CHICAGO—The $787 billion debt overhang the federal government absorbed from the failed banking sector from the 2008 credit crisis will not come due until 2020, or perhaps later.
But at that point in time, when the piper finally pays his dues, “We [the U.S.] are going to become an emerging market,” predicted Rudolph Riad-Younes, head of international equities at Artio Global Investors, New York.
“All we are doing is postponing a bad day for someone in the future,” agreed Steve Romick, partner, FPA, Los Angeles.
The two alternative investment managers were speaking Wednesday evening at the opening General Session of the Morningstar 2010 Investment Conference here.
“The trade deficit that started in the mid 80s became much worse during the Greenspan era because low interest rates scared people into cash and real estate,” Riad-Younes said. “How can the U.S. get to a zero trade deficit? Obama has vowed to double the export rate within the next five years. I say: Good luck.”
With interest rates around the world at zero or near zero, or effectively in the U.S. at negative 2%, some experts have said, the economic problems of the past two decades will simply recur in a different format, attested both Riad-Younes and Romick.
“We got dot-com, dot-home and dot-gov,” Riad-Younes said.
Where do we go from here? Certainly, there are opportunities, though they are “slim pickings,” Romick said. Portfolio managers will have to pick out opportunities very selectively and creatively, agreed the two panelists, on the session named “Macro Views on Asset Allocation.” John Reckenthaler, Morningstar vice president, research, moderated the session.
Asia ex-Japan continues to be the big story, particularly the 1.4 billion-population China. Both like Latin America, and Romick is big on land. As in farmland.
Fielding a question from the audience on what type of crops and commodities futures he likes, Romick, who runs the FPA Crescent Fund, among others, said he isn’t wed to any particular type of agriculture since different states have different investment ownership rules. In North Dakota, for instance, only individuals may purchase farmland. It’s the general idea of the scarcity of land and different ways to produce crops that fascinates Romick. Grain used to feed cows, for instance, has different multiples than grain used to produce hops.
“Life is about risk and reward,” Riad-Younes said of his tactical timing strategy. “Sometimes it’s tough picking and it’s almost like hedging. There’s lots of selling pressure but no catalyst. Is Western Europe disappearing from Planet Earth over the next five years? Should you take your money out because you don’t know where the next ‘shooting’ is about to start?”
The answer to all of the doomsayers is, simply, no. There are opportunities, but you have to carefully find them.
To view Morningstar's video of Steven Romick's comments, go here: http://www.morningstar.com/Cover/videoCenter.aspx?id=341988