The Complacency Crash Is Coming

Bob Elliott, CEO and CIO of Unlimited, is no stranger to navigating volatile macro waters. A former senior executive at Bridgewater Associates, where he worked closely with Ray Dalio, Elliott now brings his global macro expertise to the public through hedge fund-style ETFs and long-form interviews. In his recent appearance on the Capital & Power podcast by AINvest, Elliott delivered a wide-ranging and sobering assessment of current market dynamics, trade policy, portfolio strategy, and the global macro backdrop. With markets near record highs and policy risks bubbling under the surface, Elliott's comments serve as both a warning and a playbook.

WATCH: Bob Elliott: Markets Are Delusional — And Credit Knows It

One of Elliott's core arguments is that markets are mispricing risk around tariffs and trade. Despite persistent tariff levels—"just as high as they were after liberation day"—equities have rallied nearly 10% above those levels. "That has macroeconomic consequences that are not at all priced in the financial markets today", he warned. Elliott cautioned against what he called the "TACO" trade, shorthand for "Trumps About to Chicken Out", where investors assume tariff hikes won’t happen. History suggests otherwise. "Trump didn’t chicken out on liberation day, right? He chickened out after stocks went down 15 or 20%".

In Elliott's view, tariffs are a long-term drag that will only be reversed once economic pain forces the issue. "The path of response is first pain, then policy that alleviates that pain", he said, warning that delayed action could lead to damage that "may not be enough to actually reverse things".

Turning to global portfolio construction, Elliott sees reason to look beyond U.S. borders. "If you look at non-U.S. equities, you get the benefit of both the falling dollar as well as the significant monetary and fiscal stimulations that are happening globally", he explained, referencing stimulus efforts in Europe, the UK, and China. "That's all a very attractive set of opportunities given the low valuations... that's typically a very good time to buy those equities".

For investors still focused on U.S. exposure, Elliott pointed toward credit rather than stocks. "Implied earnings growth expectations [for equities] are basically at all-time highs. So if you want to bet on the US economy, I would be betting on credit much more than I would be betting on stocks here".

The conversation also delved into foreign flows and the rebalancing of global capital. For years, global investors, especially in Europe and Japan, ""were massively overweight U.S. financial assets". At one point, "the U.S. was getting about 70% of every incremental dollar flowing into global financial markets". That imbalance, Elliott explained, is now unwinding, and could lead to "underperformance of U.S. assets by... 50, 75% relative to the rest of the world" over the next decade.

This has direct implications for portfolio positioning. Elliott believes traditional portfolios are overexposed to bonds and underexposed to hard assets. "Most investors don't have enough contra currency or hard assets in their portfolio"," he noted. His recommendation: "maybe you put 10% in gold" as a counterweight to fixed income. He also advocates for tactical strategies such as managed futures and global macro ETFs that "can go both long and short" and defend against regime shifts.

Elliott didn’t shy away from addressing doom-and-gloom narratives either. When asked if today’s risks rival the 2008 financial crisis, he replied: "In 2008, we stared into the abyss... Today, like it’s not even close". And when it comes to fears of a U.S. debt crisis: "Greece and Argentina are nothing like the United States". The comparison, he says, is flawed because the U.S. issues debt in its own currency and can manage high debt levels through financial repression, just as Japan has done.

Even on AI—perhaps the most hyped topic in markets today—Elliott offered a nuanced view. He sees real productivity benefits, but warns against assuming it will translate into explosive corporate profits. "You can't have infinite margin expansion because if you lay off a bunch of workers and they don't have money to spend, then how are you going to get the top line revenue to support the companies?". His bottom line: "We’re probably going to have higher GDP growth. We’re probably not going to have a radical margin expansion".

Finally, on policy levers that could stimulate growth, Elliott emphasized deregulation over monetary or fiscal tools. He pointed to well-capitalized banks that are "basically doing nothing" and suggested that rolling back regulation could create "trillions of dollars of incremental stimulation into the economy".

In a market awash with optimism, Bob Elliott stands out for his clear-eyed realism. His insights offer not just a critique of consensus thinking, but a thoughtful path forward for investors seeking to position for a world that may look very different from the past decade. For those serious about navigating today’s macro complexity, this episode of Capital & Power is essential listening.