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Diego Parrilla: Bubbles Too Big to Fail Will Transfer into Inflation

Tom welcomes Diego Parrilla to the show. Diego has an extensive background in commodities, having worked for several major banks. These experiences led him to write his first book, “The Energy World is Flat,” and then publish several other columns. He’s found writing to be valuable and complementary to understanding markets and furthering his career. Writing helps you consolidate your thesis and discover areas where your ideas may be weak or confirm their strength. It would be best if you first wrote for yourself, and perhaps it will help other people connect with your perspective.

Diego defines a bubble and how misconceptions can distort reality at extreme values, either high or low. Every bubble has an anti-bubble. He contrasts the VIX with the S&P and how risk is the anti-bubble to the S&P.

Bubbles are caused by a concept which eventually is discovered to be false. Today’s biggest misconception is likely to be the belief that you can solve problems by printing money. The truth is this monetary policy has limits and merely delays, transforms, and exacerbates the problem instead of solving it. At times, these misconceptions reach a point of no return, which we now see with low or negative interest rates.

He discusses MMT and Yield Curve Control and why they have become necessary tools for central banks. We’re now in this system of endless printing, which is quite dangerous. Inflation and bubbles are byproducts, and eventually, this will become very challenging.

He argues that both sides of the “flation” debate are correct. There are deflationary forces, and then money printing creates temporary “stability” but further imbalances. For example, why are house prices rising while unemployment is growing, and how much further can central banks go without consequences. It’s pretty clear who will pay for this party, and it’s the people who hold cash, those with fixed income, and those that hold credit.

He explains some of their strategies utilizing options and how they take advantage of gold in their portfolios. He describes various asymmetric opportunities that often come up because some models can, at times, price risk very low. You want a portfolio that is genuinely diversified from risk and easy to rebalance.

Time Stamp References:
0:00 – Introduction
0:40 – Diego’s Background
4:02 – Learning & Writing
9:34 – Bubbles & Anti-Bubbles
14:26 – Bubble Misconceptions
18:44 – MMT Policy Effects
21:16 – Yield Curve Control
25:40 – Inflation/Deflation
29:13 – Real Estate
36:37 – Find the Misconception
43:02 – Gold Strategy
52:17 – Wrap Up

Talking Points From This Episode

  • Advantages of writing in understanding and testing your thesis.
  • Bubbles are tied to misconceptions and finding the anti-bubble.
  • Central bank’s toolboxes are changing with MMT and Yield Curve Control.
  • The inflation debate and why both sides are correct.
  • Balancing portfolio from risk and golds role.

Guest Links
Books (Amazon):

Diego Parrilla is Partner and Manager of Macro Commodities. He joined Quadriga in March 2017 with nearly twenty years of experience in macro, commodities, and sales and trading in London, Singapore, and New York. He has managed risk and global teams in prestigious investment banks, such as JP Morgan, Goldman Sachs, and Merrill Lynch, in various global leadership roles.

In 2011, Diego founded Natural Resources and Commodity Advisors (NARECO) in Singapore, advising institutional customers and managing macro strategies and raw materials.

He then joined the management team at BlueCrest as Portfolio Manager, managing $150m in macro absolute value strategies and raw materials. Later he led raw materials businesses at Dymon Asia and Old Mutual Global Investors in Singapore before returning to Spain to join Quadriga Asset Managers as Partner and Manager of Macro Commodities.

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