Tuesday 01 May 2018 by Jonathan Sheridan Opinion

Jon Sheridan at the Strategic Investment Conference, part 2

Did you manage to read all of the links in Jon’s first article reviewing the Mauldin Economics SIC in San Diego? This note contains two more links and Jon’s favourite five slides from the conference

DavidMcwilliams
David McWilliams, Economist

Following on from my previous note into the presentations at the annual Mauldin Economics Strategic Investment Conference, here are Steve Blumenthal’s remaining summaries:

Part 4 is essentially a complete re-presenting of speaker Louis-Vincent Gave who runs Gavekal Research, based in Hong Kong – they are real China experts.  It is lengthy, but it contains one of my favourite sayings ever, which for once does not come from Warren Buffett.  Instead, of course, it comes from his partner, Charlie Munger,  “Show me the incentives and I’ll tell you the outcome.”

I bet there’s a few senior bank and financial planning executives who wish they’d taken that more to heart in the last few years …

I think Steve simply ran out of puff into Part 5 as there is still so much to remember and pass on from the conference.  Grant Williams gave one of the best presentations I have ever listened to - we are so unlucky to miss out on him presenting at our high yield conference in May, but he’s assured me he will clear his calendar for next year so save the date; and David McWilliams (ex-Irish Central Bank) was simply the best economic stand up comedian I have ever heard.  His panel with Niall Fergusson will never be forgotten.

The top five slides from the whole event was near impossible to choose.  There were simply so many and many of those slides were too good!

I have tried to select the five that made me think the most – about where we are now; what is likely to happen in the near and further future; and then what life might be like in the years to come when there is a high likelihood that so much of what we know and take for granted will be different, mainly due to technology.

In no particular order, the top five are:

1.   Karen Harris, Bain & Co's macroeconomics group, on the timeline of automation and its impact on jobs:



I have added the arrow where it just shows we are still early in this ‘super cycle’, and for my children, the world will be a completely different place to the one we know today.

2.   David Rosenberg, on where we are in the cycle:



The takeaway here is to move more defensive on the portfolio and have some liquidity available. In my opinion, we will see a monumental buying opportunity post the next major correction. Central banks don’t have the dry powder they used to although the Fed is trying, so we may well actually see the deleveraging we expected last time that didn’t eventuate.

3.   Jeff Gundlach, on US Dollar super cycles



I’ve chosen this slide because it shows two things:

  1. The actual long dated cycles the US dollar moves through (compared to the trade weighted index); and
  2. So many more things go into driving a currency.

In the dotcom bubble in 2000, the dollar strengthened. The AUD fell against it almost to its lows post float. In the GFC of 2008-9, the dollar also strengthened, although as a bear market rally as it turned out, thanks to a little thing called Quantitative Easing.  However, the AUD appreciated to its post flotation high thanks to the commodity boom.

The point is that currencies are difficult to predict. I suspect the dollar might weaken a little on a trade weighted basis until we have the correction and then it will become the safe haven again. This is assuming the Yuan still won’t have its act together and that cryptocurrencies might disappear entirely, at least until the new wave comes again in the recovery. The AUD, absent those commodities, will likely react as it previously did and sell off, giving AUD investors a safety blanket.

4.   Louis-Vincent Gave, on the four quandrants



Are we about to move naturally from a disinflationary boom to a bust, or do we get inflation at the same time?  This is the big question.  It ties in with David Rosenberg – we are late cycle, go more defensive.  We aren’t busting yet but it is coming.

Finally, I had to put one of Grant’s slides in. It was almost hard to concentrate on the slides as the presenting was so good, but this one jumped out along with a very prescient epithet usually attributed to Mark Twain, “History doesn’t repeat itself, but it often rhymes”.

5.   Grant Williams, will history repeat?