Saturday, 2 May 2015

Ten key thoughts from the third (and final) day of SIC 2015

So what did day three of the Strategic Investment Conference 2015 bring?  It may only have been a half a day but it was as completely fascinating as the first two full days of the conference (for which you can find my write-ups here).

1. Bill White summed up the current global macro situation by repeating the old joke 'if I were you, I wouldn't start from here'.  

2. On China Michael Pettis noted that 'the people who really know what is happening are not talking' and that 'it is brutally difficult to bring consumption up'.  Nevertheless a 'perfect adjustment for China is 3-4% (growth)...for household income 5-7%' and that investors must understand that the choices are between a hard landing incorporating successful microeconomic reform and a soft landing followed by a very hard landing.  

3. On the issue of global liquidity Raoul Pal observed big potential liquidity problems as 'the numbers are too big for the system to deal with' and raised the interesting point that 'is Citadel* a weak or a strong hand'.

4. Debt - 'when you have excessive levels of debt you don't grow' observed Michael Pettis, a sentiment shared by Bill White: 'the bigger the debt before the crisis, the bigger the fall out after the crisis'. Michael Pettis did also note that 'the answer to when there is too much debt is when the market thinks so'.  

5. Concerning growth miracles Michael Pettis said that 'in these growth miracles, the pessimists always get it wrong...they are not pessimistic enough'.  Bill White thought that 'no-one is interested in history any more' and that even the Bank of International Settlements did not have 'an enormous amount of optimism'.  

6. Financial sector thoughts - John Mauldin thought that matters such as negative bond yield was inducing a 'hole the size of Texas' in global insurance companies.  Raoul Pal thought that the banks were in a 'worse shape than we could imagine'.  

7. Turning to democracy and markets, Michael Pettis mentioned that China's 'anti-corruption campaign all about the centralisation of power'.  He also observed that countries with more ingrained democracy like India may not ever have a growth miracle but that it would be far more sustainable. Bill White noted that 'a promise is a promise...but on the other hand it is just a promise'.  Raoul Pal talked about the likelihood of wealth distribution and a risk of 'simple law changes...(like) pensions have to own government bonds' 

8. Emerging markets - Bill White thought there were more dangers than in 2007 'as now the emerging markets are part of the problem'.  

9. Next steps?  John Mauldin thought the key is to 'create incentives...the key is to take the focus off monetary policy' and suggested flat taxes, legislative/regulatory simplification and a balanced budget. Bill White believed that 'delay becomes the default option' and that the changes have to come from government as central banks cannot solve insolvency.  

10. And a final word...John Mauldin noted 'hubris of man' but that 'if we get through will be phenomenal'. A good sentiment to finish up these notes.  

Will I be back for next year's conference?  Absolutely: in my view if there was only one global economics/investment conference to attend then it would be the SIC.  Very highly recommended.  Now I have got the small task of translating the multiple thoughts and insights heard into the rest of 2015 and beyond practical investing thoughts and actions.  

* a large global hedge fund 


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