The litany of dire predictions for currencies, commodities and the global economy in general not only seems endless – it is getting more predictable by the day. That is because few pundits are making any waves – or money – out of playing Pollyanna, as everyone from Jim Rogers to Nouriel Roubini well know.
While it’s an increasingly safe bet for analysts to leap on the gloom’n'doom bandwagon, there are a handful of analysts out there who get taken more seriously than most – as opposed to herds of kneejerk Cassandras who have shelved their usually bland reports to start warning that the “western banking system is imploding”; “the US is on the brink”; “Europe is melting down”; “China is going down the toilet”; “Japan is already down in the S-bend” etc etc.
Among them, CLSA’s equity strategist Christopher Wood can rightly claim to have been more prescient than most of his ilk – warning some years ago about the consequences of exploding US mortgage securitisation and more specifically, about the growth of subprime lending. In his often colourful newsletter, Greed & Fear (which sadly we no longer receive), Wood has been banging on about everything from warning signs in the Baltic Dry Index for commodities prices to Britain’s banana republic tendencies long before it was vogueish to do so. As a result, he has been consistently rated among the top equity strategists on Asia – most recently by Institutional Investor magazine – and was billed by the Wall Street Journal in 2007 as “the man who saw it [the subprime mortgage crisis] coming”.
That is why when he confidently insists that the gold price will more than triple to reach $3,500/oz in 2010, among other bold predictions, people begin wondering when to buy and how they’ll store those yellow bars.
At CLSA’s annual Japan Forum conference, which opened Monday in Tokyo, Wood was even – err, cheerier than usual, possibly mindful of being an advance act for uber-pessimists including Satyajit Das, author of “Traders, Guns & Money” and Friday’s closing speaker, Marc “Dr Doom” Faber – not to mention the singer Macy Gray (hit songs including “The Trouble With Being Myself” and “Oblivion”) who will entertain participants at the traditional end-of-conference party on Thursday.
According to Wood, not only will gold more than triple in value by 2010 (“it’s the only form of money or credit not contaminated by the credit system” – and the fact it’s still money can bee seen in the fact that central banks still own a lot of it), the global paper currency system will steadily deteriorate, eastern and central Europe will face a full-scale currency collapse – putting huge pressure on western Europe – and the US will be dealing with a deflationary crisis far worse than that which derailed Japan in the 1990s. The only realistic course for the US is radical action to nationalise its most stricken banks and create one big “bad bank” to take on their toxic assets, he warned. Anything short of that will bring about more economic chaos and drag on other economies.
Monday’s reports about the proposed semi-nationalisation of Citigroup, with the US government considering a plan to take as much as 40 per cent of the group, represents “continued ad hockery” that would merely worsen the malaise and prolong the life of what would effectively become a zombie bank, Wood said.
To those who warn the US financial system would collapse if such radical measures were announced, Wood says “nonsense”. The real problem up to now has been inconsistency of the government’s responses – letting Lehman Brothers collapse while saving others. Of course, while bank stocks would “go to zero” under such steps, full nationalisation of troubled banks and a comprehensive restructure – regardless of who and what it wipes out – would ultimately revive equity markets and avoid a “Japan situation”, he added.
Elsewhere, Wood sees bad news for Asia in the ongoing collapse in US consumer spending: “Asia needs to realise the US consumer is not going to go back to spending like they have in recent years”. Japan, in particular, will face a more-than-doubling of unemployment to 10 per cent within the next 12 months, the “implosion” of consumer confidence and a slide in the value of the yen. At least, he adds, Japan’s growing woes will put the focus squarely on politics, away from purely economic issues, which could well lead to real reform of the domestic economy. And that’s the good news on Japan. Without such reform, however, the country seems doomed – particularly since the briefly encouraging performance of its stock markets last year was completely derailed by the deflationary bust and slide in exports.
After a rundown like that, it might be at least refreshing for the hordes of investors – several hundred who travelled to Japan for the conference – to hear Wood’s final prognosis: that he still believes “Asia is the best long-term growth story… If i was putting money into stocks, I would go for China and India”.
As one reader notes, “any good conference should end with a buy recommendation for your local audience for their local market”.
Related links:
And another subprime celebrity – FT Alphaville
The man who saw it coming – WSJ