Macro Driven Investment Insight
Track Record
'The real economy has been remarkably resilient so far to the implosion in credit markets, but this will inevitably change...like a financial Tsunami, we have had the credit earthquake but the tidal wave of default is still cresting and about to hit home. US banks wrote off just 63bp (0.63%) of loan value in 2006, but a level approaching 180-200bp is likely this year and next. In the UK a rise to 120bp is widely forecast, and even higher levels in the property slump exposed Spanish and Irish banks...in the US and Europe the remarkably generous response by shareholders so far to bank cash calls is unlikely to stand the test of further stress in the credit markets; bottom fishing in financials can be classified as an extreme sport.'
April 28th, 2008
'We have reached a disturbing moment in financial markets, where the noise to signal ratio across all asset classes is probably at an all time high, the August effect notwithstanding. Never has it been more important to adopt a strategic mindset to investing, rather than stampeding after the latest momentum trade without a shred of conviction. I fear that equity markets are still dangerously complacent as to the risk of the brakes slamming on global growth. We will probably reach a tipping point in the next couple of months when the grim outlook for 2009 becomes inescapable and triggers steep earnings downgrades for non-financials and potentially a market panic.'
August 14th, 2008
'My overall view is that fears of economic Armageddon have been grossly exaggerated (and consequently equities grossly oversold), and that the unprecedented global fiscal and monetary stimulus will gain traction in the next few months, and generate a sub-par but real recovery, led by the US by early 2010. Depression talk, in the sense of a repeat of the economic extremes experienced in the 1930's is hysterical nonsense. The freefall sensation reflected in recent global statistics from trade to capital flows will soon begin to level out and I doubt we will even approach the 1974 experience at the nadir of this cycle, which looks imminent.'
March 4th, 2009
'The structural flaws at the heart of the European project threaten to be cruelly exposed over the next couple of years and it will take a degree of political generosity and economic wisdom rarely seen on the continent to avoid serious market upheaval. I've been a dollar bull for the last couple of months on a stronger than expected US recovery. I called the dollar right in 2008 against the overwhelming consensus, and I'm pretty confident the crowd will stampede my way again, this time chased by angry Greeks bearing bottles of petrol rather than olive oil. '
December 11th, 2009
Was the growth of the middle class in the US in the post war years a historical accident now being reversed by secular economic trends? It's a crucial question, not least because of its political implications, and I think the answer is irrefutably affirmative. The addition of tens of millions of Americans to the middle class in the 1950s and 1960s was a function 1) of America's dominant position across many industries after the destruction wrought in Europe and Japan 2) union power exercised via the UAW and Teamsters and International Dockworker's Union to centralize wage bargaining which allowed Detroit blue collar workers (and dock workers etc) to earn a multiple in real terms of what workers in those industries now earn; and 3) a highly progressive tax policy on wealth (both earned in all forms and inherited) which funded government spending on infrastructure, R&D etc (and it's a historical fact that Silicon Valley owes its existence to the Pentagon and CIA while fundamental scientific research in the US, both private and government, has collapsed since the 1990s). Why is real earned income for Americans in the bottom half of the income distribution are back to 1973 levels and debt to household income at 120% (down from over 130% in 2008 but versus an average of 65% until 1985 and 90% until 2000)? Well, it's that falling Berlin Wall again and its global implications, particularly in Asia. Whereas Japan, Europe and the US had broadly similar wage levels adjusted for productivity, when the Chinese communist party decided to get rich quick to avoid the Soviet party's fate and roll out the red carpet for multinational manufacturing, it was the beginning of the end for blue collar America's aspirations to a middle class lifestyle.
October 10th, 2010
It is remarkable how few economists still accept that consumer spending does not necessarily translate into productive economic activity. Only a huge rise in domestic savings would allow increased investment alongside a narrowing of the balance of payments deficit, and in time the basis for accelerating trend US growth to allow gradual deleveraging. The current trend of US savings is a major limiting factor on a sustained period of growth without a significant deterioration of its balance of payments position or the opposite of the much discussed "rebalancing.".Total U.S. savings (corporate, government and household) fell to just 10.2% of GDP in Q3 2009 (or half typical historical levels and the lowest since 1934) and US net domestic savings, i.e. gross domestic savings minus capital consumption, has been negative for almost a year now. If domestic savings remain depressed, then either U.S. fixed investment will remain low, which caps the U.S. economic upturn, or the U.S. must finance a new higher level of investment from abroad, and with this there must be a renewed widening of the U.S. balance of payments deficit as the counterparty of increasing foreign capital flows to fund the "depreciation gap."
January 19th, 2011
These and other examples are available on our blog archive.
