Russia Forum Buzz – Global Investment Outlook: Where is the Money & What are the Risks?

February 4, 2011


Marc Faber moderated. He likes the Japanese market. He would short Treasuries, and believes that expectation of inflation is now consensus.

Equities are better than debt in crisis. Gas is a good short-term trade. Commodity spikes often reverse rapidly, and he would short industrial commodities at some stage this year. Short term, equity markets look ready for a correction. Higher oil prices act as a tax on consumers. Long term, he is negative on the dollar as rates will stay far too low.

? 10-year trade ? gold

Nouriel Roubini. The global economy has good and bad parts. Positive aspects ? economic recovery, especially in emerging markets; deflation and double-dip risks are much lower than last year; good companies in the West have a lot of cash and are profitable; emerging markets are growing strongly; the market is a factor that feeds back to the real economy in a virtuous circle.

Negative aspects ? a lot more deleveraging in advanced economies; sovereign debt is a major problem, especially in Europe, which also lacks economic competitiveness (especially on the periphery); inflation, especially of oil and food, which creates social instability and may lead to tipping points; overheating in emerging markets, which is driving up inflation.

Risks in US ? unemployment; double-dip housing; state debt is high and risky; budget deficit is out of control and may lead to bond market revolt.

Other risks ? geopolitics, especially in the Middle East; no more fiscal stimulus and less monetary easing means less support for growth.

Long-term US rates will rise only slowly, not catastrophically. Inflation is low and there is lots of slack in the US. More quantitative easing is likely. Risk aversion will lead money into the dollar. Private savings are rising and are financing the US deficit. So there will be no bond market crash.

? 10-year trade ? DM equities with EM exposure

Nassim Taleb. Why did the crisis happen? Because of excessive debt, which added to risks and made the system vulnerable. However, this has not been understood and the problem has not been solved. Private debt problems can be solved through default but not public debts. There is no restraint on the actions of the US, which means fundamental problems are not solved while debt continues to rise. The only way out is inflation. Avoid Treasuries at all cost. Avoid the dollar. Buy commodities ? food, energy, metals. The euro is better than the dollar as Germany is a guarantor of stability. The US Treasury market is a Ponzi scheme.

? 10-year trade ? land

Scott Minerd. Avoid Treasuries as returns are so low, not because there will be an immediate rise in rates. Unemployment, housing and deflation are drags on the US economy. The world is losing confidence in fiat currencies, which are in a race to the bottom. Europe’s problems have not been solved and he would short the euro against the dollar. Most of the problems facing the US are in the price. Correction in gold is likely although the generational re-rate is still intact. US equities are attractive and prices will rise 20-30%. Would avoid Europe and emerging markets, which are overbought and face inflation pressures.

? 10-year trade ? art

Russell Napier. There is a boom coming in the US engendered by people moving money out of deposits into consumption. Central bankers have two targets ? inflation and credit. This will lead to lots of controls on price, credit and capital, especially in emerging markets. Chinese profits will collapse. What is the role of profits in the economy ? in China they are just a balancing item. Wage growth is 20% but price growth is 5%, so it is hard to make money. Only the Germans can turn on the printing press in Europe, but they refuse to do so. Do not buy US government bonds. Negative on emerging markets, but positive on Japan. Total Japanese debt is no higher than other markets and there is no reason to be bearish on Japan as a result. The Japanese government has to go for growth, so that is good for equities in the short term.

The root cause of the failure of capitalism is too much trading. The solution is to increase transaction taxes.

Would buy the dollar and US equities this year.

? 10-year trade ? Asian currencies

Maria Gordon. We have had 12 years of emerging market outperformance, which is concerning. However, the news from developed markets is not great. Food inflation is soluble by more planting. Likes consumer stocks in China, if they get cheaper. Indian infrastructure stories are attractive. Pick stocks. Likes Russia for the present.

? 10-year trade ? EM equities

Hugh Hendry. Only contentious investments are worth making. We have had ten years of gold doing well. Policy makers are bad. Buy curve steepeners three years out in the US. There may be a rebellion of Irish voters. Quantitative easing will still drive markets. Would buy the yen.

? 10-year trade ? tobacco