For decades, governments of developed economies have covered their fiscal deficits with debt financing – in a forgiving context of tame consumer and producer prices. In this edition of DoubleLine’s Round Table Prime, moderator and deputy chief investment officer Jeffrey Sherman, U.S. government bond portfolio manager Greg Whiteley and global bond portfolio manager Bill Campbell discuss the debt, inflation and monetary picture arising from the world’s fiscal and central bank policies, and the implications for global markets. This edition of Round Table Prime was recorded on Sept. 30, 2021.
For the near term on the U.S. front, Mr. Whiteley takes note of a conjunction of reduced bond buying by the Federal Reserve with reduced Treasury issuance: “Looks like Treasury issuance is going to drop between $600 billion and $1 trillion over the course of the next year.” The upshot for Treasury yields, per Mr. Whiteley (6:20): “I think the net impact on rates is going to be pretty mild.” With respect to the multiple debates over whether the U.S. stands on the precipice of secular change in inflationary regime, he warns investors to be ready to invest in a world where the answer to that question remains unknown for the foreseeable future. For example, citing Fed Chair Jerome H. Powell’s “inadvertent” admission to the same effect, Mr. Whiteley says (25:45), “The Fed, an organization that employs 700 Ph.D. economists, doesn’t know how inflation works.” That said, Mr. Whiteley warns that Fed policymakers are placing much heavier emphasis on achieving maximum employment as opposed to inflation targets (44:31). Mr. Campbell’s longer-term view is based on the advent of stimulus first in the U.S. and Europe, and then in 2Q2022 in China ahead of Xi Jinping’s unprecedented third term as leader (37:19).
Mr. Campbell weighs the idea that the world stands on the “precipice” of uncontrolled inflation if governments don’t regain control of the fiscal and monetary “firehose” (7:33) opened in 2020 to fight the growth gaps caused by the COVID-19 epidemics. Hints of this might be visible in the FX markets in light of moderating versus aggressive fiscal policies by countries in both developed and emerging markets. For example, he contrasts the “stark differences” in the performance of the currencies of Canada and Australia, both commodity exporters (9:10). After spending aggressively to offset COVID-19’s economic effects, Canada, Mr. Campbell points out, is working to bring the government deficit back to 1% of GDP by 2025. “Lo and behold, they have had flat to positive year-to-date FX performance,” he notes. In contrast, while Australia has continued to run a 5% spending deficit, the Aussie dollar has marked a 5.5% drawdown.
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Jeffrey Sherman, DoubleLine’s Deputy Chief Investment Officer, is a thought leader, portfolio manager and public speaker in the industry. Mr. Sherman is a member of DoubleLine’s Fixed Income and Global Asset Allocation committees, and he serves as lead portfolio manager for the firm’s multi-sector and derivative-based strategies. In his role, Mr. Sherman guides the investment teams in developing top-down macro views and collaborative asset allocation processes throughout a market cycle. Additionally, he is a member of DoubleLine’s Executive Management Committee. In 2018, Money Management Executive named Mr. Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW, where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. Prior to that, he was a statistics and mathematics instructor at the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the USC/CFALA CFA® Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
Mr. Campbell joined DoubleLine in 2013. He oversees the firm’s Global Sovereign Debt team and serves as a Portfolio Manager of the DoubleLine Emerging Markets Local Currency and Global Bond strategies. He is a permanent member of the Fixed Income Asset Allocation Committee. Prior to DoubleLine, Mr. Campbell worked for Peridiem Global Investors as a Global Fixed Income Research Analyst and Portfolio Manager. Prior to that, he was with Nuveen Investment Management Co., first as a Quantitative Analyst in the Risk Management and Portfolio Construction Group then as a Vice President in the Taxable Fixed Income Group. Mr. Campbell also worked at John Hancock Financial as an Investment Analyst. He holds a B.S. in Business Economics and International Business, as well as a B.A. in English, from Pennsylvania State University. Mr. Campbell holds an M.A. in Mathematics, with a focus on Mathematical Finance, from Boston University.
