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Zervos on Election

Key Points from David Zervos’ Post-Election Conference Call:

  • Market appears to be reacting positively to the calm nature of Trump’s victory speech (Trump focused on infrastructure and growth, not on deporting people and building walls), but David is not sure how long that attitude will last and he would not jump into EM currency at this time, nor into risk assets.
  • David had pointed to Brexit as an example of what could happen to the US dollar post-Trump, but he never expected the degree of weakness that we had seen with the GBP.  Seeing some modest weakness in the USD this AM, and though he wouldn’t jump back into EM currencies immediately, he does think there will be a time to get back in to those EM currencies.
  • The bulk of the move in rates this AM has been a result of higher breakevens, rather than real rates, and David expects real rates to drift lower.
  • There have been some concerns about whether the Chinese might devalue, but David doesn’t think that’s a big concern, not in the near/medium term.
  • He believes the mobility of capital and labor in the US will be in a restrictive environment for the next 3-5 years and that does not make him bullish on risk assets at this time.
  • Sees eventual potential for real rate differential trade (real rates in Latam being much higher) becoming interesting again as this plays out.