Views From the Top (April 2022) | De-Globalization

The Transition to a New Global Financial Framework

Bayshore’s Chief Investment Officer shares his thoughts on current events and topics.

When we launched Views From the Top last December, we promised to keep these letters short and concise. We are already violating this promise with our second issue, for which I’d like to apologize. That said, the Russian invasion of Ukraine is a game-changing event and caused us to refine our outlook. To explain our thinking in the appropriate context, we need to revisit some history. Thank you for bearing with me, and I promise to keep future issues on the shorter side.

Key take-aways:

• The war in Ukraine and the West’s reaction to it are likely to accelerate the transition away from the US-centric global framework that fostered globalization and international trade.
• The sanctions against Russia are likely to motivate major global trading partners to diversify away from US dollar (“USD”) and Euro exposure to secure their reserve assets.
• For the US, this will mean less demand for the USD and US debt, resulting in higher interest rates and a weaker dollar.
• A de-globalizing world will lose the benefits from globalization and face higher inflation.
• The US is well positioned to succeed under these new circumstances, leading to a rebalancing of trade and an opportunity to reduce debt levels.
• Investment implications include adding commodity exposure, gold, and possibly digital assets, while reducing bond exposure. Among fixed income investments, private debt stands out.