I am retired and take educated guesses on all things financial.

January 05, 2010

January 5, 2010: Faber, El-Erian and Roach on 2010

The Financial Times featured basic comments from Marc Faber, Mohamed El-Erian and Stephen Roach. Readers know all about the first two, Stephen Roach is the Chairman of Morgan Stanley Asia.

Faber state that while 2009 produced life-time buying opportunities, 2010 will be a year of capital preservation. If asset markets were to weaken again, more fiscal and monetary stimulus would be implemented. If markets were to gain another 20 per cent, fiscal and monetary restraint would probably be applied. Faber's bet for asset markets is a volatile trading range, an outperformance of Japan and the S&P 500 compared to emerging markets. 2010 should also be, in his opinion, a good year for grains.

El-Erian looks for a multi-speed global economy, resistance to the days of carefree check-writing by governments, further steps in the journey from a uni-global economy to a multi-polar one and, as advanced economies struggle with chronic high unemployment, for policies that forgo some growth promotion for income and wealth redistribution. El-Erian states that to prosper in such a world, investors should maintain dry powder for sudden "air-pockets" in equity markets, demand better compensation for the surge in industrial country sovereign debt, and to resist the deceptive comfort of positioning portfolios for the familiar pre-crisis world rather than a more complex crisis-prone world, which is reality now.

Roach maintains that a growth scare is likely to be the major investment event of 2010. Post-crisis recoveries are typically anemic and at odds with the vigorous rebound now in favor as a dominant portfolio course in world financial markets. Battered financial institutions will be unable to sustain normal credit practices for years to come. Roach states that the deleveraging of a saving-prone American consumer is likely to hobble the demand side of the global economy. 2010 world GDP will average about 2.5% over the next three years. This anemic growth will not allow the world to have the cushion it needs to shrug off additional economic shocks if (when) they occur. A failed exit strategy by monetary authorities, or an outbreak of protectionism, are especially worrisome. Thus, a double dip or multi-dip recession is on the table. Corrections would be most severe in export-led emerging markets that are not in any sense decoupled from more mature economies. Global bond markets may rally as commodity markets correct. The past nine months of 2009 could well run in reverse.

Granted these are generally thrusts and not meant to be advice for specific securities. Nonetheless. all three are worried to one degree or another, especially about poor government decisions that will pose more problems than solutions.

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