Harry Melandri joined the MI2 Research team as an Advisor in 2018. Among other contributions, Harry contributes to MI2’s research and serves as the moderator of Real Vision’s Insider Talks with Raoul Pal and Julian Brigden. He has worked in financial markets for more than 30 years and has held senior roles in fixed income portfolio management at Deutsche Asset Management, Aberdeen Asset Management, and Brevan Howard; in macroeconomic research and macro strategy at the Bank of England and Medley Advisors; and in fixed income and derivatives trading at UBS and other investment banks. Harry has extensive experience in macro and policy, central banking, fixed income and rates, emerging markets and derivatives along with a background in volatility trading and quantitative analysis.
Harry is a big picture thinker who likes to use the lessons of history and political economy in analyzing how a macro situation will evolve. Recently, he was asked about today’s markets and issues that he feels are not addressed in the media. Several things came to mind, including the increasing importance of retail investors, global warming, geopolitical shifts, and US politics.
He believes that the increasing retail participation in US securities markets is a natural corollary to the financialization of the US economy, a recurring theme of MI2 research. Drawing with the broadest possible brush argues that today’s markets display many attributes we might associate with a speculative mania. When the end comes, it will force massive government intervention to mitigate some of the worst effects. Given these symptoms, Harry does not trust current risk markets, and he thinks that the withdrawal of government stimulus will create an almost immediate crisis.
Harry is deeply concerned about global warming and particularly the costs of addressing it. To him, it is less an opportunity and more a cost; one that will inevitably lower living standards for many Americans. He believes that the US will end up facing the consequences of many years of underinvestment in infrastructure, but the costs of climate change mitigation will necessarily crowd out some critical projects. To these “known knowns”, we should add the long-term effects of Covid on future dependency ratios. These challenges will inevitably mean that the US authorities will fail to meet some of the current obligations.
Given these challenges, Harry worries that the current US political situation is too polarized to respond promptly. The US political system is prone to paralysis, and the current circumstances demand decisive action. Voters will punish politicians by seeking out fringe candidates with extreme messages to elevate. Labor militancy will continue to increase.
Tying it all together, Harry says that the MI2 Research team advises clients to remain cautious, bump up cash, and keep an open mind. The setup will create very rapid pivots. Governments attempting to tighten policy will surprisingly quickly “break” something important. We should be aware that the extreme financialization of the US means the authorities cannot be sanguine of the risks of a significant drop. Too many voters can lose too much if markets break catastrophically.
Updated January 2022