Over a three-day period, during which the Dow Jones Industrial Average reached 14,000, Members of TIGER 21 gathered for their Annual Conference to discuss investment strategies, opportunities, and a host of other wealth-related issues.
Among the notable presenters were Kyle Bass, founder of Hayman Capital Management; Glenn Hutchins, co-founder of Silver Lake; Pierre Lagrange, co-founder of GLG; Marc Lasry, co-founder of Avenue Capital Group; and Eric Sprott, founder of Sprott Asset Management.
The speakers did not all agree on the direction of the economy, although bears outnumbered bulls.
George Friedman, founder of global intelligence firm Stratfor, set the tone early when he discussed his geopolitical perspective on the economy. He explained that from a macro perspective the world periodically undergoes a spasm – usually a war or some other change in control in a major country – and if you are prepared for the spasm, you can live through it.
Friedman highlighted hot points around the globe where changes in government and wars were a possibility – in China where the government is more interested in maintaining employment rather than growing the economy; in Europe, where economic problems are forcing a divide in the EU that is untenable; and he suggested that even the U.S. is not immune because more middle class families cannot afford to live middle class lives.
Here are some of the key takeaways from notable presenters:
He sees problems ahead due to inflation and suggested investors need to insulate themselves from it.
“As equity prices keep going higher, it is easy to lose sight of what’s important. If you are so focused on nominal pricing and equities and the monetary base is growing as fast as it is, you have to really focus on the insidious nature of what inflation is and how real returns might be negative in both equities and bonds. You’re losing purchasing power,” Bass said.
“To protect yourself you need to own productive assets such as apartment complexes or an oil well or a global business that sells things in various different currencies. And if you really want to protect yourself you put long-term fixed rate debt on these businesses, just don’t put too much debt on these businesses,” he added.
He stressed the need to think about the global macro environment when allocating capital. “If you get the macro picture wrong, you can make the best micro decision and still get killed,” he said.
Hutchins explained what he sees as a recipe for inflation – slow growth, persistently high unemployment, muted consumption, and low interest rates for a long period of time.
Yet, for all the issues facing investors, Hutchins is optimistic that America has the means to reinvent itself and restore international economic preeminence.
Lagrange explained his views on the attraction of Europe for equity investments:
“It is a bubble that we have to ride because it is going to last for quite a period of time. The economy is so weak and the restructuring is so slow and social pressure is so high that the central banks are going to be forced to continue to put a lot of liquidity at work – so you have all the ingredients of a bubble.”
He thinks Northern Europe is where the opportunities are, and adds that “European companies have to go out of their way to find other things to do because they don’t have domestic demand. They have to get out of Europe – which we love because then investing in European companies provides exposure to emerging markets.”
He explained that investing in emerging markets through European companies is more palatable legally, in regards to governance, disclosure, and working with company managers.
He is bullish in regards to opportunities presented by global volatility. As a distressed investor, he has defined a strategy to take advantage of the long-term recessionary environment in Europe.
“There are issues in Europe that will work themselves out over time. This provides opportunities over the next five years,” he said. Lasry favors investments in Northern European countries where the legal structure provides various safeguards. “These are countries where the rule of law dominates.”
He conveyed a negative outlook on the economy, focusing on the financing of the U.S. government deficit and the inflationary pressure that will eventually need to be reckoned with.
According to Sprott, if the current course of the U.S. continues, “social security will not be paid, Medicare will not be paid, and government civil service pension plans will not be paid.”
But Sprott sees value in commodity investing. “Gold bugs see the logic of what is going on and know how to react to it,” he said, adding he has between 70% and 80% of his personal assets in precious metals, which situates him well if countries keep printing money because gold and silver prices will continue to increase. He is a big believer in owning the physical commodity – whether it be gold or silver.