Jeffrey Sherman on Borrowed Prosperity and the Case for EM Local Currency | Bloomberg TV

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DoubleLine Deputy CIO Jeffrey Sherman joins Bloomberg’s The Close live from DoubleLine’s L.A. offices, urging investors to tune out the headline ping-pong and focus on underlying fundamentals. While the earnings backdrop remains solid, Mr. Sherman notes that at roughly 25x forward earnings, equities are stretched, and with the two-year U.S. Treasury yielding 4%, the risk-reward is increasingly difficult to justify. He warns that inflation, tariffs and elevated energy prices are acting as regressive taxes on the lower-end consumer, and he questions whether the Federal Reserve or the government has meaningful capacity to respond given a $2.2 trillion deficit before factoring in the costs of the ongoing Iran war.

On positioning, Mr. Sherman sees compelling value in emerging markets (EM) local currency bonds, where a diversified basket can yield close to 7% while offering a natural hedge against a weaker U.S. dollar, and notes additional upside in gold supported by continued central bank buying. He closes with what he views as the most underpriced risk in markets – U.S. immigration policy and its downstream impact on labor supply. Mr. Sherman argues that two decades of underinvestment in skilled trades have generated a meaningful headwind to growth that is severely underappreciated by markets.

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