Capital Wars and the Death of Fiscal Illusions | Paulo Macro & Le Shrub

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Apr 17, 2025

Guest

Le Shrub

Guest

Paulo Macro

In this insightful conversation, investor Paulo Macro, known for his expertise in global macroeconomics, and Le Shrub, an analyst focused on the EMification of economies, delve into the challenges facing international capital systems. They discuss the implications of a potential trade war, the search for new safe assets, and the decline of American financial dominance. The duo also highlights the risks of persistent inflation, the reallocation of global capital, and the looming threat of wealth destruction from a volatile market, urging investors to stay vigilant.

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INSIGHT

Intellectual vs. Visceral Understanding

Investors often understand potential risks intellectually.
However, truly grasping them viscerally is different, creating anxiety when they manifest.

ANECDOTE

DeepSeek Moment

The release of DeepSeek, a Chinese AI, challenged US dominance in the AI field.
This commoditization of AI deflated the US market's AI narrative.

ANECDOTE

Trump, Zelensky, and Vance Meeting

A meeting between Trump, Zelensky, and J.D. Vance revealed a schism between US and European perspectives.
This highlighted the changing role of the US as a global leader.

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In Episode 410 of Hidden Forces, Demetri Kofinas speaks with investors Paulo Macro and Le Shrub about the consequences of a breakdown in the international capital and trading system—and what this means for markets and investor portfolios.

The first hour revisits last year’s discussion on “EM-ification,” the breakdown of the rules-based global order, and the urgent search for a new safe asset in a world of deteriorating fiscal balance sheets. Together, Demetri, Paulo, and Le Shrub map out what investors should be paying attention to in the year ahead.

In the second hour, the conversation turns to the implications of a full-blown trade and capital war, including:

The impact on U.S. assets—especially Treasuries and the dollar—if surplus nations redirect their capital flows away from the United States
Resurgent inflation fueled by strategic rearmament and industrial policy
A potential decoupling from—and even a hot war with—China
The abandonment of fiscal restraint in the face of an economic slowdown amid persistently high or rising borrowing costs for the U.S. government
The risk of massive wealth destruction triggered by a dramatic revaluation of the U.S. dollar

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Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou

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Episode Recorded on 04/15/2025