Mike Bagguley moved a number of Barclay’s trading desks to worldwide recognition while he held key positions such as Head of FX Trading and Commodities, Head of Macro Product Sales and Trading, and Head of Rates and Linear Options. However, Bagguley did not just demonstrate keen business acumen, but strong management skills where he oversaw numerous projects such as the execution of the first physical oil deals for Barclays and integration of Rates, FX, and Commodities businesses across G10 and EM.
Mike Bagguley started at Barclays in 2001, where he grew from a derivatives trading desk to become the Chief Operations Officer of the Company. He did not lose steam when he became Chief Operations Officer for Barclays International, where he shifted the company perspective towards embracing new technology – leading to more streamlined operations and a more data-driven approach business approach.
Mike Bagguley graduated from the University of Warwick in 1988, where he holds a Bachelor of Science degree in Mathematics. He is a Fellow of the Institute of Actuaries and former board director of the LCH.
The US hasn’t had a budget surplus since 2001. The country has been carrying debt exceeding GDP since 2012. The World Bank’s preferred debt/GDP ratio is below 77%. At what point do we reconsider the label “risk-free” put on Treasury bills?
You would hope to have a budget surplus at this point in the economic cycle, and we’re not gonna have that, so what does that means?
The US only issues debt in US dollars, and most of their debt is held by the Federal Reserve, and the Fed will probably buy even more in the next recession. So, I think that the debt is quite safe, but the real risk is in the currency. Going into 2020, it seems like the dollar is most vulnerable to this economic uncertainty.
Given all of the trends that we’ve discussed, like the longer life span and climate change, are going to cost governments lots of money. So the timing for the US to rack up all of this debt is especially bad, given where we’re going.
The US housing market is seeing a slow-down. We’re seeing existing-home sales steadily declining month-over-month, and housing inventory growing. Robert Shiller told Bloomberg that “ this could be the beginning of a turning point .” Has the housing market positioned itself differently this time, as opposed to 2008? Can the market weather a large price decline without it leading the global economy into a recession?
When we see the housing market slow, we all get a pretty bad feeling because we associate that feeling with the last crash. I think low interest rates have pushed up the price of real estate because of the access of cheap money. The risk is in the accumulation of real estate debt. The issue is that people have over-levered themselves, not housing prices falling, as I think we can weather that.
This same issue exists in the corporate world. Have they borrowed too much cheap money as well? If we see some wage inflation, these companies might struggle with servicing their debts.
The idea of quantitative easing accelerated people’s spending. It made borrowing so cheap, that instead of saving for three years to buy that new TV, people just borrowed money to buy it today. So if rates rise, people are going to have big problems servicing that debt, and we’ll probably see spending decline. So, this is not just a real estate issue.
Due to the continuing strength of the US Dollar, emerging markets are going to have trouble paying their dollar-denominated debts. We’re seeing investors taking some
money out of emerging markets and pricing in more risk. Emerging markets have a combined $2.7 trillion in dollar-denominated debts due by 2025. How much of a risk
factor is this to you?
Quantitative easing has washed money all over the world. Money leaped out of the US and drove rates artificially lower, and as that rolls back out, they’ll feel pain in emerging markets. The dollar also gets hurt.
The confluence of the strong dollar and cheap debt makes things difficult for emerging markets, because they borrowed all of this debt denominated in dollars, and as the dollar strengthens, it makes it harder for them to service their debt. This all plays into the problem of debt accumulation we discussed earlier.
The one country I’ve become interested in is Mexico. It’s the one country the US cannot afford to blow up. If you’re sensitive to immigration issues, the last thing you want to do is blow up Mexico. Ideally, to end immigration problems on the US southern border, you want to send the Mexican economy into the stratosphere, for two reasons. One, is that nobody will want to immigrate from Mexico to the US, and second, it will act as a buffer to stop immigration from south and central America through Mexico into the US. You also want south and central America to do well, as you don’t want them to get up and leave for the US through Mexico. I think if the US is smart, they will look after Mexico. Acknowledging this, they seem quite safe from much of the political strife in emerging markets at the moment.
Did you have a general reaction to the Fed minutes notes released on October 17, 2018? Were there any points that stuck out in particular to you?
The Fed minutes notes sound like the most boring thing in the world. For those of you not in finance, if you never read the Fed minutes, you’re in for a shocker, because they’re really well written! The writing is really beautiful, which is rare today, but they also talk about super practical stuff.
The big issue of the day is that we have high employment, low unemployment, but not much wage inflation. I’ve actually just written a Medium post on this here.
With unemployment so low and employment so high, the economy should be getting really tight and running well. Wage inflation should be coming and the Fed should be raising rates. But, there’s a challenge with raising rates. The Fed’s mandate is inflation and the economy. The reason I think they should be raising rates is interest rates set the price of credit. By raising rates, we’ll slow debt accumulation. We all experience that in our lives. If I can borrow at 1%, maybe I will get that new iPad today, if I have to borrow at 20%, then maybe I’ll wait until I have the cash.
The Fed acknowledges that quite a few parts of the US economy are slowing. They note that government spending rose, consumer spending declined, and exports are down. Nevertheless, corporate financing is still accommodative, which shows that even though the Fed has been raising rates, there hasn’t been turmoil. You’ll have seen last week that Netflix borrowed a lot of money to create content, so companies are still borrowing aggressively.
Amazon is deflating commercial real estate prices. If we’re assuming the traditional retail model is a melting ice cube, what use does all of this commercial property have in the future? Do you think it’s currently priced appropriately?
Well, they’ve deflated retail storefronts, but I think they’ve actually inflated warehousing space. Certainly in the UK, we’ve seen an explosion in the demand for warehouses. It’s a shift, like that of climate change, and ‘going north’. You want to sell retail space and buy warehouse space.
It’s definitely caused some social problems, however, it’s also created space for people to be entrepreneurial. In this deflated storefront space, you’ll see people open restaurants and non-retail businesses. It’s just part of economic evolution.