The Macro "Endgame": Growth, Gold, Deflation, and the Dollar (w/Lyn Alden and Eric Basmajian)

TL;DR

In this analysis, EPB Macro Research's Eric Basmajian discusses long-term trends, leading indicators, and allocation strategies in the current global macro environment.

Transcript

LYN ALDEN: So I'm Lyn Alden, and I'm here  with Eric Basmajian of EPB Macro Research.   And we're going to talk about a couple  different things related to his strategy   and about the global macro environment at the  current time. So, Eric, welcome to Real Vision.  ERIC BASMAJIAN: Thanks. Thanks for having me. LYN ALDEN: Yeah, so I'm looking forwa... Read More

Key Insights

• 🍉 Long-term trends suggest weaker growth due to debt and structural forces like demographics.
• 😥 Short-term indicators in the manufacturing sector point higher, indicating momentum in growth and inflation.
• 🍉 Basmajian uses a balanced framework for asset allocation, adjusting for long-term trends and short-term indicators.
• 👨‍💼 He is cautious about the banking and energy sectors due to long-term trends and business models.
• 🌍 International equities are favored during growth upturns, particularly when the dollar weakens.
• 🥺 Debt can be productive if it generates income above interest, otherwise, it can lead to decreased investment and weaker growth.
• ✋ High debt levels have negative impacts on growth, with thresholds typically around 80%-90% of GDP.
• 👋 Continued manufacturing upturn and demographic shifts contribute to reflationary trends in real estate and consumer goods.
• 😘 Low-interest rates and high debt levels influence equity valuations, particularly growth stocks, but investment decisions should consider sustainable growth and the likelihood of delivering on promises.
• 🥺 Inflation and deflation will continue to drag down real GDP per capita, leading to social unrest and the need for austerity measures or a currency crisis.

Questions & Answers

Q: What are the leading indicators Eric Basmajian focuses on and what are they telling us about the next six months?

Basmajian's leading indicators are centered in the manufacturing sector, which is more volatile than the services sector. They are showing an upturn in growth and inflation, indicating short-term momentum for the next six months.

Q: How does Basmajian translate his analysis into an investment portfolio and manage risk?

Basmajian follows a balanced framework and allocates assets based on the long-term trend. When short-term trends point higher, he adjusts the allocation towards commodities and risk assets. He also considers the current manufacturing upturn and allocates in sectors that benefit from it, such as small-cap equities and industrials.

Q: How does Basmajian view the banking and energy sectors in the current environment?

Basmajian is cautious about the banking sector due to long-term trends of low interest rates and high debt levels. He believes the short-term cyclical upturn may benefit banks, but the long-term trends are against them. He also prefers exposure to commodities rather than the energy sector, citing high debt and unproductive business models.

Q: How does Basmajian incorporate international markets into his investment framework?

Basmajian focuses on the US and developed markets, mainly international equities. He believes that when leading indicators of US growth point higher, it indicates global growth will also increase. He allocates more heavily to international equities during growth upturns, especially when the dollar weakens.

Summary & Key Takeaways

• Eric Basmajian combines long-term trend analysis with leading-indicator approaches to make investment decisions.

• He focuses on the manufacturing sector as a key leading indicator for economic growth and inflation.

• Basmajian sees short-term momentum in the global macro environment, but long-term trends suggest weaker growth due to debt and other structural forces.