A recent article in Barron’s offers excerpts from an interview with Whitney Baker, founder of research and consulting agency Totem Macro, in which she addresses topics including China, emerging markets and the dollar.

Here are some key takeaways from the interview:

• “If you’re a stock investor, you’ve got a few problems with China,” Baker argues, citing what she describes as an “arbitrariness to what’s driving equity returns,” adding that “after being such a big engine of global growth and credit creation for 10 or 12 years, China is dealing with difficult and competing domestic priorities: reinvigorating growth, deleveraging, managing currency pressures.”
• According to Baker, the U.S. government response to the coronavirus pandemic “gave households a way to spend on all sorts of stuff, boosting demand without having to be employed producing supply,” which has led to “pronounced inflationary pressures, and why there’s just no way it’s transitory.”
• Baker argues that the current investment cycle will not be driven by the U.S. and China, noting that U.S. households have “13% of GDP in extra savings that they haven’t spent yet” while China will be “deflating and trying to get debt levels and property bubble under control.” Everywhere else, she says, (citing emerging markets and Europe) we’re seeing a “synchronized rebound and releveraging.”
• U.S. economic growth is still lagging, she notes, because despite high demand, “capacity utilization isn’t super stretched. We haven’t really had commodity investment globally, outside of shale, since 2010.”
• On Treasury yields and the dollar, Baker weighs in, “There’s been no net duration Treasury issuance for the past three months after accounting for Fed purchases. The amount of bond issuance will now surge, and our 10-year yield indicators are pointing to 2.5% to 3% by the first quarter. If the Fed then tries to effectively ease, the dollar will bear the brunt.”
• Baker offers the following investment recommendations: “We like the high-yield and commodity-dependent emerging markets, which now have the best current account surpluses and balance sheets they’ve ever had, and no dollar debt to speak of.” She adds, “there are rock-bottom valuations on currencies. In Chile and Columbia, we particularly like the stock indexes at large.”
• Totem is staying away from “anything in North Asia, Chinese stocks, Brazilian stocks,” says Baker, adding that although her firm is “structurally inclined to like India, we can’t buy at these valuations.”