Four predictions for global markets
Ten years after the global financial crisis, and following a sustained rebound in world markets, predictions of gloom are coming in thick and fast. How concerned should we be that the good times are coming to an end? To help you reach some kind of conclusion, I’ve included the latest forecasts from four industry leaders.
RAY DALIO (CIO, Bridgewater Associates)
“The next downturn is going to be a different type of downturn…It will be more severe in terms of the social, political problems. And it will be more difficult to handle. It won’t be the same in terms of the big-bang debt crisis…There is a squeeze that will be emerging but generally speaking we are in the seventh inning of this cycle. I think we are at the stage of the cycle where interest rates are being raised. We are in the later stage probably, maybe we have two more years of the cycle or something like that. The issues of this debt crisis are very different from the last debt crisis. Each one is a little bit unique. This one looks much more like the 1935-40 period.”
[In other words, a slow burn rather than a fast meltdown.]
BRUCE FLATT (CEO, Brookfield Asset Management)
“We’re almost 10 years into a recovery, which means that the recovery or the expansion may last for one year, two years, three years, four years more. Four years would be maybe a record . . .[so], just because we’re very conservative people, our view is we should hold more cash, be more conservative,” says Mr Flatt.”
“He recalls 2007 when Brookfield “began preparing” for a downturn. Brookfield is once again increasing its cash holdings. At the end of June, in its latest results, Brookfield Asset Management held almost $6bn of cash and equivalents, almost double the figure at the end of 2016.”
“It’s when enormous dislocations happen, and you can buy, and the only way one can do that is be prepared,” he says. “I wouldn’t want this to come across that we’re preparing for Armageddon.”
DAVID TEPPER (CIO, Appaloosa Management)
“We are kind of late and the tide is just turning from being loose [monetary policy] to being tighter. So it is sort of a late inning game here… If we do the tariffs on China, it is going to make it a little bit tough on the market.”
“He said stocks could drop 5 per cent to 20 per cent if trade tensions between the world’s two largest economies increase.”
“The investor said he is now about 25 per cent exposed to the stock market. Tepper called the market “fairly valued” if the U.S. doesn’t impose more tariffs on Chinese goods.”
“I’ve taken down my exposure [to equities],” he said. “I’m just not sure what’s going to happen with these tariffs. … Our whole book we probably took down 30 per cent at some point, the equity part.”
STEVE EISMAN (Neuberger Berman)
“Steve Eisman saw it coming. A decade ago, he was among the few who figured out something was amiss in the U.S. housing market, and famously found a way to bet against it, earning him a prominent role in Michael Lewis’ financial crisis classic The Big Short. Now a fund manager at Neuberger Berman in New York, Eisman recently spoke to the Financial Post’s Barbara Shecter about…how he’s investing now.
“I think the biggest change [since the Lehman Bros. collapse in 2008], at least in the United States, is how much more extensively and harshly banks are regulated. Let’s use Citigroup as an example. So just before the financial crisis started, Citigroup was levered about 33 to 1. Today, it is levered about 10 to 1. That is, in my world, like comparing the distance from Mercury to Pluto. It’s such an enormous change it’s hard to even describe it. I can honestly say for the first time in all the many, many years that I have covered the financial services sector, I actually think the banking system in the United States is safe.”
“In my view it [QE] failed, 100 per cent. It caused the stock market to go up because people took all that liquidity and invested it in the stock market, but it did not cause the economy to grow even 10 basis points faster. I like to nickname quantitative easing “monetary policy for rich people.” … You know, they took a shot; it didn’t work. And then they doubled down and did it again. Same result.”
“I’m pretty sanguine these days about the U.S. economy. I don’t see any real risks out there. A lot of the things I usually look at that would tell you there might be a problem — like changes in credit quality — are not showing any signs of stress. And I think the only real threat is some sort of global trade war.”
Ten years after the global financial crisis, and following a sustained rebound in world markets, predictions of gloom are coming in thick and fast. Share on X
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Michael
:
Eisman is yet another one of “the few” who saw it coming. If I had a dollar for every financial commentator/fund manager/guru referred to as being one of “the few” who saw the GFC coming then I’d be a very rich man indeed!