Focus shifts from central banks to governments

Liquidity-driven investing and assets like gold are gaining traction, believes Ritesh Jain, co-founder of Pinetree Macro, a hedge fund based in Canada.

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In an interview with Mahesh Nayak, Jain advises investors to stay nimble and keep some cash to invest during drawdowns. Excerpts:

How do you assess the current global macroeconomic landscape, and what are the key drivers of market trends?

The Bretton Woods system is unravelling. Historically, it is the responsibility of a reserve currency to run a current account deficit (CAD) to internationalize its currency, share its GDP with the world, and ensure trade security. However, the US is deviating from this role, reducing its global footprint, and refusing to share its GDP, signaling the twilight of US financial exceptionalism. A new era may emerge with diminished dollar stature and rising gold use in trade.

What role do you see central banks playing in shaping liquidity conditions, and how will this impact asset prices?

In the post-pandemic era, power has shifted from central banks to governments, marking a new era of fiscal dominance. Governments now drive markets and economies, making their actions crucial for profitable investing. This shift is evident in the West, including the US, where governments gained unchecked powers during Covid. To navigate this new landscape, focus on government actions rather than central bank decisions, as fiscal dominance redefines investment strategies.

How do you expect changes in interest rates and monetary policy to affect different asset classes?