LBS Conference on Asset Management (12/11/2010)
* Is there really a risk free rate in the current economic situation?
* Is there an uncorrelated asset?
* 2007 Credit risk, 2008 Liquidity Risk, 2009 Market Risk, 2010 Sovereignty Risk
* Fixed income leaders: PIMCO, BLACKROCK
* Chinese inflation concerns have led to higher interest rates and an appreciation of their currency which has led to current falls in equity markets.
* Irish default 2012 has led to fears of contagion across EU
* QE, buy US treasuries, increase price of bonds, lower interest rates, depreciate USD, exports more competitive and stimulate internal demand to lower risk of deflation.
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* Gold: Bretton Woods, back to the same issues, G-20 protectionist policies and currencies.
* Do emerging countries care about the USD?
* Need to think about geopolitics
* Active vs. passive investment, just back to 2001
* Opportunity set in credit markets is the biggest it has ever been
* Stocks: who is investing the money?
* Conflict between the political world and the financial world
* Securitization in the future?
* Brazil has imposed free flow capital restrictions
* US printing money?
* World macro scenario is daunting
Robert Jenkins Questions
* Is the world more vulnerable to deflation/inflation?
* QE very inflationary (Louis) in the long term
* Who in their right mind would invest in 30 year US treasuries (Dominic). Investor would if they feel they are being fairly compensated, but in the short term the markets are more concerned with deflation in the short term. In long term more concerned with inflation.
* It is the end that matters, lessons from Japan
* US administration favors to err on the side of inflation, the economy matters, it is a central theme for reelection.
* Is the Euro under threat?
* We are realizing that defaults actually happen and cause stress to the market
* At the political level, the Euro survives
* In financial markets, Euro facing fundamental risks
* Peripheral countries in Euro zone it is in no one’s interest to let them fail, especially when Germany and others have strong fundamentals.
* In the long term, demographics are a problem for the Euro due to lack of control over competitiveness.
* In the short term the Euro is safe for political reasons
* How do you engineer nominal depreciation when you have a common currency – can’t rely on traditional economic tools
* Louis – Greece’s funding levels for sovereigns are unsustainable, there is not enough economic growth to support promises. Evident that they will have to restructure. Have bailed out banks to the detriment of the economy.
* The credit bubble has migrated from the private sector to the public sector
* Liabilities are easier to finance for the public sector due to taxes although face high political costs.
* Have we witnessed decoupling between developed and emerging market economies?
* QE has caused competitive devaluation
* The UK doesn’t have refinancing problems since its debt isn’t maturing for another 19 years and they have reflected this through their keenness to control public spending.
* Japan has a high GDP/debt ratio, one of highest in the world. However Japanese culture has a high propensity to save and they can fund 95% of their bond market.
* However, the US funds just 50% of their bond market. It can’t finance own debt.
* Why do we all assume that the Japanese solution failed?
* We shouldn’t two decades later Japan has maintained it standard of living at the expense of pessimistic...