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Debt, Leverage, Inflation And Speculation Unlike Ever Before In History

Tavi Costa sees today how limited policymakers are relative to the imbalances that we have in the system in a global economy. “Now we’ve had moments in history with extreme leverage, we’ve had moments in history with extreme inflationary forces, and even speculative environments,” said Costa. “But, I assert that we’d never seen these three macro-imbalances occurring all at once. And this is a big deal. We had the debt to GDP problem of the 40s, with inflation of the 70s, and the speculative environment of the late 90s.Those independently are all explosive on their own, and they’re all caused by misguided policies.” They’re all happening now.

Costa believes policymakers are constrained when it comes to what they can actually do today to allay the economic problems. Equity markets have already been mostly propped up by excessive liquidity. The Fed can only continue to handle increasing inflationary pressure while keeping costs of capital low for so long. 

“We’re now seeing a new macro regime unfolding in the markets,” said Costa. “The leadership of the market has completely changed. We’re seeing equity markets, when it comes to the technology sector, starting to suffer, and natural resource companies are beginning to gain more relevance in the investment community.”

And so, there are major changes happening right now. And then on top of it, you have this geopolitical environment, started recently with the invasion of Ukraine from Russia. It’s a tectonic shift in the geopolitical landscape that I don’t think we’ll go back to the world we had, a month or two months ago, due to those changes.”

The tensions are only going to increase from here, predicts Costa. “The impact and the global economy are going to be much more persistent,” he said. “A lot of things are unfolding at the same time, and this is an incredible time to be long tangible assets, and to be hedging that position with risky assets at record valuations.”

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