Friday Haymaker
Friday Haymaker
Vincent Deluard on the Dominance Portfolio
Hello, Subscribers!
Portfolio management is a running theme, lately, in Haymaker World, so much so that we’ve incorporated additional input on the topic from a great friend of this newsletter, Vincent Deluard, StoneX’s Director of Global Micro Strategy.
Those of you familiar with Vincent’s highly analytical mode of thought might be wondering what sorts of investment risks he find agreeable in this day and age. It’s a good question and one he happens to have answered in his most recent Intelligent Quant edition.
He’s titled said edition The Fiscal Dominance Portfolio, which, brash though it may sound, is in fact predicated on the realities of immense government spending and how that effects (or will soon effect) investors at all levels of the game.
Aside from rate manipulation, a seemingly in-progress Fourth Turning, and the hard-to-pin-down variable of cryptomania, Vincent also looks at the devaluation of the world’s major fiat currencies. This includes the role hard assets will play in maintaining some true semblance of stability where inflation-adjusted citizen wealth is concerned. All readers should be aware this has been an overarching Haymaker theme and we have provided numerous specific ways to profit from the uplift scarce assets are receiving from monumental currency debasement. (In the currency realm, Vincent has also been a persistent bull on the Swiss franc, as he reiterates in this piece. Despite the U.S. dollar’s surprising strength relative to almost all currencies in recent years, the “Swissie” has appreciated about 9% versus the dollar since I highlighted his tout of it in my book Bubble 3.0, published in early 2022. Presently, it has experienced a major breakout versus the greenback.)
His conclusion is a carefully crafted challenge to conventional 60/40-allocation thinking. Like us, Vincent believes a much steeper yield curve (short rates eventually moving far lower than long rates) is in the offing. He notes the difficulties in capitalizing on this outcome; however, we believe the mortgage REITs are a credible way to position, per this week’s Making Hay Monday edition.
The fiscal dominance scenario he describes is a direct function of the harsh realities of financing two trillion-dollar annual deficits in the U.S. The solutions to this, such as interest rate suppression and the related yield curve control, should continue to push up equities, though there will be corrections… probably some steep and deep ones. Among the biggest stock market beneficiaries from the inflationary implications of the above actions should be the producers of essential commodities, such as natural gas.
It’s also encouraging for those of us who are fans of emerging market (EM) debt that Vincent is upbeat on this asset class as well. He even uses the example we have so frequently cited of Brazilian government bonds offering yields 10% above its inflation rate. EM bonds are likely a more feasible — and higher-yielding — way for investors to position for rising inflation and a long-term bear market in the U.S. dollar than inflation breakevens which are more of an institutional vehicle. In that regard, we continue to be most impressed with the price chart of the Morgan Stanley Emerging Markets Domestic Debt fund (EDD). You can also collect a nine percent cash flow return while you wait for present U.S. policies to continue to weaken the dollar, a key objective of the Trump administration.
Morgan Stanley Emerging Markets Domestic Debt fund (EDD) | Five-Year Price Chart
Bloomberg
Enjoy!
The Haymaker Team
The Fiscal Dominance Portfolio
Vincent Deluard
(Abridged version provided below)
“Full circle, from the tomb of the womb to the womb of the tomb, we come.” ― Joseph Campbell, The Hero With a Thousand Faces, 1949
J. Campbell observed that all myths follow a similar arc of departure, initiation, ordeal, reward, resurrection, and return. The hero takes a thousand faces, but humans endlessly repeat the same basic story.
Similarly, a well-established pattern has unfolded throughout economic history, and yet always manages to surprise investors. Peace creates wealth, which invariably concentrates in a few hands. Government spending tends to increase to maintain peace and meet the populace’s demand for more services, but increasingly corrupt and mistrusted institutions lose their ability to extract resources via taxation or plunder. Credit expansion causes debt to grow faster than incomes; yields need to be suppressed, and money must be devalued to keep debtors afloat. …
Subscribe to Haymaker to read the rest.
Become a paying subscriber of Haymaker to get access to this post and other subscriber-only content.
A subscription gets you:
 | Subscriber-only posts and full archive |
| Post comments and join the community |
IMPORTANT DISCLOSURES
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and David Hay makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on David Hay’s beliefs, as well as certain assumptions regarding future events based on information available to David Hay on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized or that an investment strategy will be successful. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
David Hay shall have no responsibility for: (i) determining that any opinion, forecast, projection, risk assumption, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinion, forecast, projection, risk assumption, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinion, forecast, projection, risk assumption, or commentary discussed herein to any particular reader’s investment objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that David Hay has an advisory agreement, oral or otherwise, with any reader.
David Hay serves on the Investment Committee in his capacity as Co-Chief Investment Officer of Evergreen Gavekal (“Evergreen”), registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Evergreen in no way implies a certain level of skill or expertise or that the SEC has endorsed the firm or David Hay. Investment decisions for Evergreen clients are made by the Evergreen Investment Committee. Please note that while David Hay co-manages the investment program on behalf of Evergreen clients, this publication is not affiliated with Evergreen and do not necessarily reflect the views of the Investment Committee. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
20250726
