Emerging markets expected to outperform S&P
The guest proposed a global market-neutral strategy of shorting the S&P 500 while going long emerging markets to exploit extreme valuation divergence.
The argument
He argued that the S&P 500 is a bloated bubble market (up twelvefold since 2009) whereas emerging markets are commodity-heavy and far less inflated. In a global downturn, emerging markets are expected to decline significantly less than the S&P 500, generating positive spread returns.
The thesis, stress-tested
✓ What validates it
- ✓EEM outperforming SPY during a broad market correction
- ✓The valuation spread between US and emerging equities beginning to mean-revert
▸ Risks discussed
- ▸US equity outperformance persisting due to safe-haven flows
- ▸Emerging markets suffering disproportionately from a global growth slowdown
Hear it yourself
"And the second one is, well, if we go to $500 silver, then a loaf of bread will cost $20 because that will mean such an incredible debasement in fiat currency to get us there. Could you walk us through your thoughts on on those two kind of conflicting narratives? No. The debasement's already occurred. You don't need new debasement, although there will be because we know the government bond markets now are in trouble. Yes. In 02/2009, we didn't have a government bond crisis. We had a mortgage crisis. In 2000 to 2002, we didn't have a bond crisis. We had a .com bubble. K? This time, we have the alternative asset everybody sees as the sixty forty rule, you know, 60% stocks, 40 bond."
07:30
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