Unlock the mysteries of the Nordic equity markets with insight from David Bagge, a distinguished stockbroker and head of a single-family office. In our thorough exploration, we dissect Sweden's OMX S30 index, shining a spotlight on its leading sectors, banking, and industrials. You'll see how currency strength, particularly the Swedish krona, is affecting powerhouse exporters like Volvo and Atlas Copco. Experience a rare look into the curious case of macroeconomic indicators diverging from equity performance, a phenomenon not exclusive to Germany and a signal of caution for investors amid market highs.
Venturing into the realm of real estate, we draw parallels between Swedish and U.S. housing markets, examining the current landscape shaped by mortgage rate hikes and the shift from low-rate fixed mortgages. Our dialogue takes a turn as we question the real influence of AI in investment and labor markets, discussing its portrayal in financial media and its embryonic presence in Sweden compared to the U.S. Concluding with a golden touch, we delve into the strategic inclusion of commodities like gold and silver in a diversified portfolio and discuss the expected surge in their value, sharing insights that could steer investors toward substantial growth opportunities.
Nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.
Unlock the mysteries of the Nordic equity markets with insight from David Bagge, a distinguished stockbroker and head of a single-family office. In our thorough exploration, we dissect Sweden's OMX S30 index, shining a spotlight on its leading sectors, banking, and industrials. You'll see how currency strength, particularly the Swedish krona, is affecting powerhouse exporters like Volvo and Atlas Copco. Experience a rare look into the curious case of macroeconomic indicators diverging from equity performance, a phenomenon not exclusive to Germany and a signal of caution for investors amid market highs.
Venturing into the realm of real estate, we draw parallels between Swedish and U.S. housing markets, examining the current landscape shaped by mortgage rate hikes and the shift from low-rate fixed mortgages. Our dialogue takes a turn as we question the real influence of AI in investment and labor markets, discussing its portrayal in financial media and its embryonic presence in Sweden compared to the U.S. Concluding with a golden touch, we delve into the strategic inclusion of commodities like gold and silver in a diversified portfolio and discuss the expected surge in their value, sharing insights that could steer investors toward substantial growth opportunities.
Nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.
My name is Michael Gaiad, publisher of the Lead Lagerboard. Join me for that with David Badgey. David, introduce yourself to the audience there, to me, who are you, what's your background, what have you done throughout your career and where the hell are you?
Speaker 2:located. I was a stockbroker in the beginning for eight years at two different top one banks in Sweden, covering Nordic equities, and late 2017, I quit and started a single family office, and a colleague of mine joined me in two years after that. So, yeah, we've been running for six years now. So that's what I'm doing. I'm focused on Nordic equities in primary, but also very interested in global macro and stuff like that. I think it's a very macro dependent environment that we are trading in for the last years, so more of macro than valuations is my view. Right now, I'm in Austria for a ski week, so I'm just I'm heading for the off to ski after our conversation.
Speaker 1:I'm a little bit jealous. Okay, so on the first of just the audience level, set a little bit when on the Nordic equity side, what's the makeup of the Scepter composition across Nordic equities? What areas do you tend to focus on?
Speaker 2:Let's say, in Sweden, which is our home market, we have the main index OMX S30. That's around banks for 10%, something like that, and you have the industrials for 2020, 2025. I think that too is Scepter is accounting for like 40% together. So now I'm in some healthcare. But mainly Sweden is a small, open economy, a lot of export, like the big industrial names like Volvo and Atlas Copco. So yeah, we have top top one candidates from the company level in our pretty small country, but it's big companies.
Speaker 1:Yeah, it's funny, you mentioned Atlas Copco. I was actually in Sweden 2001 and I was there actually for a trip on my college to go visit Atlas Copco. Okay, so I'm curious so, financials, industrials how much of the macro environment when it comes to financials and industrials in Sweden is dependent upon what's going on with the eurozone more broadly versus the US, versus Asia? What are the biggest contributors from an outside factor perspective?
Speaker 2:Yeah, the most important market for companies in Sweden is mostly like Germany, for example, a lot of exports going to the eurozone and also a lot to US. Asia is important for many companies, but not if we account for there. I think the eurozone is the absolute biggest one and as we have our own Swedish corona, the currency, so I mean, and that one has been really weak for the last like five, six years. So all the industrials has, I mean the profits are up the roof mostly, not only, but the I mean the weak currency has helped them a lot. So that's going to be, that's going to be interesting, because I'm thinking about, like I mean, we had a strong dollar now for years and I think that maybe that bull run in the dollar is, you know, coming to an end here. Then it's going to be tougher for a lot of Swedish companies to help them the margins and so on.
Speaker 1:Let's talk about Germany a bit more, because it does seem odd that their equity markets have done well while they're officially in recession, just like Japan, by the way, weird divergences right, we got a macro.
Speaker 1:I mean, I don't recall a time where the macro has been disconnected from what is supposed to be a leading indicator of macro on the equity side, not just in the US, but also globally. What's going on with Germany in terms of their economy? And is that diverging Is something that maybe bothers you, or is it something that you don't really care much about?
Speaker 2:I think you have more or less the same trends globally. Where you have the media, the large cap names is running really hot. It's the same in Germany and in Sweden, for that does matter. But if you go below, like especially small caps, but you can go with like not even the small one, but I mean under the surface it's not as really strong markets. So we'll see if we have some more month, if we can have some pickup in the small cap sectors. But I mean they are terrible if you compare to where they come from, like 2021 and so.
Speaker 1:Well, and you talk about small caps, not just US. You're talking about the small caps in Germany.
Speaker 2:Yeah, globally, I think it's more or less the same trends everywhere.
Speaker 1:So it's interesting to say that, because I put a piece out basically documenting that and it's something I hadn't looked at until some follower actually messaged me saying you should look at small caps in other countries. It's not just happening in the US, right? You have this enormous bifurcation everywhere, in almost every single domestic home country, where large caps are massively connected. And, by the way, if the argument which is what I myself believe for a while is that disconnect is because of large cap tends to be tech heavy, small cap not so much. Other countries don't have that dynamic. It is still large cap, even though tech is not the sole reason. I'm curious what do you attribute that to? It does seem. Look, there's always the winner. Take all Pareto principle right when it comes to most industries and companies. So the part of the world war. But it seems like we're really getting to a bizarre point now in history where it's almost like two different markets in every home country. Yeah, it is Absolutely.
Speaker 2:I mean, if you talk about the markets with friends or I mean retail investors on, I mean their accounts, for many of them I mean you have to double or triple them to get back to where you were, like two, three years ago and at the same time you have all the large cap on all time high. So yeah, really confusing market, I guess for many. Because I mean in the dark downturn which I think gonna come, I don't think that you know small caps is gonna do really well, maybe as, like a relative trade, you can have some. I mean I don't know about Nvidia, but let's say if Nvidia could easily drop like 50% and I don't know, it was the 2000, maybe not dropping 50% but you can have a pad trade on that. But in absolute terms I guess even small caps gonna do bad in the next downturn.
Speaker 1:Do you get a sense that it's a similar? It's a similar reason in terms of you know, small cap companies tend to have more leverage, right? Yeah, exactly, I think that is the most important point.
Speaker 2:I mean the leverage is totally different between a large, global large cap compared to like more more regional small cap names, totally different in leverage. So they are sealing that higher I mean the interest rates, much, much more than adept free like large cap.
Speaker 1:So I think that's the main point actually which is interesting because if it's, if it did as it looks like it is, it's a global phenomenon. That maybe hooks holes at the argument that the reason you have such a dislocation is because of the indexation in the US right, that all these foreign keys have the auto bit passive flows going to Vanguard large cap market cap. We have that strategy. That's US only you don't have that dynamic of the countries, but the other countries are seeing similar divergence in zero large and so it's really not an indexation. It does go back to the simplest answer is a lot of zombie companies, not just the US, but everywhere.
Speaker 2:Yeah, exactly, and I think I mean this passive flows is a huge driver in this market nowadays because it's not many active. Yeah, I mean, it's a lot of active funds around, but the passive flows have been attracting a lot of money since the last like 10, 15 years. So, and I can't actually see how I mean the passive investment, I think it's here to stay. I hard time to see that going to change either. Or do you think that active management as a like a bright future? Do you think it's more and more ETFs and impulsives?
Speaker 1:I hope so because I'm in that space.
Speaker 1:But yeah, but it's here at the end.
Speaker 1:I think the argument for active versus passive is, if everybody goes to passive, the anomalies should get bigger for active to take advantage of, because there aren't that many active managers left, because they basically go broke, because they're waiting for the cycle to come their way and it never does, at least in time.
Speaker 1:But it is interesting dynamic, because to the extent that the passive flows are distorting the messaging of the market as a discounting mechanism of the future, then really what you need to have to break large capacity is you need to have the unemployment rate rising to stop at the margin some of the passive flows from incomes, because there'll be less people getting income. And then, at least in the States you occasionally hear these stories when people are stressed they'll take the penalty and pull out of their form case to pay for basic necessities, which creates at the margin some pressure. Now, that's a US phenomenon, not at all that international. But I think the point is that I think you can make a logical argument that small caps are much more reflection of the economy than large caps, absolutely.
Speaker 2:Most small caps don't have this big export markets. It's more and more like you're selling stuff in Sweden or you're selling stuff inside the US.
Speaker 1:The thing that always bothered me is people say well, small caps don't matter, because most people again are indexed. It's like well, if you had 5%, 10% of small cap averages, those companies go bankrupt because of higher for longer. That's a big spike in unemployment and on top of that not quite so. The argument that small caps can't be not a part of the equation seems to be disconnected from reality, but admittedly, though, going back to your username, 10bagger, it's a lot easier to get 10Bagger, or at least it used to be.
Speaker 2:Really common back in some years ago.
Speaker 1:Yeah, it's funny to me. It's like now that 10Bagger are the large cap tech, nvidia and Supermix, not the liquid stuff?
Speaker 2:No, I don't know. So it's yeah, but what do you think about it? Because I mean, in my opinion, going into the year by this time, like early March, I thought that we're going to have seen some rising unemployment and so on. Do you share that view or is it something else? Is it like it doesn't show up, but in the main in the headline numbers, because people get the? I have a lot of people who have the two year job work here right now, or three maybe, and so it doesn't show up.
Speaker 1:Yeah, no, it's an interesting point. Actually, I'm curious if that's a similar dynamic in Sweden and Europe. But you know, in the States there are more and more people taking on more than one job because of inflation, right. So you don't have unemployment, but you have people basically killing themselves, which I'd argue is kind of like unemployment to some extent, right, it's just you're not getting progress. The net effect is you're not moving ahead, right After prices are rising. So is that sort of employees taking one, two, three jobs, side gigs is that a phenomenon that's also occurring in Sweden? I know Sweden is a wealthy country and other European countries maybe not have the same degree of work flexibility, but do you see some of that on your own?
Speaker 2:No, actually it's a very different working environment in Sweden compared to the US, I mean. But the last two, three months I have three friends of mine is got laid off, so it's things starting to happen and I think a lot of companies that wasn't, you know, maybe should have done some layoffs last year. But as everyone they, you know, the hope is the last thing that lives here, right. So you know you're hoping to. Maybe the interest rate will come down, maybe, you know, our order books will see it looks better in six months or so. We don't have to do layoffs. But now it's starting in Sweden, especially in the construction sites. I mean, it's not every like building, especially homes, normal homes or bigger family homes and so on. No new projects are running. It's just that if you started the construction work, like two years ago, yeah, that one is still running, but no new build at all. So a lot of workers in that area has gone home Speaking about homes, at least in the States.
Speaker 1:Obviously housing is a big part of ones Health right is often the biggest asset. I think it's probably a phenomenon across the globe. But I'm curious about real estate in Sweden and other neighboring Eurozone type countries. Obviously there was a coordinated meltup, you can argue, in housing because of COVID in the initial year and a half, but have there been signs of a weakness? Just talk about the state of real estate in Sweden and Europe for your branch point.
Speaker 2:I think you just look at the private market. I think it's as long as people have the work to go to and the salaries come in, because I thought that at this point that there should have been some more fire sales. But people are doing everything to not sell their house or not sell their apartment. That's the last thing you do. But the thing you see is the northern part of Sweden where we have skiing resorts and so on. There will be a lot of that kind of area like your second home or your third home, which you maybe spend like two weeks in a year.
Speaker 2:That kind of object is out for sale but it's not cheap. It's not that prices are down like 50%, but they were up like 100% like five years ago. So it's not a bargain, if I say so. But the thing you see is that the market has become really slow. I mean there's no transactions in private houses. In Stockholm, where we live, you have buyers but you don't have that much sellers. So you don't have a proper market actually right now and the buyers are not bidding on this more or more or less Like yeah, if it's solved for a million dollar in all skim price, then maybe the buyers are around 800. Yeah, and the sellers are not willing to you with transactions. So it's stunning, totally still.
Speaker 1:It's so funny because that's everything you just said. If I just join this space, I would have thought you're talking about US markets, because it's the exact same dynamic here. Things are just so, which is really to me just fascinating anyway, because again I go back to. The argument is that in the US there's been a chronic underbuilding of homes. People have locked in low mortgage rates. They don't have a desire to move because they're getting the cheap mortgage rate versus what they have to get now, but we have a fixed rate. A lot of countries don't have fixed rates, but I've had people from Canada talking about real estate there and the same type of dynamics. So it's weird to me that you have the same dynamics happening all across the globe and it doesn't seem to be one consistent reason for why.
Speaker 2:No, I mean in Sweden. I think we are one of the countries in the world that has most floating rates on housing in forever market. So I mean, if you borrowed during COVID, you can have borrowed for like 1.2% a year and that kind of loan is up around 4.5, 5.20, something like that right now and people are still. I mean you have quadrupled your interest rate on the mortgage but you still can handle it. But of course, you may be not going for the extra like yeah, ski week with the family, you may be not go out on restaurants every weekend and so on. You're pulling other things, but the mortgage has become really expensive for a lot of people. And also you can choose like if you want to floating or fixed, and if you go for fixed, you'll have mostly three years and five years fixed and the most popular is like three years, six, right. So even if you like yeah, 2021 or during COVID applied for a three year fix, then you paid like yeah, 1.2% on that one, but two years, three years has gone now. So this spring and 2024, we have a lot of like old fix, three years, six. That's running out and people got if you want to roll them to a new three year fix. Then the price is like five or something, four, four, eight, five, something like that, and that's a real, real different compared to the former one.
Speaker 2:So I think we're going to see, I think we're actually going to see. I think people right now hoping for that. The market has stabilized but there's no transactions going on. But as long as people have the salary to count on, I think it's okay. But otherwise, if we're going to see some higher unemployment, then you have to. I will be very surprised if you don't see any fire sales. It has to come, in my opinion.
Speaker 1:I will say it's funny to me that you know, if we all agree that rising unemployment is obviously the key to correcting a lot of these divergences, then the AI question is more important than ever Because if AI is real, that you're causing quite an unemployment which would cause housing to fall and cause thoughts to fall, which is kind of the ironic part of the media. I'm curious, just from your end, sitting where you are in Sweden, here in the States, it's like you can't go 10 seconds watching financial media without them mentioning your AI or me mentioning it from a dopey perspective of my profile.
Speaker 2:Now it's showing because I haven't opened up to it.
Speaker 1:I was obviously very wrong on the price action, but it's still thinking. I'm right about the narrative disconnects, but what are your thoughts on the story that's being sold around AI and some of those manic movement in stocks?
Speaker 2:Yeah, the bad thing for a Swedish investor is you only focus on the Swedish market. I mean, you don't have this AI. You don't have, like any AI, real AI companies listed much more the old economy here, like the industrials, the banks and so on. I mean, and yes, every company is working with AI, but you don't have a Swedish Amphibia, for that matter. So then you have to go to the US and all retails in Sweden and not all, but many trade a lot of the like Amphibia and super micro. So the retail traders in Sweden is really keen on AI.
Speaker 1:I need to move to Sweden, I think it's the bottom line on that, because I'm tired of it myself and I think I honestly at least I think there's. I think we're at the point now where it's very clear marketing departments or telling companies, just put the word AI on your homepage. Even though I have large data, manipulation has always been done using regression, yeah, yeah, and. But an investor is an algorithm that's just falling for it. Okay, speaking about old economy, and maybe, before we get into this, just everybody's here, please make sure you follow David here on X. She click his profile.
Speaker 1:It's not going to take away from the space. If anybody want to come up and ask questions, click that bottom left micro quest button and again, this will be an podcast under lead lag live. All right. So old economy I feel like that's a good transition to something that I know a lot of family offices do like to invest in, which is gold, because that's been getting some movement. I keep saying gold is sending a warning and everyone maybe is being distracted by Bitcoin, which we can touch on. Not exactly old economy, but first of all, just from your perspective, just give me your experience and, given what you're managing, how do you think about the role of gold in from macro perspective and then from portfolio perspective, because it can be very different.
Speaker 2:Yeah, absolutely, and I'm still on myself a gold bull and I've been yeah, I've been owning gold, gold since at least a lot, since a lot. Gold is my biggest position PA with my own money, but it is. There was really slow movements in gold. I mean, you had this run in the early January, was it December? And then the last two weeks when the interest rates are coming, the US 10 years come down a bit. I mean, then you have the real moving in gold and the annual also in silver.
Speaker 2:But now I think, looking at it from a like a pure technical analysis perspective, I think you have this big cycles in gold where you have a top like every eight years, and then you had a top in during the COVID in 2020. So I think actually that we are heading for the next cycle top in gold in 2020. And then we see the price of that one. But I think gold can easily double from here in four years and I don't think, I don't think that the stock market is going to go 100% in four years from here. Not from, not from 5K on the S&P at least. Maybe if we go down to 3K, then we can maybe double, but not from five. That's my opinion. I think it's always I mean, I've been working with a lot of wealthy clients when I was in the banks and it's many of them don't have commodities is a good diversifier, or should be a good diversifier, like a small portion of 5-10% of a big, big global portfolio. But I think that people are under it.