the market demands for a Fed pivot. The market is basically asking questions very loud about when and if the Fed Reserve will slow down the pace of hikes, where will the terminal rate be, and what is the hurdle for Powell to stop tightening the screws that much?

Starting point is 00:22:45 And it needs to come up and answer to these questions during the press conference, and I think that will be the most interesting part of the Fed meeting. And I think those answers will be still pretty clear. Powell's mandate is to bring inflation down. And because he's been so wrong about inflation for so long now for like maybe nine to ten months already, where the Federal Reserve was very late in hiking interest rates and tightening, he lost a fair amount of credibility. Credibility tray is the strongest asset and basically almost the only one that the central bank has. And so as inflation is still running way beyond Powell's mandate and especially being very widespread, as I said to Preston a couple of months ago, It's not only used car prices that are up, but it's now services inflation. It's the stickiest component of the inflation basket that are pointing up, up and up. There is no reason, no evidence in the data whatsoever that would allow Powell to coherently

Starting point is 00:23:38 and credibly slow down, let alone pivot. So I think it will be very clear in his press conference that unless some serious progress has been made on the inflation front, he can't validate any demand from market participants to pivot towards a Mordovish stunts. I agree with you there. You know, instead of quantitative tightening, the ECB has been leaning towards what they call targeted longer-term refinancing operations, otherwise known as TLTROs, and those are loans. Please explain what TLTROs are and why it makes more sense for the ECB.

Starting point is 00:24:15 So, Trey, let's go back to the pandemic times in Europe. So that will be early 2020 when we got the first wave of pandemic. The European economy is very fragile. It's an economy with a very bad demographics with poor productivity trends. It's an economy that needs credit to try and grow at least at a decent level, decent namely being roughly 1.5% or 2% real growth a year. It needs credit. It needs the flow of credit to be ample and available to economic actors

Starting point is 00:24:46 so that can leverage the balance sheet and grow more than the poor demographics and productivity trends alone would allow. Now, during the pandemic, you wouldn't expect banks to be very happy to lend money to the private sector because they would expect major defaults, right? So the European Central Bank came in and designed a program that effectively allowed banks in to get an extremely cheap funding rate. So banks could borrow directly from the European Central Bank through this TLTROs, and these borrowing rates would be extremely cheap.

Starting point is 00:25:19 all the way up to minus 1%. Now, think trade, you're getting paid as a bank to borrow from the European Central Bank itself, but the lower rates, negative 1% on the borrowing side, would only become true if you, as a European bank, would at least keep your loans book stable, which means you would at least lend some money back to the private sector without shrinking your lending book.

Starting point is 00:25:44 So there were some criteria. It was a targeted long-term refinancing operation indeed, and the target was to make sure that some flow of credit was directed to the private sector even during the pandemic. Now, obviously, again, the central bank didn't ask banks to lend more. It asked banks not to shrink their lending book. So the hard-old rate was very easy to achieve, if you ask me, which meant that the conditions were extremely favorable. And European banks borrowed two trillion euros from the European Central Bank and ended up keeping their loan book stable and simply making an arbitrage by borrowing at minus 1% and parking back these reserves back at the

Starting point is 00:26:22 central bank and negative 50 basis point. So there was an easy arbitrage that banks could run. Now, they did so for a while. Basically, the European Central Bank wrote a check to European banks. You could think it this way as well. Now comes the post-pandemic period, the European Central Bank with inflation at 10.7% in Europe does not want banks to lend aggressively to the private sector and feed additional aggregate demand pickup. So it wants European banks to actually pair back some of their lending activity. And for sure, it doesn't want them to gain a free carry, a free arbitrage by continuing to get these reserves at minus 1% and parking that back at positive interest rates at the

Starting point is 00:27:02 European Central Bank. So they announced that the conditions would change. And this changing conditions basically almost forces European banks to repay back the loans because the borrowing conditions are not favorable anymore. So what you're doing from now onwards for the next year, basically, is yes, you're rolling over this borrowing from the European Central Bank, but not at favorable rates anymore. So where is the sense of that? Why would you lengthen your balance sheet if conditions are not favorable anymore? Now, what the European Central Bank is hoping there is that European Bank would repay back a good portion of this TFT euros to the

Starting point is 00:27:35 central bank. But what it does, Trey, is it shrinks the balance sheet of the European Central Bank. These loans which were created against reserves which are created on the liability side will both shrink as European banks repay these loans and the reserves are destroyed as well, which means the balance sheet of the central bank will come down and reserves in the banking system will also come down. And if you remember about what we discussed before, that means that money for banks will be less ample, will be scarcer. The amount of reserves in the system will go down, which means the lubricant of the financial system in Europe too and not only in the US will actually become scarcer, which also means that banks will become less prone to engage in liquidity

Starting point is 00:28:19 providing activities, in repo activities, in transacting with each other, in facilitating liquidity in markets, which, if you ask me, is an additional reason also in Europe to be very conservative when it comes to taking risks and allocating assets in a risk-prone way going forward. You know, you introduced me to a new ratio, actually, which is the one-year, one-year inflation swaps minus the U.S. year-over-year CPI. And what this, I guess, is telling us is a prediction of where the U.S. CPI or how much the U.S. CPI may or may not drop or raise, right? So right now it's predicting a drop by over 5%.

Starting point is 00:28:57 Now, do you use this metric or buy into it? And if not, or if so, what are your expectations for future inflation prints? So, Trey, the reason why I came up with this indicator on the macrocombus, the reason why I looked at that is the following. I hear a lot of investors that are saying, hey, I think inflation will fall off a cliff and therefore I'm going to do X, Y and Z with my portfolio. Now, if you have been a professional investor like me, you understand, Trey, that having an opinion is not a good enough reason to invest because the market as an opinion too. So you need to basically weigh your own subjective assessment of probabilities and what will happen against what the market is pricing in. So this ratio that you just mentioned is my attempt at displaying to people what is the market

Starting point is 00:29:45 expecting when it comes to inflation going forward. So what I did is I looked into the corners of the fixed income market, came up with forward expectations from fixed income participants for inflation in 12 to 18 months from now against where inflation is today. Now, the market expects inflation to drop by five percentage points in 16 to 18 months from now, from 8% all the way down to 3%. It's already baked in in fixed income participants' expectations. Now, we should dispel this theory under which the bond market is omniscient.

Starting point is 00:30:20 It can predict everything on point. Well, that's not always the case, but knowing at least what's priced in, what's expected by bond market participants, can inform you when, taking risks. So if your thesis solely relies on inflation will come down, well, guess what? The market is already pricing that into a large extent. Now, a lot has to do with the pace of this lowdown and the extent of this lowdown trade. So there you can have a different opinion from markets, basically. There are a lot of people that expect inflation never to drop to 3% and to stabilize in the 4% to 5% camp. Am I in that camp? Well, not really, especially on the cycle.

Starting point is 00:30:56 So we shouldn't confuse long-term trends with cycles. What I think we will be experiencing right now is as we had a very strong cycle of inflation going up very rapidly, by the end of 2023, beginning of 2024, we're going to have a very vicious cycle of inflation dropping very aggressively. And my expectations is that it will also drop below this 3% implied by markets. So why do I think inflation by 2024 will be back in the 2% area, if not even below, is very simple. The amount of real economy money of credit being thrown to people in 2020, 2020, 2021 was gigantic. I built a series called the G5 Credit Impulse series that tries to measure

Starting point is 00:31:39 across the five largest economies, how much real economy money are we pumping? How much money is it reaching the private sector pockets, the one that actually can be used to buy goods, to boost nominal economic activity, basically? And that serious, Trey, in 2000, late 2020, beginning of 2021, had the fastest increase on record on my series. It was really gigantic the amount of money we threw at real economic actors, not financial money, real economy money. Now, if I look at that series, it leads inflation by roughly 18 months. Why?

Starting point is 00:32:16 Because it needs time. You need time. You need people to get more money on their bank accounts, reassess their spending pattern. Then you need people to spend, which will drive up earnings, economic growth. and later on also inflation. Now, very punctually, inflation 12 to 18 months later actually started to rise. But in order to understand what will happen in a year, 18 months from now, we need to look at that series today. And where is that credit impulse series today, Trey? It's at the lowest levels over the last 45 years. And why? Because we have stopped throwing money at the private sector.

Starting point is 00:32:48 We haven't had any fiscal stimulus in one and a half years. Actually, some jurisdiction are doing fiscal tightening, they're taxing the private sector more than throwing money at the private sector. Look at the tax season in the US in April. It was very, very good for the government, which is bad for the private sector. It means we are paying more taxes. And yes, banks are trying to lend more as normal in the late cycle, but you are not creating money anymore for the private sector. You're actually draining some money from the real economy today, which basically means that after every sugar rush, there is now a sugar cliff. And the sugarciful, and the sugarciful, cliff inevitably in 18 months, 12 to 18 months, will also translate into lower inflation.

Starting point is 00:33:29 There is no good reason for which the big stimulus we have seen cyclical stimulus in 2020, 2021, which led to a sharp pickup in inflation and the subsequent gigantic withdrawal of real economy money we're experiencing now shouldn't lead to the same extent, slowdown of inflation into late 2023 beginning of 2024. That's a different story than discussing long-term trends where people might say, yes, Alf, but we are de-globalizing. Yes, Alf, but the labor force is not expanding anymore. Yes, but commodities. Yes, but all right. But these are long-term trends. They take five, 10 years to unfold and be visible in inflation trajectories. In the meantime, we will have cycles. And those cycles in growth, those cycles in inflation are dictated by

Starting point is 00:34:17 large swings in monitoring and fiscal supports. And as we have seen a large tailwind in 2020, 2021, we are seeing now a gigantic headwind in 2022, which will inevitably turn out to slow down economic growth and inflation in late 2023 and 2024. So maybe there's a clarification here around kind of timing. But earlier this year, you were more of a proponent of sitting on cash. And it seems like lately you've been shifting into more of a proponent for going long treasuries and maybe even shorting equities. So I'm kind of curious what has shifted for you, especially with the expectation that inflation may be coming down over the next, let's call it a year. So basically, the macrocompass asset allocation models in November, December, were signaling that

Starting point is 00:35:03 both forward economic growth would slow down and the policymakers will become more aggressive. And the combination of the two is toxic for assets. And we have seen anything actually being beaten up this year, apart from energy, anything that is. Bitcoin, equities, bonds, anything you name has been beaten up, apart from the dollar and energy. So back then, the Astellocation tilt was to effectively hoard a bunch of dollar cash, which isn't a very attractive thing to say, but ultimately in cycles, in macro cycles, there are periods to be long, periods to be short, and periods to go fishing, as my mentor would say, which means just be defensive and not try to get sucked into very complicated situations. Now, that has played

Starting point is 00:35:42 that very well for the first seven to eight months of the year. Now, when you start, you start, start having a lot of damage or potential damage being displayed into economic growth. Damage that is caused by fiscal tightening and monetary tightening, there is a point at which there is a dichotomy that happens. Earnings growth and economic growth will keep falling into 2023 because, well, we are trying basically to slow the economy down. So being long assets that benefit from cyclical growth is a very bad idea. Now, what becomes a good idea or could become a idea instead is to try and be long assets that benefit from a disinflationary trend. If you think that this inflationary trend is coming while earnings growth and economic growth will still disappoint,

Starting point is 00:36:27 then historically one of the best assets that perform in this environment are bonds and gold to a certain extent as well. Those are defensive assets that perform relatively well when real interest rates are dropping and there are these inflationary trends. So I'm not saying it's time to pile up into a bond allocation, but I'm suggesting, as you can read on the macro compass, that the times might be ripe for a moment where, like in early 2001, bonds could start to do well while equities still struggle. And let me elaborate for a second on this 2001 analogy. So I think, and this is one of the pieces I release on the macro compass as well, that we are looking at a period, which is very similar to late 2000, beginning of 2001. And now think with me, Trey, when it comes to the similarities. In

Starting point is 00:37:12 In 2000, we had the dot-com bubble, which was an expression of excessive risk-taking and animal spirits in financial markets. Does it remind you of anything in 2021? We have seen unprofitable companies being validated 100 times earnings. We have seen debatable alt coins being thrown to the roof in pump and pump schemes, etc. So there have been a lot of animal spirits and irrational risk-taking experiences in 2021, which pretty closely remind of the dot-com bubble in 2000. Inflation in 1999 and in 2000 was at 4.5% for five quarters in a row.

Starting point is 00:37:51 Now, today is even higher, but you get the gist of what I'm going. Where I'm going is that inflation was much higher than the Federal Reserve Target, which limited the Fed ability in 2000, like in 2022, to actually intervene and be dovish when the market was actually showing sadness stress or the economy was already decelerating. The Fed's hands were basically tied, are still tied today. So that's another similarity. And then in late 2000, you start seeing a bit of cracks appearing in earnings. Wow, we have seen some cracks appearing in this earning season.

Starting point is 00:38:21 Have you had a look at Amazon or meta? For example, very large cap companies that have suffered an earnings disappointment compared to expectations. Now, let's say the similarities are there. What happened in 2001, which would be us looking in the parallel and drawing into the next three to six months. What happened then is that the labor market started to show in some cracks on non-farm payrolls instead of being 300,000 addition of jobs a month became 50,000, 70,000. So the labor market was still adding jobs, but visibly slowing down. I would expect the same to happen over the next three to six months. We saw earnings continuing their deterioration on the way down, which is also what I expect to happen over the next three to six months. Now, what happened to asset class's

Starting point is 00:39:05 performance in 2001? Instead of everything sell-off, like we have seen in 2022, where bonds, gold, Bitcoin, equities, anything you can own went down, actually some asset classes started delivering positive performance. Bonds being one of those. And also why? Because the Federal Reserve at some point in 2001 saw that enough damage was starting to be delivered to the labor market. Unemployment rate had gone up already significantly, which allowed them at least to cut interest rates by a hundred, 150 basis point and bring interest rates down from 6 and 1⁄2% to 5%. So not to 0%, but at least to 5% to start accommodating the process of an economic slowdown,

Starting point is 00:39:47 which helped bonds perform. Now, do I expect this to happen immediately in three weeks? Not necessarily, but I'm preparing investors to draw parallels with that period of early 2001 where a Fed pivot is not necessarily positive for equities and risk cussets because the Fed will be pivoting when damage is done to the labor market and to earnings. which is not a situation where you want to be bullish risk assets because the economy is slowing down very aggressively. We are in a recession in an environment.

Starting point is 00:40:17 There is an asset that can deliver positive returns. And in that cycle, in that particular cycle, is bonds rather than equities. And that's where I'm preparing to basically tilt my asset allocation going forward. Let's talk about some other cracks in the system. So I'm trying to better understand what exactly happened with the pensions in the UK as of late because the global pension fund industry is worth $35 to $40 trillion. I mean, this is just such a massive, massive part of our global economy. And the UK pension funds were in hot water recently.

Starting point is 00:40:50 It seems like we got here by these funds using what's called interest rate swaps. Can you please describe what an interest rate swap is and how it works? Yeah, that's a good question, Trey. And this is a relatively complex topic, but we'll try to make it simple. That's why we're here for. So bear with me for a second and let's think about how a pension fund works. A pension fund balance sheet has a liability side and on the liabilities, it's basically the pension fund promise to pay pensions to write re-ease in 30 to four years from now.

Starting point is 00:41:23 Those are the liabilities, the due items for a pension fund. On the asset side, a pension fund will have investments to make sure it can generate enough returns to meet these obligations. So these investments will be a bunch of bonds, equities, real estate investments, whatever they deemed necessary to achieve these returns. Now, what about risks? A pension fund needs to pay these pension obligations in generally 20 to 30 years from now, which means that rapid changes in interest rates can affect the market value of its balance sheet because you need to think about this pension liabilities as very long-term duration liabilities.

Starting point is 00:41:59 So the price and value of these liabilities changes with interest rates changing up and down very rapidly. In other words, the pension fund is exposed to interest rate risk. Now, not only on the asset side they need to generate returns trade, they also need to hedge this interest rate risk somehow, right? So the obvious candidate to generate fixed returns and hedge interest rate risk is a government bond, a long-term government bond, which not only generates a certain return, which is fixed if you own the bond until maturity, but it also hedges interest rate risk on the liability side. And that's why pension funds are notoriously large investors in the government bond market. I'm not saying anything new, but now let's introduce the concept of interest rate swaps.

Starting point is 00:42:42 Now, the problem with investing all your assets into government bonds trades that interest rates were dropping very fast for the last 30 years, which meant that if you look at the UK pension fund for the last 10 years, if they would only buy UK government bonds, they would lock in yields in the 2% area. And 2% is not enough of a return to guarantee a decent pension stream to rate the risk 20 to 30 years from now. So interest rate swaps became very convenient to use. And why? Because an interest rate swap is nothing else in an agreement where two counterparts exchange floating interest rates over time against the fixed interest rate that we decide today. So we're basically fixing today interest rates against promising to pay floating interest rate over time. So it's an instrument to basically lock in interest rate today and try to hedge this interest rate risk over the time span.

Starting point is 00:43:33 But where is the trick? Because you could do the same with government bonds. The trick is that interest rate swaps do not require cash outflows, large cash outflows at the beginning. When you buy a government bond, a hundred million of a government bond requires you to disburs a hundred million in cash. Interest rate swaps are derivatives and they're centrally cleared, which means that the clearinghouse would only require you a small initial margin for, you to enter into a trade that hedges a lot of interest rate risk. Now, do you see the convenience of that? That's awesome because you save a lot of cash by doing this interest rate swap. You still hedge interest rate risk, but you don't need to put all that cash up front. You don't need to anymore,

Starting point is 00:44:14 which means the cash you don't put up front can be instead invested in higher yielding assets. You can buy more real estate exposure, more equities, more emerging markets, more credit exposure and make sure that both your interest rate risk is edged and your perspective return is much higher because now all of a sudden you're investing your cash in higher-yielding us. Wow, that looks amazing, right? Well, there is a problem. The problem is that as long as volatility remains very low, the clearinghouse will require

Starting point is 00:44:43 you to post only a little bit of variation margin. You know, these interest rate derivatives go up and down every day, but as long as volatility is contained, they will only call you to put a little bit of cash every day. or to receive a little bit of cash if the position is going your way. Now, let's walk back to a month ago, where interest rate volatility in the UK went through the roof. We saw as the combination of the fiscal package, which was launched by Lids Trust,

Starting point is 00:45:08 and inflation in the UK being rampant, we saw interest rate volatility going through the roof. Interest rates increasing 20, 30, 40 basis point a date, right? Which was nothing that any pension fund risk manager had incorporated in their modes. Now, what happens? the clearinghouse is calling up this interest rate, these pension funds and saying, guys, you need to post a large amount of collateral because your position is underwater.

Starting point is 00:45:33 Okay. So the UK pension fund goes and look for cash and it has some cash on the side. It posts it. But the day after, the interest rate swaps keep going up, up and up in interest rates, which calls them for more collateral. There is no collateral anymore. So what do you do is, no problem. We'll give you some bonds, right?

Starting point is 00:45:50 We have a bond portfolio. we will use that bond portfolio as collateral to meet the margin code. The clearinghouses do not accept bonds as collateral. They want cash. Now, one way would be to try and post this bond somewhere else as collateral to receive cash, maybe from a bank, for example, and use that cash to meet the collateral margin. Banks refused to do these transactions because they understood that pension funds had a liquidity problem.

Starting point is 00:46:16 They didn't want to lend money to an entity which is facing a liquidity crisis, right? Pension funds also do not have access to the central bank. They cannot go to the central bank and say, hey, here is my bond portfolio. Please give me some cash. They do not have a line with central bank, which means the only solution left is to sell rapidly down your bond portfolio, your equity portfolio, anything you have in your book in order to raise the cash necessary to meet the margin calls or otherwise you would default on these contracts.

Starting point is 00:46:46 And that's exactly to what we saw happening, right? a rapid fire sale that ended up compounding the problem of rising interest rates because not only interest rates were rising pension funds were selling bonds on top of that to try and raise the cash necessary to meet the margin course. And at some point, the Bank of England had to intervene because otherwise a large systemic $40 trillion participant sector like the UK pension fund would be underwater very rapidly. So these are systemic risks that tend to be hidden until volatility picks up in some corner of this very leveraged system we have created actually shows signs of stress. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:50:51 And just to give a reference point, the UK pension fund industry is sized about 119% of their GDP. This is according to 2020 data. And the Netherlands pension fund assets is a percentage of GDP over 200%. Could the Dutch be facing a similar risk? as the UK, just be given the size of this economy? In principle, yes. The Dutch pension fund industry is gigantic. There is a butt to be said here.

Starting point is 00:51:19 So the first is the size of the pension fund industry as percentage of GDP is actually one good indicator. The other one is the size of the pension fund industry as percentage of the underlying bond market. If there is a vast, very liquid bond market pension funds can tap, it also limits basically the risk that there will be collateral squeezes here and there because the collateral is abundant, right? And it is not fair, really, to compare the Dutch pension fund industry to Dutch GDP because the Netherlands is in Europe, uses the euro and therefore can access the euro bond

Starting point is 00:51:52 market, the euro repo market and also needs to be measured against the euro GDP. So if you change the denominator from Netherlands to Europe, then all of a sudden the problem becomes a little bit less acute. Nevertheless, it remains a very large, systematic industry. It's a bit better regulated, if you ask me, than the UK one. But similar dynamics could unfold, Trey, because so far we only talked about collateral squeezes on interest derivatives. The pension funds, insurance companies, asset managers also use other derivatives for an exchange derivatives, commodity derivatives, equity derivatives. And as volatility is picking up in every single corner of financial markets, you always need to bear in mind that as we have built a very successful and fruitful and wealth-generating

Starting point is 00:52:38 system, we'd leverage when volatility is very low, when volatility picks up, such a leverage system can become fragile, especially in places where you expected the least. And the Dutch pension fund system could easily be a candidate for potential signs of stress. So I want to talk about some other derivatives here. When you were talking to Preston a few months back, you were highlighting this risk of a re-denomination in Italy from the euro to the Italian lira, and the credit default swaps were climbing in price. How has that evolved since that discussion? So, Italy is a new government, which has been recently elected. It's a right-wing government with basically three main parties in its coalition. And so far, we haven't had any major

Starting point is 00:53:25 updates on the fiscal stunts and the European stunts of this government, but we are waiting news over the next few days. The reason why I use those credit default swaps contract to grasp the risk of a lira redenomination is that investors can hedge against Italian default risks in two ways, using two sorts of credit default swap contracts, right? There is a 2003 contract and there is a 2004 and 2013 contracts. Now, why are they two credit default swap contracts in Europe? That's an interesting story. In 2004-5, before the great financial crisis, nobody thought or foresaw the possibility that one of the member countries of the euro would want to walk away from the eurozone. There was basically this possibility never crossed anybody's mind, which meant that as an investor,

Starting point is 00:54:16 if you bought a credit default swap, what you really did is you basically protected yourself against the default risk, the credit default risk of one of the sovereigns not being able to pay back their sovereign debt. That's what you did. But if the sovereign decided to all of a sudden redenominate that outstanding debt from euro to pesetas or French francs or Italian lira, you wouldn't be protected. That redenomination wouldn't qualify as a default event where your credit default swap contract would be triggered. Now comes the great financial crisis and the Eurozone debt crisis of 2011, Tray, and all of a sudden, that possibility of a certain member country wanting to redenominate their debt in domestic currency and walking away from the

Starting point is 00:54:59 Eurozone becomes a real and concrete possibility. So a new contract is born, a new contract, which is a 2014 CDS contract law, which basically protects investors also against the risk of a certain member country redenominating their debt in Italian lira, Spanish pesetas, et cetera, et cetera. Right now, Trey, what that means is that there are two credit default swap contracts outstanding, one that protects you against the risk of redenomination, one that doesn't. So comparing these two contracts basically isolates in the best way possible the redenomination risk itself. The only material difference between trading one of the contract or the other is the redenomination risk protection or not.

Starting point is 00:55:42 So if you compare these two contracts, you can get an idea of how much investors are willing to overpay by buying one credit default swap contract for the luxury to be also protected against redenomination. And this spread against these two CDS contracts in Italy actually reached levels which were relatively high in the run-up to the Italian elections and has remained relatively high, which means investors are willing to pay up for protection against Italy redenominating their debt in lira. Does it mean that Italy will or that the probability has gone up? not really. It only means that investors are more nervous about the event. Now, I don't think this government will be extremely friendly to Europe, if you ask me. It's a government which

Starting point is 00:56:23 wants to and understands that Italy has a large leverage within the Eurozone, being a very large economy and especially in this geopolitical context, Europe cannot afford losing one of his largest founding members. And so what that means that if you are negotiating as the Italian government, you know you have some decent leverage that you might want to use. So, I do expect some confrontation between this government and Europe, which might want to make investors even more nervous going forward. Now, are there other parts of the market where CDS spreads or prices are increasing that's causing you concern?

Starting point is 00:56:57 Yes, there are a couple. The Chinese CDS market has become very active. China is undergoing a massive de-leverage tray. It's a de-leveraging process that involves the single biggest asset class in the world. which is the Chinese housing market. Chinese real estate market at the end of 2021 was valued at $50 trillion, which is much larger

Starting point is 00:57:21 than the U.S. equity market valuations, a gigantic market which is undergoing a massively leveraging because Xijim being at the Chinese Communist Party understood that the hyper-financialization of China was not exactly the way they wanted to proceed forward. They wanted rather common prosperity, perhaps trying to contain some of the financial excessive,

Starting point is 00:57:43 that were ongoing in China and they clamp down on tech sector and also clamp down on the housing market. Now, when you climb down on such a highly leveraged and such a systemically big, asset class like the Chinese housing market, you generate a lot of pain through the Chinese economy and that's visible together with the zero COVID policy through the Chinese CDS market. So the credit default swaps in China pricing actually quite some pain, historically speaking, in China. And the other sector that I'm looking at when it comes to credit default swaps is banks. Banks obviously are in a much better shape than in 2007. They need less to say, they're much more regulated, much more, and they have less leverage on the

Starting point is 00:58:21 balance sheet, but they do have significant exposure to the housing market, significant exposures to emerging markets to a certain extent as well, which means that as the housing market slows down, some of these might actually be reverberated through banks balance sheets, and therefore credit default swaps are starting to reprise a meaningful possibility that some of these banks go on the trouble. See Credit Suisse in Europe, for example, being one example of a bank that has been targeted by investors as being in trouble. So those are the two areas, I would say, financials, both in the US, in Europe across the world and China, where I am looking for signs of credit stress. And speaking of spreads, another spread that you guys talked about a few months ago was

Starting point is 00:59:00 the 10-year, two-year treasury spread. At the time, it was about 0.27, if I'm remembering correctly, and you predicted that it might go to 0.5. And shortly thereafter, like weeks later, it was at 0.48. It kind of peaked, if we can call it that, or the trough, I guess, has been at 0.51 on September 23rd. So you nailed this prediction so far. It's right around 0.41 today. Because we kind of hit your target, where do you see it going from here? So that will basically depend on whether the Federal Reserve caves in to financial risks

Starting point is 00:59:34 or financial stability pressures or it decides to just march ahead and tighten monetary policy. Trey, curb inversions, which is something I talked about for the first time in February on the macro compass and people thought that was crazy. But actually, they happen when the central bank is forced because of their Monday to tighten the screws so much

Starting point is 00:59:54 that the bond market says, okay, we get you to influence the short term of the bond market. We have to prize you accordingly. So we will raise yields back at the front end. But we will reflect the pain and the nominal growth slowdown and the potential recession you will generate by overtightening in the back end of the bond market, because that reflects prospects for long-term growth and long-term inflation. And the tighter you are today, the more likely you are to cause a recession that will lower growth over the long term, right? So that

Starting point is 01:00:25 gets reflected into lower yields, or at least a curve shape which becomes flat and even inverted. Where are the Federal Reserve to continue tightening as the labor market slows down, as earnings keeps slowing down, I would expect curves to invert further. Now, we have reached levels which are pretty interesting, minus 50 basis point in the two year, 10 years spread in the U.S. Treasury curve are levels seen in 2000s, levels seen 2007. So we are seeing levels that are pretty inverted. So from here, the risk reward in betting in further inversion, it's not as palatable as it was at the beginning of the year or when I spoke even to Preston. Nevertheless, it's all up to the Fed.

Starting point is 01:01:02 And I think, to be honest, Powell doesn't have major alternatives for the time being, if not to remain pretty committed and credible towards market in his inflation fight. So I don't expect a major reversal in this flattening trend of the yield curve. But again, the entry point today is much less palatable than it was at the beginning of the year. Are there any positions around the normalization of rates, if you will, or just managing the volatility of the bond market that you're considering? I think I'm eyeing the exact good time. It's very difficult to do, of course, of buying five-year or 10-year U.S. government bonds.

Starting point is 01:01:40 Because there will be a point, Trey, where the slowdown will become so visible and will become so painful through the data, through the labor market data, through the earnings releases. And inflation will be slowing down because we are tightening the screws of the monetary and fiscal policy accommodation that we have done in 2021. It will become so visible that it's basically going to be almost impossible for the bond market to ignore in this inflationary cycle ahead. Now, the problem is that being early, as my Mender used to say, is also being wrong.

Starting point is 01:02:13 So you need to stay there very patiently and wait for the point where the forward-looking indicators, which have already dropped, actually feed into real economy data that the Federal Reserve is struck in very close. And this is mostly the labor market. The labor market and earnings are the next shoe to drop. So you need to be very careful that I'll observe that process ongoing, but there will be a point where five-year treasuries at 4%. They will look like a fantastic investment with hindsight.

Starting point is 01:02:43 And I will be trying through the macro compass to direct my macro assessment in a systematic data-driven way so that astallocation becomes more and better equipped for what I expect to be a disinflationary period ahead. where nominal economic growth will slow down very aggressively. Earnings will slow down. The labor market will also take a hit, and people, unfortunately, will get unemployed to a certain extent. The housing market will slow down, but at the same time, there will be some investment

Starting point is 01:03:10 opportunities finally for investors to be long something, because this year, whatever you bought, whatever you were long, unless it was energy or the dollar, if you were a non-U.S. investor was a big pain. And the good news is that, from an investor perspective, I expect some opportunities for a long investor to arise over the next six months. Now, last question here, do you expect the other shoe to drop to kind of come from housing? Because you've written that housing makes up 20% of US GDP in around 12 million jobs, given its brokers and the construction and furniture shops, et cetera.

Starting point is 01:03:43 And if this needs to kind of grow by 90,000 jobs, if our labor force needs to grow by 90,000 jobs and this only grows by 10%, we might see a negative sign here as far as non-farm payrolls go. Is that what you're keeping a close eye on at the moment? moment. Yeah. So my expectation is that unemployment rate in the US will be at 6% by the end of next year. And this is not your median expectation. The median expectation is for unemployment rate to rise to 4.5%. I expected to rise much faster to 6%. And the reason why is that I expect the housing market to be much weaker than people expect. I wrote the first article in the housing market weakness in March this year. And again, people told me I was crazy, but all I was doing was just looking at

Starting point is 01:04:26 mortgage rates and at potential housebuilding activity ahead and the affordability crisis that people were basically staring into. And actually, that's what's been unfolding. And the housing market is a vital sector of the economy. Housing ease the cycle because it's the most leverage, most interest rate sensitive sector, one of the first sector to move actually. And it accounts for so much of US employment and US GDP that the housing sector alone could be responsible for non-farm payrolls to turn negative anywhere in Q1 next year. And as we don't add jobs, but we actually reduce jobs on a national level, while we need to add jobs to around 100,000 monthly pays to keep unemployment rate stable, if you do the mathematics, you end up understanding that

Starting point is 01:05:12 unemployment rate is likely to shoot up much higher than 4.5% by the end of next year, solely accounting for a serious lowdown in the housing market, which is inevitable at this point, right? The bull case for the housing market is a complete freeze. It's a situation where sellers have the luxury, not to have to sell, and they can just basically pair back. And the market will become dry. There will be no transaction and no new houses built. How many jobs will you lose in housing and housing-related sectors at that point? Do you need brokers if there is no transaction? Do you need construction workers if there is no appetite to buy any house anymore, right? Now, this is the bull case.

Starting point is 01:05:52 A more base case, I would say, is that the labor market weakens and therefore some people are forced to sell a house to tap into their equity because the housing market gains that we have seen over the last five to ten years in the U.S. account for a lot of the so-called balance-it strength in consumers. It's people having their houses worth much more than what they paid for. Now, if they lose their jobs, they might want to be forced to a certain extent at least to tap into this home equity, which means selling their house or refine. in their house or any way, extracting some equity from the housing market. Now, if that happens,

Starting point is 01:06:25 it starts a little bit of a cascade where I expect house prices to drop by 10% by the end of next year, which, by the way, seems very scary, but it would only bring us back to early 2021 levels. It's not the end of the world. And it's a likely path ahead that will also hit the labor market to an extent where I think unemployment rate will be in the 6% area by the end of next year. Wow. Well, Al, this was incredible. And you are putting out such amazing content. And I strongly encourage people to not only subscribe to your newsletter, but follow you on Twitter as well. You've got amazing threads you put up there almost daily. So before I let you go, I want to give you the opportunity to hand off to the audience where they can learn more about you and find all the resources you're providing. Well, Trey, very kind words from your side. Thank you very much. If people want to find more about my work, the best place to do that is my free newsletter. It's called, the macro compass. It has 110,000 readers by now. I'm very happy about the amount of people reading it. It goes out weekly. And it's a newsletter whose mission is to give away financial

Starting point is 01:07:30 education, macroeconomic insights, and actionable investment ideas so that people can look at the same things I, as a pro, I'm looking at when assessing macroeconomic conditions ahead and make up their mind to be a much better informed macro investors and understand that there are risks to be managed, cycles to be managed when it comes to portfolio allocation. So my mission is to try and help people educate themselves, become smarter about macro, about the bond market, which is in particular my specialty, and come up with actionable investment ideas and portfolio locations that people can get ideas from when it comes to their own financial situation and wealth preservation, basically.

Starting point is 01:08:10 That's one way. It's called the macro compass. You can just Google it or look for it on substack. And the other way is via Twitter, as you said. said, at Macro Alf is my endel. You'll find snippets much more frequent, let's say, in short, but not as deep, of course, as the newsletter articles there. And occasionally some pictures about homemade pizza and bread. You would pardon me for that, but I'm Italian after all. I love it. Well, Al, this has been amazing. And I can't wait to follow up with you and check in

Starting point is 01:08:38 on some of these predictions we made today. So thanks again for your time. Thanks, it's been a pleasure. All right, everybody. That's all we had for you this week. If you're loving the show, don't forget to follow us on your favorite podcast app. And if you'd be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter at Trey Lockerby. And don't forget to check out all of the amazing resources we've built for you at the investors podcast.com. You can also simply Google TIP finance and it should pop right up. And with that, we'll see you again next time. Thank you for listening to TIP. Make sure to subscribe to millennial investing by the

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We Study Billionaires - The Investor’s Podcast Network - TIP495: The Changing Composition of Money w/ Alfonso Peccatiello

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