Paul Diggle

Hello and welcome to Macro Bytes the economics and politics podcast from abrdn. My name is Paul Diggle and today I'm joined by my co-host, Luke Bartholomew. There's a lot going on in global macro and markets right now and we're very lucky to have on the pod with us today, Eddie Donmez. He's a market analyst, content creator, a finance influencer at Finimize. So, we're going to talk about what it means to be a finance influencer, the role he plays in the financial ecosystem, how information and research makes its way to retail investors, the themes and views among the retail investor community at the moment. And, of course, what's going on in markets right now with Silicon Valley Bank. So, a lot on the docket. Eddie, welcome to the show.

Eddie Donmez

Hey Paul. Great to be here.

Paul Diggle

So I want to start at then by talking about your role as a finance influencer. I mean, what does this job mean? Tell us how you got into it, and what your role in the investor ecosystem is.

Eddie Donmez

Yeah, I'm still not quite used to that terminology, to be honest, but I'm slowly coming to grips with it. But I think what it means to me is really being a kind of point of contact for the everyday person, but also institutional investors and players with my thoughts on the market, and to keep everyone updated on the developments that I see and give my kind of take on things. So, it really started a couple of years ago, because I was working for an education technology company. And I was involved in the training of investment bank analysts at Morgan Stanley and Citi and Bank of America, for example. And I would teach them sales and trading and market making and portfolio management and the fundamentals of finance, really. And then on the other side, I was also working with students really to bring up their commercial awareness and give them the insights that I'd learned from my time at S&P to bring them up to what they needed to know to kind of break in into the industry. And then I started to write my market commentary on social media and really on LinkedIn, which is a really untraditional social media platform, when you think about Instagram and Tick Tok, and Facebook. LinkedIn was such an amazing opportunity that I saw in the early days because what people associate LinkedIn with is ‘delighted to announce’ ‘I've just joined this company’ and all this kind of humble bragging and all that stuff. But I looked at the platform, and I said, okay, there are all the people that I want to reach with my market commentary and analysis, and they're all here and I can see exactly who they are, what firm they’re at, what seniority they are. So, although I began writing for students predominantly, it caught the attention really quickly of some industry professionals, which was strange to me, because what I was doing was taking somewhat complex market fundamentals, mechanics, analysis, and really trying to break it down in a jargon-free, bite-sized way for people to understand. And I think that ‘simplicity is the ultimate sophistication’ is the way I like to kind of phrase it. If you can break down a really complex topic in a really nice-to-follow way, you can really attract a lot of attention. And it's not only from the entry-level people, but it's also portfolio managers and you know, CIOs and managing directors who think, okay, well, this guy really understands what this concept is, you know, this is really, really valuable. So, it started to gain a bit of momentum. And I had, you know, PMs and analysts messaging me, like, oh, can you tell me a little bit more about this? What do you think about this? I really enjoyed your post on that. And I was like, okay, well, that's interesting that this level of person, remember, I was pretty, you know, junior at the time was complimenting me on my work. So, I was doing this off and on for months. And you know, as you get busy, you know, you tend to kind of move away from the social media side, but kept it somewhat consistent. But really, it was at the start of last year, I was in a pretty remote location in Eastern Europe. And that's a story for another day. But I wrote a post that went viral if you like, got, you know, loads of engagement. And I said to myself, okay, well, if I can be in Eastern Europe and write this post and for it to get as much traction as it did, I need to take this seriously now. So, at the start of last year, kind of Christmas, New Year time, I said, look, I'm going to be super consistent and start putting this out on a kind of daily basis. And I really got a lot of kind of traction last year. And now I'm sitting at around 140,000 followers on LinkedIn, which is, you know, surpassed my wildest expectations, of course, and attracts, you know, people like yourself that are super senior amazing firms. And that's a really powerful thing.

Paul Diggle

Yeah, it's a model of research distribution about getting your insights out there, which is, in many ways a natural evolution of how it should go. But is really a big step change beyond that kind of subscription broadcast model that you get from your economic consultants, from your institutional managers, and a lot of interaction too, right, Eddie, that's perhaps a different aspect of it relative to that more traditional broadcast mode of research.

Eddie Donmez

Yeah, and we saw it - we can talk about SVPs collapse kind of later on, but it was amazingly evident this weekend, where you had such a dominant market theme, where, you know, at times it looked pretty precarious for the, you know, regional banking system in the US. And what you have is this amazing kind of community, almost of the best minds in finance, in some capacity, right, you have heads of wealth management, heads of, you know, investments, all commenting under your posts and having a dialogue and you know, really criticising each other's views in a constructive way. And I think LinkedIn has this amazing advantage over other social medias, that there's a kind of potential reputational damage if you step out of line, right. So, it keeps it really safe, constructive, and you just bring, you know, really great minds from all over the world, all different firms with their different points of view, into this almost interchange. And I'm sure you've seen some of my posts where there's fights, and God knows what's going on in the comments. But most of the time, it's super constructive. And you learn a huge amount, which I think is a really powerful thing.

Luke Bartholomew

So Eddie, of the things that I take you to be doing is sort of undermining some of those traditional boundaries that we have in this industry, between retail and institutional investors. And perhaps jargon has been one of the ways in which that boundary has been policed before and helping to de-jargonise and simplify, helps to bring the boundary down in that respect. But I sort of note that over the last few years, perhaps another way in which people have policed this boundary is that there's been a sort of stereotype about a certain kind of retail investor speculating their ‘stimmy’, their stimulus cheques in meme stocks, or whatever else, it might be, emojis of rockets to the moon, and there's a certain degree of irresponsibility / YOLO, about the way in which these people invest. So, do you think that was ever really a fair stereotype of that kind of class of investors? And to the extent to which it ever was, are you seeing a movement away from that now?

Eddie Donmez

Yeah, that's a brilliant question. So, I think we need to take a step back and look at the overall context. So where this kind of term really originated was in the depths of the pandemic, right, where we had this almighty shutdown of the global economy, markets really looked pretty precarious, again, you know, certain times where we thought, okay, well, how are we going to get out of this. Then came the flood of liquidity, the flood of fiscal stimulus, it was a really weird time, I think we can all admit that. We were all locked away, there were stimulus cheques in the US, there was, you know, lots of support - business support - in the UK and across the world, really. And what really the context of this was, was, there was a huge amount of liquidity sloshing around the system, and individuals that were locked away, and were potentially using betting sites outside of the COVID pandemic, really took aim at this whole kind of trading space. Right. So I think it's a completely fair assumption that they were trading meme stocks, they were irresponsible, some made a lot of money, some lost a lot of money. But I think that was a unique time that we've seen, you know, elements of at the start of this year, but nowhere near to the extent. And I think the meme stock kind of narrative is lazy at this point. So during that pandemic period, there was a lot of trading and speculative kind of action. That was a function of the central bank and government stimulus. Now what we're seeing is a real realisation that we're in a different time in the economy in the economic cycle in markets, and I think those that had got burnt have maybe stayed out of the markets, but those that have had a little bit of a loss or a little bit of an experiment, really thought, okay, now it's time to level up, educate myself. And we're really seeing a huge appetite for that education. And that, again, feeds into social media, right? There's Reddit, which was obviously famous at the time. But now it's kind of maturing into Fintwit into LinkedIn, where people are having really productive conversations about where they're going to put their money. And of course, we do a lot of work a Finimize, and we have a, you know, a million-strong retail investing community that we survey on a quarterly basis. And what we found from our previous survey in Q4 was that there was a real kind of air of sophistication, I would say. So this meant sticking to S&P ETFs and trackers standing by maybe big tech and those kind of more familiar names, and looking through some more of a bearish forecast on the institutional side for the economy in the first half of the year, which obviously proved, well let's say, the markets proved to be, you know, a bit stronger, a bit more resilient, looking through that recession. And 85% of our retail community that we interviewed had never even invested in a meme stock, right. So I think there's definitely different layers to that sophistication, but definitely what we see from our community who are of course actively engaged in consuming institutional grade content through Finimize but are making smarter decisions with their money and investments.

Luke Bartholomew

So one of the differences I've noticed between institutional and retail investors, at least at a very high level, is the retail investors seem to be, at the moment a fair bit more optimistic, bullish about markets and the economy, institutional investors more bearish. So, I guess I'm wondering, do you think that that reflects something structural about the differences between the two, perhaps to do with incentives or risk budget, institutions, maybe even the kind of people that become institutional investors? Or do you think it's just a contingent fact of the world right now that it happens that these two groups are seeing it different, but they could at some other time be perfectly aligned on their views?

Eddie Donmez

Yeah, I think retail investors generally do not have to succumb to the pressures of a professional investment job, right. So they obviously have different incentive schemes, they have different pressures or lack of. They don't have risk managers, they don't have targets, they don't have a benchmark to outperform. They don't have to, you know, really comply to asset allocation, rebalancing, regulation, compliance, all these different things that you guys have to stick to and professional money managers have to stick to. It's also about the timeframe, I think, obviously, professional managers have a benchmark to try and outperform right. With retail and general investors they have their whole life to really make up this investment. And I think most people realise that generally investing for the long term is a good thing to do. So there is a bit of a mismatch there of timeframe. And I think, particularly what we saw in our kind of survey data, retail investors can afford to get things wrong in the short term to then outperform in the long term by just sticking with their investments. Of course, they're potentially a lot more psychologically inexperienced in trading and investing so they don't always stick to that kind of you know, sticking with your investment, staying diversified, staying invested, etc. But they do have that longer time frame to kind of stick to.

Luke Bartholomew

We've been circling around this Silicon Valley Bank SVB issue for a bit now, so we might as well address it head-on. And I know it's a very fast-moving situation. And I suspect, rather like the French Revolution, it's too early to tell what its full impacts are going to be, but I was wondering, what are you seeing in your community about how people are responding to this? And perhaps more interestingly, is there anything that we can learn about the way that this crisis played out and the way people have been talking about this crisis - what that says about the new investment information ecosystem that you work in?

Eddie Donmez

Yeah, I think that's a really good question and I've got some good insights I think to share with you, so this was really a unique few days, in the sense of, it all, you know, as bank kind of collapses tend to do happen on a Friday. So they've got 48 hours to sort it out, basically. But the social media kind of sphere was alight, right? And it's not what you think. Yes, it was retail investors. But there were some pretty famous hedge fund managers, venture capitalists, that we're spreading the panic about what this could mean for the US economy, the banking system, what the Fed should do, what the government should do. And because Silicon Valley Bank, as you guys well know, was a very, let's say, niche bank, in the sense of it had a huge amount of exposure to technology, healthcare - I think it funded around 50%, of that kind of whole ecosystem. And there was a huge amount of pressure from Silicon Valley players for the central banks, etc, to do something. But what was really interesting was how quickly this information was disseminated across social media. So, there was a, there was almost an amplification effect of social media, that central banks, institutions, policymakers, I think really need to take a good note of. And what we need to do here is look at prior crises, like the 2008 financial crisis, where the conditions were different, right, there were bank runs, Northern Rock, etc. But depositors had to go to the bank, queue up, you know, get their money out manually. And it was a bit of a maybe old-fashioned way. There was social media, but not to the extent or sophistication that there is now. What that means mechanically, is that the pull of deposits or the sucking sound of deposits is much slower, right, and potentially more manageable. What we had now was, I think, 72 billion worth of deposits pulled out on Friday alone, and the ease of deposits, you log in, you pull it out, rumours and whispers from reputable people that made a lot of people concerned and you know, why run the risk, right, just pull your money out, job’s a goodun, and you can move it into another bank. So central banks and policymakers really saw the speed at which this information travelled. And that sent shockwaves, right, even rattling financial institutions all over the world as we saw that kind of spread of contagion kind of happening. So I think people need to take note of the conditions that we're in now and the technology that's available that this is, you know, a slightly different thing. And if we see future kind of crises and credit events and things like that, market players really need to take note of how quickly things can unravel. Especially when there's experienced people shouting from the rooftops with huge followings. So to give you a little bit of an example, on a super kind of small scale for myself, I had 5 million views on my posts just over the last three days. That's 5 million people that see what I'm writing on social media, you know, and consuming it and potentially, you know, reacting to it. You know, they're ingesting this information, and maybe taking note of what I've just said, there's a huge amount of responsibility there for me to put out, you know, clear analysis, actionable, not spread fear. But I think there's an opportunity. And what I mean by this is, it's really a responsibility, I think now of people in the markets in these institutions that do have experience and the education and the analysis and the tools available to come out and educate and shout from the rooftops about what they're seeing, which I did see over the weekend, for sure. But I think it's a great opportunity for people like us at Finimize that have institutional analysts that have experienced prior crises. You know, we've got a hedge fund manager that lived through the last two crises, we've got a portfolio manager that, you know, was investing through 2008 to come out and say, okay, be calm, you know, you don't have to rush into an investment decision. You can take your time, see how this develops? Because the truth is, no one really knows how this is all going to pan out and no one knew over the weekend. Right. And I think retail investors and people think that institutional guys and girls have this you know, crystal ball. I think you guys know we don't we're just trying to process you know, disinformation as it's coming out. So there's a lot of kind of myth busting, I think for the retail investing community, but also a great educational opportunity for people with an audience or with experience to come out and set the record straight and provide calm, I think, to the markets.

Paul Diggle

Yeah, I think there's a great insight Eddie. The way that bank runs develop, you know, there's a common feature of them, that goes back hundreds of years, panic spreads, but if the speed at which panic can spread, or the way that it can be amplified is exaggerated by technology, that's an important new aspect. On the topic of technology, then Eddie, so a topic you post a lot about is AI, Chat GPT innovations that we're seeing, these incredible innovations, in the sophistication of chatbots and the interaction you can have with these large language models. Now, maybe this question is sort of obvious. But tell us why you think this technology is so revolutionary in an investment context, specifically?

Eddie Donmez

Yeah, I think it's really important to first state that this technology is new, this generative AI is learning, it's, you know, GPT 3, or 3.5 is out now, this will get better, and it's been well covered by the media. There's a lot of bugs with it, and information that is not necessarily correct. You know, some of the time there's political bias in there. It lacks that context, that experience, that critical thinking that analysts and you know, investors in the institutional sense have, but what it does is provide a great tool or some great tools for everyday people to speed up this research process. So we've just been talking a huge amount about social media and how it's potentially democratising that investment research kind of process, you know, availability, you know, allowing people to have it, you know, in their feeds. What AI does for the retail investing community, I think and everyday people is it provides them with tools, information gathering techniques, potentially as it develops, access to real time financial data. So in the institutional sense, you'll have a FactSet, you'll have a Bloomberg, you'll have an S&P Capital IQ, where you're pulling data, you're building financial models, you're pulling credit ratings, you're pulling holdings, etc. And building out your multi-tab, financial models. It costs a lot of money, these subscriptions, potentially for, you know, an institution it can cost in the millions. What this Chat GPT and AI kind of revolution is really doing is levelling the playing field that we will get to the point where all of this information, I believe, will be just a click away, or a query away to the average person. And what this will allow is them to start to educate themselves, dive into the financial data that was only previously potentially available to you know, professional money managers, investors, analysts, etc. And start to really critically think and analyse about the numbers that are in front of them. So, if it's Apple or Microsoft, rather than just going, oh, okay, the share price has dropped 20%, there's an article on CNBC that says now is a great time to maybe buy it. What happens when the retail investor can read an insight on Finimize, and then do some further learning through Chat GPT, give it some sensible prompts or data kind of queries to pull, build their own financial model, you know, pull their own comps, you know, produce their own DCF, etc. and come to their own investment conclusion. I think that's a wonderfully powerful thing that's going to democratise at least the financial analysis and research process that's going to provide a great opportunity for retail investors to level up just as they have with this information spreading that’s happened over social media.

Paul Diggle

Yes, as part of the research for this episode Luke and I asked Chat GPT what it could do, what its investment use cases where - and it told us it could do sentiment analysis, market research, customer service, risk management and predictive analytics. And we spent a good chunk of last year building a natural language processing model to read Fed communications and then tell us how hawkish dovish these were. Now if Chat GBT can do that in minutes, rather than weeks of work it really is putting a lot of power into the hands of investors.

Eddie Donmez

Right, and I think that there's going to be new use cases, right? So it may be sentiment analysis now. It may be Fed minutes that they're kind of the natural language processing. It may be mentioned on social media of a particular ticker. There's so many things that we've seen in just a short period of time. And this technology is in its infancy, and it's moved so quickly, but imagine where we'll be even by the end of this year. You know, there's more developments Chat GBT 4 is coming out. What was really interesting last week is we heard that Citadel is even using it, is a basically negotiating with Microsoft Open AI for an enterprise-wide licence, right. And this is not necessarily just for trading. It's for troubleshooting code. It's for every other business practice. So it's all about, in my mind, it's about leverage. You can do more with less, essentially. So if you've got an analyst, you've got a, you know, a software engineer that's building these kind of quantitative models, if they can do more with less by having a co pilot that allows them to build alongside them. It’s scary how quickly this could move by the end of this year, you know, judging by the first quarter – what about the end of next year – what about in 5 years time. The whole landscape is going to look really, really different.

Paul Diggle

Eddie Donmez, thank you for joining us. It's been a real pleasure.

Eddie Donmez

Thanks Paul. See you next time.

Paul Diggle

And thank you to you for listening to Macro Bytes. As ever, please like and subscribe on your podcast platform of choice. Next time we'll be talking about the UK economy, challenges it's facing, what policymakers can do about them. But in the meantime, goodbye and good luck out there.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment, recommendation, or solicitation to deal in any of the investments or products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of abrdn. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provides no guarantee of future results.

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