'Vast Majority' Of Investors Unprepared For Coming Higher Levels Of Inflation & Risk | Bob Elliott
Feb 20, 2024
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Former Investment Committee member at Bridgewater Associates, Bob Elliott, discusses the impact of peak globalization on economies and asset prices, emphasizing potential shifts towards less globalization and reshoring post-COVID. The podcast explores the implications of policy changes, demographic shifts, and the benefits of onshoring production. Elliott also shares insights on non-monetary investments and highlights the health benefits of walking.
Globalization is deteriorating, potentially leading to inflation and commodity price pressures.
Strategic portfolios should prepare for a different environment with persistent inflation and higher risks.
Consider diversifying portfolios, exploring inflation hedges like gold or Bitcoin, and adapting to onshoring of productive capacity.
Deep dives
The Shift to Deteriorating Globalization
The podcast discusses the shift towards a deteriorating globalization world, which could lead to higher inflation and pressure on commodity prices. The speaker emphasizes that this is an interesting story from a strategic perspective, as many investors are unprepared for this change. The current economic cycle is income-oriented rather than fueled by asset prices or credit. This income-driven cycle has been longer and stronger than expected, with the economy looking stronger than anticipated. However, despite some countries experiencing slowdowns, the overall economic conditions are expanding relative to their potential. The speaker highlights the importance of considering the holistic picture rather than focusing on specific data points.
Implications of Peaking Globalization
Peaking globalization could have various implications for the future. The aftermath of the COVID pandemic and geopolitical issues, such as Russia's invasion of Ukraine, have highlighted supply chain vulnerabilities and pushed the world order into a more fragmented state. The podcast suggests that if trade globalization has reached its peak, major economies and asset prices could be affected. The shift away from optimized global production to parallel production could lead to inflationary pressures and winners and losers across different countries or economic blocks. Strategic portfolios should be prepared for a potentially different environment, with persistent upward pressure on inflation and higher levels of risk in the economy.
Investment Strategies for Globalization Shift
The podcast advises considering strategic investment strategies with the potential shift away from globalization. The speaker suggests diversifying portfolios and moving away from traditional 60-40 allocations. Holding diversified commodities and exploring inflation hedges, such as gold or Bitcoin, could be beneficial in an inflationary world. The potential delinking of global capital markets may lead to a search for alternative monetary assets, particularly for those outside the dollar market. The speaker points out that emerging markets will be affected differently depending on factors such as country-specific conditions and economic ecosystems. Furthermore, in the near term, the speaker sees opportunities in a steepening yield curve environment, considering the current macroeconomic conditions.
The Potential Benefits for the Middle Class
The onshoring of productive capacity can be beneficial for areas with a significant decline in labor opportunities, particularly for blue-collar workers. Building manufacturing infrastructure in areas like Detroit or Cleveland can provide job opportunities and support incomes for those without college degrees. This could potentially improve the prospects for the middle class, especially in the context of the last few decades.
Fragmentation into Trading Blocks
The US may transition from a NAFTA block to a Western Hemisphere block, turning to Mexico and other Latin American countries for economic partnerships and labor supply. This shift may impact existing relationships, such as the one between Brazil and China, and highlight the importance of access to capital markets for effective infrastructure development. As the US economy strengthens, there may be trade opportunities in yield curve steepening rather than outright stock investment.
After decades of moving towards increased globalization, the aftermath of the supply-chain vulnerabilities revealed by the COVID pandemic, as well as the geopolitical fallout from Russia's invasion of Ukraine, are pushing the world order into a more fragmented state.
If trade globalization has indeed peaked, what does that mean for the future of the major world economies and for asset prices?
To address, we're fortunate to be joined by Bob Elliott, former Investment Committee member at Bridgewater Associates and now CEO and CIO of the investment company Unlimited.
Follow Bob on X/Twitter at @BobEUnlimited
On YouTube at youtube.com/ @BobEUnlimited And on LinkedIn at https://www.linkedin.com/in/ttoillebob/
SCHEDULE YOUR FREE PORTFOLIO REVIEW with Thoughtful Money's endorsed financial advisors at https://www.thoughtfulmoney.com
#inflation #globalization #investing
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