David Cervantes of Pinebrook on the Increasing Importance of Political Economy

Jan 23, 2023

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.