In short: 15% — the risky end of the barbell: EM debt "yields over 7%" in local currency and "since I believe the dollar is heading lower, you're going to make money on the currency too." Best-performing traditional bond sector this year and last; "I've only allocated to local currency emerging markets once in my career" — this time, starting June a year ago.
Government bonds of developing countries paid in their own currencies. They yield over 7%, and if the dollar keeps falling — as he expects — those currencies rise against it, adding a second source of return. It has been the best-performing traditional bond category, and he notes this is the only time in his career he has allocated to it. EMLC is a proxy fund; he named the asset class.
11:18So you're buying emerging market debt which yields over 7% if you buy it non-dollar. So buying in local currency, and since I believe the dollar is heading lower, you're going to make money on the currency too. So you make money on the bonds hopefully. And they've done well. It's the best performing fixed income sector.
In short: "The best performing sector which I've also recommended and continue to recommend with confidence is local currency emerging market bonds" — the best sector of the global bond market, "sadly" only up ~2.5–3%.
Government bonds of developing countries, paid in their own currencies. He calls it the best-performing part of the world bond market this year and keeps recommending it "with confidence" — though he admits that in a bad year for bonds "best" only means up 2.5–3%. EMLC is a stand-in fund; he named the asset class.
19:16Also the best performing sector which I've also recommended and continue to recommend with confidence is local currency emerging market bonds which are — the best performing sector of the global bond market sadly because they're only up something like 2 and a half to 3%. — He keeps telling us in the statement, it's a new feature, that we have an ample reserve regime.
In short: The JPM EM local-currency index vs US corporates tracks the inverted dollar almost exactly: "if the dollar goes down, which I expect to happen, we'd expect EM local currency… to outperform US corporate bonds." Yields ~7% — "pretty good competition" for a stock market at a record CAPE.
These are government bonds of developing countries paid in their own currencies (reais, rand, pesos) rather than dollars. They pay around 7%, and when the US dollar weakens, those currencies gain — so a US investor earns the interest plus a currency boost. His chart shows this debt beating US corporate bonds almost exactly when the dollar falls, and he expects the dollar to keep falling. EMLC is simply a fund that holds this kind of debt.
31:37So when the blue line is going up, it means the dollar is going down. And again, the tan line and the blue line are very similar in shape. So if the dollar goes down, which I expect to happen, we'd expect EM local currency emerging markets to outperform US corporate bonds. So with that, here we go barreling into the holiday season. NFL starts tomorrow.
In short: Cited as the benchmark that has humiliated Treasuries: EM local-currency bonds "returning like 15% a year the last three four years… if it was a fight, they would stop" while TLT loses money.
EMLC owns government bonds from emerging-market countries, issued in those countries' own currencies (Brazilian reais, Mexican pesos and so on) rather than in dollars. So you earn their much higher interest rates and also gain or lose on their currencies against the dollar.
He uses it as a scoreboard, not a recommendation: EM local-currency bonds have returned "like 15% a year the last three four years" while US Treasuries lost money. "If it was a fight, they would stop."
The point behind the comparison is that "safe" is not the same as "profitable" — the US long bond has been the risky asset, and the countries investors call risky have paid better. It is context for why he now finds the beaten-up US long bond interesting rather than a call to buy EM debt here.
32:05I mean, it's like a, if it was a fight, they would stop. I mean, the emerging market local currency bond fund, EMLC, is returning like 15% a year the last three four years, and the TLT is losing money. And risk parity 60/40, that risk parity ETF is unchanged since 2021. — Help me understand here.
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