Marc Faber

T he BCA Research Advisory Board (RAB) members’ regular meetings are hosted by The Bank Credit Analyst in Montreal. The RAB members are Tony Boeckh (under his leadership since 1968, the BCA grew to become one of the world’s leading investment research firms), Michael Dooley (a professor in economics and a hedge fund manager), David Kotok (co-founder and CIO of money manager Cumberland Advisors), Michael Moscow (a former president of the Chicago Fed), Francis Scotland (who was at the BCA for 17 years as head of global strategy and later as editor in chief, and is now at Brandywine Global Investment), Felix Zulauf (founder of Zulauf Asset Management), and myself.

The BCA Research Advisory Board meetings usually start on Monday night with a dinner. Discussions then follow on the Tuesday until about 3 pm. A large number of senior BCA people join the board members for dinner and participate at the next day’s more formal meeting. Discussions at the board meeting and the dinner are guided by Martin Barnes (chief economist) who has been with the BCA for many years and keeps the discussion ball rolling with diplomacy and pointed humour.

The BCA has grown into a huge research organisation. (I believe that if someone wanted to read all the BCA research output, he would have to spend half his life on it.)

BCA analysts publish research on developed economies, emerging markets, currencies, commodities — you name it, and they have researched it. Their analysts and strategists are outstanding and produce excellent research. However, within the BCA group you will also find widely diverging views about economies and asset markets, which makes the dinner a lot of fun because everyone must provide a very short summary of his views. At this year’s dinner, a huge argument broke out about monetary policies. One BCA researcher advocated massive money printing à la Blanchflower, while other members of the BCA violently disagreed. Of course, no conclusions were reached because any discussion about the pros and cons of expansionary monetary policies between “inflationists” and more “Austrian”-leaning economists is like a discussion between Catholics and Protestants about Christianity.

The next day’s discussions focused principally on Europe. If you ever wished to hear bearish views, this was the place! More disagreement was evident concerning the outlook for commodities, bonds, and equities. Some participants made a case for further gains in US equities, while others called for commodities to rally. Others thought that better buying opportunities would arise later in the year. After the meeting (which took place June 18–19), Martin Barnes summarised the RAB brainstorming session as follows:

Not surprisingly, the greatest economic concerns were centered on the situation in Europe, with everybody predicting several years of hardship for the region. The situation is healthier in the U.S., where it is at least possible to highlight some positive developments.

The sharp drop in natural gas prices is a big benefit to the manufacturing sector;
Housing is bottoming in many areas;
Banks are generally in good shape in terms of their capital ratios;
The steep cutbacks in state and local government jobs have largely run their course.

… When it comes to monetary policy, there was general agreement that the Federal Reserve is relatively powerless to significantly alter the economic picture. However, that will not stop them from trying and more quantitative easing is likely this year. More aggressive monetary reflation in Europe and in China would help steady the world economy, but the ECB seems likely to remain behind the curve. … While there was not a lot of conviction expressed about the investment outlook, the majority view still favors U.S. equities within a global portfolio. This was not really a valuation call as the U.S. has already outperformed other markets by a substantial margin and it is not especially cheap on a relative basis. Since the beginning of 2011, in common currency terms, the U.S. has outperformed euro area equities by 34%, Japan by 26% and emerging market equities by 30%. Despite its own problems, the U.S. is a safe haven in a troubled world, and this does not seem likely to change as long as the euro area crisis lingers on. Many believed that stocks could be trapped in a trading range environment for years. Some of the cycles could be large and worth playing, as has been the case with Japan.

However, it is worth adding the cautionary note that although active management will be very important, most active managers have not done well in the past. For example, 68% of large-cap funds underperformed the S&P 500 in the past five years (81% underperformed in 2011).

Who said investing was easy!

About The Gloom, Boom & Doom Report:

The Gloom, Boom & Doom Report is an in depth economic and financial publication, which highlights unusual investment opportunities around the world. The guiding philosophy is that, as Horace already observed, “many shall be restored that are now fallen and many shall fall that are now in honor.” The Gloom Boom & Doom report aims, based on economic, social and historical trends, to warn investors when investment themes have become widely accepted and are, therefore, highly priced and risky, while it continuously searches for opportunities in unloved and depressed markets. Subscribers to the GBD report are usually institutional investors, corporations or high net worth individuals, who are in a position to invest internationally and in all asset classes including bonds, equities, commodities and real estate, and have the necessary account facilities in place to do so.

Follow @GloomDoomBoom on Twitter