Monday, January 28, 2013

All is well in the world!

At least that's what I heard at a recent (thursday) investor conference -- I was shocked to hear that Europe was in year 6 of a 10 year de-leveraging cycle, there is no evidence of any deleveraging in Europe.  Of course house prices have crashed in certain countries, but this is not deleveraging insofar as the debt has not be repaid, it is a net loss for the economies (Spain, Greece), as these home stand empty today.

I was surprised how sanguine there were about the US (but not Canada), how things in the US were looking up, house price finally "rising" (they have in fact risen by nearly 9% since September).  However, interest rates are still very very low (lower than inflation), median income (not average) is not rising, speaking volume about the lack of purchasing power by the middle class.  

The view of Europe was that things are getting better -- they are particularly turned on by the UK -- which is strange considering the difficulties of the the Cameron government.  I suspect that there is general exhaustion about the bad news coming out of Europe.  The European central bank has decreed that it will do whatever it needs to maintain Greece's position within the union, but one has to wonder how long this will last?  Also as a "fly in the ointment"  problem is Cyprus, which is closely tied to Greece, and which has seen all three of its domestic bank forced into restructuring -- since so much of their assets were tied to Greece -- needing a rescue, Cyprus could fall out of the EU by sheer neglect giving an exit road map to other troubled economies.  

It seems that the investment community has taken the election of Obama into its stride, and are now looking at the US as an engine of growth -- for what its worth this morning's durable (December 2012 timeframe) goods number were twice as high as expected (4.6% Vs target of 2.1%), now I've not looked at the data granularity in any meaningful way, aside from Investments -- companies adding assets to their production capacity that was up marginally, but follows very strong performance in October and November its hard to draw meaningful conclusion.

Overall, their view as to the energy and ressource sectors are negative (e.g. Canada), and would see fall in prices.  China's economic growth would be lower -- at 8% but driven by consumption (not sure how that's going to happen since the incentive in China are still towards investments).  First step would be to make borrowing more expensive, paying investors meaningful interest on their deposit balances.  The other issue (to unlock value) are Chinese IPOs that are blocked because the companies cannot demonstrate profitability -- in a country were the books are unusually well cooked!  Tells you something about the strength and weaknesses of the Chinese economy.

Overall, the conference was interesting because I disagree fundamentally with their views of the world. The kicker is that these fund managers have outperformed the market almost every year (and by nearly 2% point over the life of their fund -- 25 years).  So although I disagree with their views of the world, they are probably better at reading the investment world than I am -- food for thought!

Finally, in a poll of the 150 participant (via electronic gismo) the overall risk was a black swan event!

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