Presentation on theme: "Profiting as the Hangover Begins"— Presentation transcript:
1 Profiting as the Hangover Begins Nandu Narayanan, Chief Investment OfficerTrident Investment Management
2 Presentation roadmap Macro reality is not benign Asset markets are divorced from realityCatalysts that could end the global liquidity party and bring on the hangoverOpportunities for profit
3 Global reality is not pleasant Global economy is weak despite years of stimulusDebt levels are high globally and continue to riseInflation is low and real debt burdens are increasingPolitical tensions are rising because most voters have lost out in the recovery of the last few years
4 Global economy is weakEconomic growth rates are low despite years of stimulusGDP Growth Rates (%)YearDeveloped CountriesEmerging CountriesWorld20220.127.116.110111.36.13.020121.44.620132.42014*1.74.1Source: JP Morgan, Global Data Watch* EstimateSource: Bloomberg
5 Global economy is weakUnemployment is higher today than in previous recessionsSource: Organization for Economic Co-operation and Development
6 Debt levels are high and rising Source: This Time is Different, Carmen Reinhart, Kenneth Rogoff
7 Inflation is very lowHigh and rising debt levels and low inflation pave the road to defaultSource: Bloomberg
8 Political tensions are rising The Middle East is in flames (Syria, Gaza, Iraq, Egypt, Libya) and there is no resolution in sight.The Ukraine conflict has caused a total breakdown in cooperative efforts among the major competing global powers to solve problems.Western sanctions are increasing tensions on the world’s U.S. dollar-based trading system with a potential breakdown increasingly likely.
10 Asset markets are divorced from reality The technology bubble is backSnapchat valued at $3.6 billion on paper with zero revenuesMore Facebook advertising agencies than regular ones in the U.S.Fab.com, with a broken business model, has raised $336 millionSubprime lending is backSubprime share of new auto loans is 34%, almost a recordAmount financed per vehicle and loan terms both at all-time highsJunk bond yields at lowest levels everSpreads at 400 basis points, matching 2007 levels10-year funding available at 6.5% as opposed to 9% in 2007 due to lower Treasury yieldsBarely any S&P top-line growth for the last two yearsThe euphoria in the markets is almost entirely because of excessively easy global monetary policy
11 Catalysts for changeU.S. Federal Reserve will soon be ending its quantitative easingThe political situation in Europe is likely to become more unstable (Scotland vote, Catalan independence referendum in November 2014)Chinese growth is likely to slow markedly stimulus appears unlikelyMore printing by Japan and/or Europe might mean currency warsThe instability in Ukraine and the Middle East could worsen and disrupt oil supplies and global trade
12 Opportunities for profit Buy fixed incomeRates are very high in Norway, Sweden, South Korea, Australia, but not supported by fundamentalsCanada, the U.K. and the U.S. project significant rate increases – however, this will not materializeBuy Japanese equities with the yen hedged outMore Bank of Japan printing is imminent, and asset prices will reflate in JapanShort select developed country currencies against other developed and emerging currenciesThe yen and euro seem vulnerable given policy shifts – go long Norwegian krone, Canadian dollar, Swedish krone, Indian rupeeShort developed country junk bonds and be prepared to buy developing country bonds
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