AVM's Global Macro CIO Ashvin Murthy on reflation, positive real rates, US dominance, Fed & no YCC
Summary: Our fourth Dragon Interview takes us back to checking in with AVM's Global Macro CIO Ashvin Murthy - Ash walks us through his latest top of mind thoughts, including positioning in the shifting market regime, inflation, real yields, no YCC, the Fed & the potential US dominance theme - which judging by where the DXY & gold closed on Fri Mar 26, at 92.766 & 1732.52 is still largely mispriced by the market.
A US dominance theme should see much strong US Dollar (DXY easily back above 94 to 96 lvls), gold getting hosed potentially back to $1580/$1530 lvls -9% to -12%, as well as US equities outperforming Emerging Markets & Euro-Zone equities, plus higher US bond yields & overall higher real rates. In addition to US economic data, the Fed meetings of Apr 28 & especially Jun 16 are going to be pivotal..
Republished for the Weekend-Warriors - we check in with AVM's Global Macro CIO, Ashvin Murthy from our Dragon Interviews series
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We originally published this interview on Wed 17 Mar 21, before the Fed meeting that later saw them upgrade their US GDP expectations to +6% - a figure that Ashvin feels could be passed.
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We will have a crypto focused interview that should be published in early Apr.
Post our foundation piece with Global Macro Hedge Fund AVM's Ashvin Murthy in Oct of 2020, we catch up with Ash to get his latest thoughts as we head into a likely series of very key Fed meetings in regards to them being neutral, vs potentially hiking, vs the YCC route.
We touch on a number of things, including:
- Bond yields & real interest rate levels - including context from previous ranges
- Inflation & deflationary forces
- Powell doing a great job at the Fed, letting the market doing the heavy lifting
- Biden administration & the corp. taxes on the way, as a function of funding infra.
- Red hot US economy, all pre the full opening of the country & still with a cold 1Q21 winter, plus with latest +$1.9 trn bill
- Yield curve control (YCC) likely in the pit-stop for a while
- US exceptionalism & the risks to emerging markets, especially the fragile five
- The broader global macro regime that we find ourselves in
Links: AVM Global Opportunity Fund — https://avmglobal.fund/
Watch our debut Dragon Interviews piece here — http://bit.ly/ditvashvin
As always we hope you enjoy the interview as much as we did putting it together, please feel free to share.
Outrageous Predictions 2023: The War Economy
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French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.