MacroVoices #397 Alex Gurevich: The Real Rates Tsunami
Alex Gurevich discusses his commitment to the long duration trade despite recent underperformance, arguing that self-reinforcing inflation has given way to self-reinforcing disinflation. He predicts employment weakness will drive deflationary depression, while maintaining bullish long-term oil outlook due to supply constraints.
Summary
Alex Gurevich acknowledges getting some predictions wrong, particularly underestimating the persistent nature of inflation due to its self-reinforcing characteristics. He explains that the 2021 period of extremely loose policy created positive feedback loops that made inflation more sticky than anticipated. However, he argues this same self-reinforcing dynamic is now working in reverse, creating persistent disinflation. Gurevich believes real rates have risen dramatically (from negative 9% to positive 2.5%), creating unprecedented policy tightness that will lead to employment weakness and eventually deflationary depression. He maintains his long duration trade conviction, viewing recent bond sell-offs as better entry points. On employment, he admits his layperson speculation about job losses was wrong, but argues that positive real rates will now incentivize companies to reduce redundant labor and increase productivity, potentially accelerated by AI tools. Regarding oil, he favors long deferred contracts over front-month positions, expecting supply tightening over 2-3 years in any scenario except deflationary depression. He sees energy deflation coming in about a decade due to fusion energy and AI-accelerated nuclear solutions, though regulatory hurdles may delay implementation. Gurevich acknowledges geopolitical risks, particularly around Israel-Gaza conflict, but doesn't see immediate oil supply impacts. He views political and geopolitical factors as the main risks to his deflationary outlook, but sees no current signs of such shifts.
About this episode
MacroVoices Erik Townsend and Patrick Ceresna welcome back, Honte investments fund manager Alex Gurevich. Erik and Alex discuss the reasons why Alex is still committed to the long duration trade long-term, and why that trade hasn’t been performing recently. https://bit.ly/3RW7Hcj Alex's Market Note: https://bit.ly/3FhA9xH Check out Energy Transition Crisis on YouTube: https://www.youtube.com/@EnergyTransitionCrisis1 Download Big Picture Trading Chartbook 📈📉: https://bit.ly/3PTuFOD ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/2JjZR7J Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- Gurevich argues that inflation's self-reinforcing nature made it more persistent than he anticipated, but this same dynamic is now working in reverse to create persistent disinflation
- He contends that real rates have risen from negative 9% to positive 2.5%, representing an unprecedented 11.5% tightening that will drive deflationary outcomes
- Gurevich admits his layperson speculation about post-COVID employment collapse was wrong, but argues that positive real rates will now incentivize productivity gains and labor force reduction
- He predicts companies will leverage AI tools to increase productivity and reduce headcount as real wages rise and funding becomes more expensive
- Gurevich maintains that the recent bond sell-off was driven by supply/demand imbalances rather than fundamental economic shifts, creating better entry points for long duration trades
- He argues that deferred oil contracts offer attractive risk-adjusted returns due to market structure backwardation, expecting energy prices to rise before major technological disruptions occur
- Gurevich forecasts that fusion energy will become technologically viable within 6-7 years, though regulatory obstacles will likely delay commercial implementation
- He sees AI as capable of solving complex control problems in nuclear systems, potentially accelerating both fusion and fission energy solutions within the decade
- Gurevich argues that in a strong dollar environment, oil price spikes will become contractionary rather than inflationary, accelerating deflationary pressures
- He contends that the 40-year bond bull market has ended, but expects a new, more rapid and violent bull market to emerge from current conditions
- Gurevich acknowledges that political shifts and geopolitical instability represent the primary risks to his deflationary thesis, though he sees no current evidence of such changes
- He predicts that AI will eliminate most intellectual jobs within a decade while manual labor remains relatively protected from automation
Topics
Transcript
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices Episode 397 was produced on October 12, 2023. I'm Eric Townsend. Honte Investments Fund Manager Alex Garevich returns as this week's feature interview guest. We'll discuss the reasons Alex is still committed to the long-duration trade, at least in the long term, and why that trade hasn't been performing so much recently in the short term. We'll also discuss the…
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