Let’s start with the fact that Scott Bessent, founder of Key Square Investment Group, had previously worked as the Chief Investment Officer for Soros Fund Management before receiving $2B in seed money from George Soros in 2015 to start his new firm. This is why it is so shocking that he recently wrote that equity markets are in the middle of a “Trump Rally” that will last if he remains ahead of Biden in the polls. This contrarian view is worth a look.
Key Points From Key Square Investment Team’s 1/31/24 Partner Letter
- Market participants are anchored in flawed narratives, providing attractive entry points.
- Key Square posits that Trump would likely seek rejuvenation/redemption during a second term. Further, favorable Trump polling is correlated with stock rallies as outlined below.
- As Trump’s lead persists, the Biden administration, led by Treasury Secretary Janet Yellen, would be expected to continue to follow, and perhaps accelerate policies, to keep the economy buoyant, provide ample liquidity, contain interest rates, and avoid any more blowups like Silicon Valley Bank. All are extremely equity market positive.
- Financial conditions have eased materially over the last three months, and Key Square believes this easing will likely continue well into 2024.
Disinflation or Deflation Will be the Order of the Day Going Forward
- The conventional wisdom puts forth the idea that duplicative supply chains are inflationary as they are less efficient. Key Square believes that the onshoring & prioritizing of strategic manufacturing did create an inflationary wave, but now this impulse has passed. The duplicative excess capacity is without commensurate new demand; therefore, it will depress global capital goods pricing.
- Review Scott Bessent’s entire letter below for additional insight & detail.