0:00 – Introduction: Ed O’Dowd welcomes clients and friends to the March edition of the CAPIS Monthly Research Briefing. He introduces returning guest Gustavo Cano of Fund@mental, who provides macroeconomic commentary spanning inflation, deficits, Fed policy, the U.S. dollar and market concentration dynamics.
1:10 – Global Inflation Trends & Reflation Risk: Gustavo opens by highlighting CPI inflation trends globally, warning that inflation may be bottoming and could reaccelerate. He references Milton Friedman’s view that inflation stems from government spending — something that remains unchecked in the U.S. Gustavo illustrates the growing divide between federal spending and tax revenue, warning that this fiscal gap could rekindle inflationary pressures.
5:00 – Historical Inflation Cycles and Political Perceptions of Inflation: Gustavo suggests we may be entering a second wave of inflation, especially if tariffs are reintroduced. Inflation, he argues, isn’t just economic — it’s social and political, impacting consumers at a tangible level. Different political affiliations view inflation risk differently. Democrats expect 5% inflation within the next year, Republicans foresee 0%, and independents are in between at 3.7%. This divergence contributes to policy gridlock in Washington.
7:35 – Tariffs and Hidden Inflationary Pressure: Gustavo uses an example of U.S. auto part manufacturing to show how multi-layered tariffs can compound. Tariffs aren’t just 25% — they can stack to 50% or more, with costs ultimately passed to the U.S. consumer. While political rhetoric focuses on China, Mexico is the U.S.’s largest trade partner and thus a key risk area if tariffs escalate. Policy uncertainty under the Trump administration adds complexity for businesses planning capital investment.
11:50 – U.S. Debt Outlook: Gustavo shifts to the U.S. debt trajectory, noting a post-pandemic acceleration that’s proving unsustainable. Globally, debt has risen to $315T, and while the debt-to-GDP ratio has fallen slightly, he attributes that to inflation distorting GDP figures, not fiscal improvement.
13:30 – Global Bond Market Update: Unlike past cycles where yields fell during Fed easing, today’s 10-year yields are rising post-cut. Factors include inflation fears, tariffs and uncertainty. He calls this a departure from historical norms — with caution. Outside of the U.S., China is fighting deflation, while Japan faces rising inflation and debt. Both countries are now less likely to buy U.S. Treasuries, shifting the burden of financing to domestic buyers like banks or consumers.
16:30 – Corporate Credit, Treasury Markets and Recession Watch: While investment-grade spreads remain tight, lower-tier high-yield spreads are starting to widen. Gustavo sees this as an early signal that credit markets are getting nervous — especially given rising bankruptcies. The new Treasury Secretary faces a challenge: 25% of U.S. debt is in short-term bills, vulnerable to rising rates. The goal is to extend duration, but that depends on lower yields — which may only come with a recession or rising demand for long-dated bonds. PolyMarket shows a 40% chance of recession, but the IMF predicts nearly no economies will be in recession this year — a first in 40 years, and a contrarian indicator.
20:45 – Mar-a-Lago Accord: Trump’s team reportedly crafted an economic strategy dubbed the Mar-a-Lago Accord, focused on a weaker dollar to bring manufacturing back, tariffs to protect domestic industry and a potential (but unlikely) sovereign wealth fund. This would pressure the dollar while driving commodity prices higher.
23:30 – Dollar Outlook and Commodities Correlation: Gustavo expects the U.S. dollar to weaken, both in real terms and versus other fiat currencies. Historically, commodity prices spike when the dollar weakens, and that trend may begin evidenced by gold trading above $3,000.
25:25 – Market Structure: Passive vs. Active: Today’s market is driven by passive flows, which amplify momentum. Active managers are under pressure, holding little cash. In contrast, Berkshire Hathaway is sitting on a record $320B, signaling limited buying opportunities.
30:30 – U.S. Outflows and Europe’s Tailwinds: 2024 was one of the most concentrated markets ever, dominated by the Magnificent 7 stocks. That is starting to unwind, with value stocks and defense sectors gaining traction. Capital is flowing out of U.S. growth assets and into Europe, which is benefiting from lower valuations, a $500B German fiscal stimulus and Euro strength (+6% YTD). These trends could position Europe for outperformance in 2025.
34:00 – Fund@mental Platform Demo: Gustavo gives a brief walkthrough of Fund@mental’s platform, showcasing tools for sector analysis, return attribution, portfolio stress testing and client reporting. The platform is free to register and designed to support independent managers with macro insights and analytics.
38:15 – Q&A Session: Gustavo answers viewer questions regarding rescission risk, the performance of European stocks and how active managers can differentiate in 2025.
43:36 – Conclusion and Upcoming Events: Ed O’Dowd closes the session, thanking Gustavo and reminding attendees of upcoming CAPIS events. Upcoming webinars include a Transition Management virtual panel on March 27 and an April 17 Market Research Briefing featuring Markets Policy Partners.
Watch the full March 2025 Market Research Briefing (featuring Gustavo Cano of Fund@mental) here.
