North Carolina’s business community gathered to discuss the market outlook for 2013. Mark Yusko, head of Morgan Creek Capital Management, a $7 billion alternative investment advisor for pension funds, was the keynote speaker in the conference. His thesis was centered around three big risks, euro crisis, US fiscal cliff and China. Yusko explained that while stocks stayed flat after rising considerably in first quarter of 2012, the gold and bond market appreciated more in the later months.
Yusko presented an alternative investment model where exposure was reduced in stock investments by 20 percent, compared to the conventional model. Additionally, investments in Hong Kong cash, bonds and precious metals takes special focus in the unconventional model. Yusko’s thesis is in stark contrast with other famous investors, who have said on multiple occasions that the days of bonds are over and stocks look like a much better investment in the present scenario.
He also sees immense potential in Japan long investments, he thinks that BoJ may reflate the economy and for now Japanese assets are really cheap. In China, Yusko advises that the right time to buy Class A shares would be as soon as Hang Seng Index spikes. He is also highly bullish on the future of Gold. In case of US economy, the indicators are pointing that a recession can begin in the coming April. He also says that as usual the analyst estimates for earnings per share are far too high.
The positive factors witnessed last year were the increase in railcar loadings and an increase in the miles covered, while gasoline supply in US was reduced. The headwinds for the economy was the negative year over year change in US electricity output, while the percent change in real GDP was just above 2 percent, both statistics are supposed to move more congruently. Moreover the continuing unemployment claims have kept steady. Yusko said that according to the cycles of growth, the collapse in US economy is projected to last till 2016 and the days when the US achieved a 3 percent growth rate in GDP are long gone. Another unfavorable indicator was how the Consumers Confidence Index and Small Business Optimism Index, both declined in the year of 2012.
Yusko’s presentation also pointed that the average hourly earnings have declined on a year over year basis and in the long term low wages implies that consumers will pile up more debt. A significant factor to the increase in consumer debt has been the increase in student loans.
Similarly in Europe, the continuing austerity measure have resulted in record breaking unemployment rates and no real growth. Another risk to the 2012 fiscal environment was the reduced consumption in China. Retail, auto sales, electricity and petrol use fell resulting in a reduction in exports. This could all end up contracting growth in China and a downfall of the stock market. Yusko also questioned whether the events panning out in China could ultimately result in a recession similar to the one in Japan.