DoubleLine Podcasts

S10 E7 Louis Gave of Gavekal Research on the New Structural Bear and Bull Markets

Louis Gave, founding partner and CEO of @GavekalResearch, tells DoubleLine’s Jeffrey Sherman and Samuel Lau that the price shifts of three key assets is not a “dead-cat bounce” but “the start of a new trend” in markets that will require investors to make fundamental changes in portfolio allocations if they are to succeed. Hong Kong-based Gavekal Research provides research on global macroeconomics, financial markets and asset allocation. This episode of “The Sherman Show” was recorded on April 6, 2021.

In the past three to five years, Mr. Gave observes, the markets have been priced to a “structurally rising dollar. I think this is now over. We’re now in an environment of a structurally weak dollar. We were in an environment of bond yields that were flat to down. In the past six months, we are now in an environment of bond yields moving higher. We were in an environment really since 2013-14 of falling oil prices, and I also think this is over. So this means the investment environment is changing before our eyes.”

As a warning sign that U.S. policy is out of balance, Mr. Gave points to a moribund dollar despite a backdrop of rising Treasury yields, recovering U.S. economic growth and the country making better progress than most of the rest of the world in vaccinating its population for COVID-19. “The market is telling me that the policy settings in the U.S. are way too loose, both on the fiscal side and the monetary policy side.” Mr. Gave suggests that massive debt-financed fiscal deficits in fact mean the Treasury issuance has outstripped foreign investors’ and U.S. savers’ appetite for bonds and “captured” the Federal Reserve as the incremental buyer for the foreseeable future.

Summing up some of the implications of this context for investors, Mr. Gave says, “You’re in a structural bear market on the U.S dollar. You’re in a structural bear market on bonds. And you’re in a structural bull market on energy.”

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