Secrets of the strategic investors

TGR: Most of the speakers were not worried about recession in the U.S. in the near term. To what extent do you agree?

SPC: I am not too worried about it though my base case is that growth remains sluggish in the U.S. for some time.

DH: We usually agree with Mark Twain that if you find yourself on the side of the majority, it is time to reform. However, currently we don't see the preconditions in place for a U.S. recession, which is certainly a consensus view. However, if credit spreads were to blow-out—a distinct possibility—our attitude would quickly change.

NS: I am not too worried about recession. This year, 2014, should be a period of accelerating growth and demand in the U.S.

TGR: How big of an impact can advances in technology and biotech have on the global economy? To what extent do new technology products need to have impact on the developing world, as well as the developed world, to be transformational?

SPC: I believe technical advances can have a very significant impact, both positive and negative. The positives are obvious, however, I believe that they would not necessarily lead to much higher levels of employment due to certain jobs being replaced by robotics and a mismatch in skills between job seekers and requirements from job offerers. Regarding its impact on the developing world, I believe that we could see production of certain products moving away from developing countries and back into the developed world as advances in areas such as robotics could make it affordable to do so.

DH: It's obvious that things like smartphones are having a hugely beneficial impact on the global economy and especially the developing world. The "democratization" of information thanks to what used to be a supercomputer now in the hands of a farmer in Rwanda is an enormous revolution. However, I worry that in the Middle East, where there is an anti-modern and anti-West bias, they will fall further and further behind and at some point try to use our own technology to harm us. If they feel that they can never catch up, the radical elements in those countries could seek to bring us back down to their level.

NS: There are immense impacts. Technology and the Internet have allowed us to enter the golden age of globalization and truly global economies. Some positive impacts include better pricing transparency (think Amazon, Pricegrabber, etc.), greater productivity and greater access to knowledge and information. This should result in reduced inflationary pressure on goods and services. Tech and biotech will continue having massive impact on the global economy. I am not looking to directly enter the life sciences sector. I am looking at managers that have expertise to identify leading companies in these areas.

TGR: What sectors will technology impact the most? What about the impact of new methods on old industries like oil and gas or manufacturing?

SPC: I believe that the greatest areas of opportunity will be in healthcare/biotech and in robotics and other technologies that will transform the "old industries."

DH: Energy is much more my area of specialization and the breakthroughs in this field have been breathtaking. More is still to come thanks to the entrepreneur mentality of the smaller companies that have been at the vanguard of the new techniques. 3-D printing should also have a massive impact on the U.S. manufacturing sector, further leveling the playing field with China. As cheap labor becomes less of an advantage due to automation, cheap energy becomes the swing factor. Advantage America.

NS: The services economy.

TGR: What was the most important thing you took away from the conference and what will you do differently because of what you heard there?

SPC: That we live in a world full of both uncertainty—what the end result of the "great experiments" in monetary policy for the world's largest central banks will be—and also great levels of complacency from global investors. Hence I would be looking to buy cheap volatility wherever I can find it. 

DH: We went into the conference worried about U.S. money velocity and inflation on the verge of accelerating. We thought Lacy Hunt was one of the most persuasive speakers and he definitely sees velocity continue to head lower. Thus, we are more concerned about some kind of deflationary shock that would further lower "risk-free" rates. Also, the parallels with the 1930s, economically and geopolitically, per speakers like Newt Gingrich, Saeculum Research President Neil Howe and Harvard University Professor Niall Ferguson were also striking.

NS: Interest rates are likely to stay lower longer than most people expect. We will stay committed to equities (attractive on an absolute and relative basis to bonds) and to spread fixed income solutions until either rates truly rise and stay higher and/or inflation rears its ugly head.

TGR: Thank you for your insights.

 

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