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Bolstering Governance & Regulation: Navigating Economic Uncertainty​

Explore governance, ethics, & regulation in 46th Annual Contrary Opinion Forum by David Fuller on Oct 8, 2008. Discussion on economic crises, market trends, & global reflation post-credit freeze.

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Bolstering Governance & Regulation: Navigating Economic Uncertainty​

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  1. 46th Annual Contrary Opinion Forum David Fuller 8th October 2008 AprèsGotterdammerung(Twilight of the Gods)

  2. Governance is everything

  3. Failures of governanceare often due toa lack of ethicsIt is a top down process

  4. The USA did not invent this process…“The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.”Marcus Tillius Cicero 106-43 BC…but it took it to a new level

  5. Too much regulation undermines capitalism… …but too little regulation is a recipe for anarchy… …in which ‘creative destruction’ risks becoming total destruction

  6. Securities & Exchange Commission Removes Uptick Rule, July 2007 Ignores naked short selling

  7. The idea that one can make ever greater profits with ever increasing leverage, because all the risk is theoretically passed on to someone else, is totally daft. The perpetrators knew this. They just wanted to make a quick fortune, get out before the game blew up, and let the devil take the hindmost. Leverage: the colossal problem

  8. How do we get good regulation? Fullermoney suggestion: Ask Warren Buffett to Chair a Commission on Standards of Governance and Regulation

  9. USA has lost credibility and moral authority in terms of democratic capitalism What fills the void? Authoritarian capitalism, of which China is now the leading practitioner A consequence of US Credit Crisis

  10. Record oversold levels seen for sentiment Climactic selling has occurred Valuations are improving Cash levels are high Inflationary pressures are fading rapidly A massive effort is underway to rescue banks and reverse the credit freeze What next for the US stock market?Bull points:

  11. Worst credit freeze since 30s Depression The economy is deteriorating Valuations are still well above historic lows Deleveraging continues Stock market indices are in downtrends The stabilization package may not be enough, give the size of the problem What next for the US stock market?Bear points:

  12. “You can observe a lot just by watching.”Yogi BerraThemost important chart today? The Ted-Spread

  13. 1987 Crash

  14. “Bear markets have always been temporary. Share prices turn upwards from one to twelve months before the bottom of the business cycle.” Sir John Templeton The stock market is a discounting mechanism

  15. Trend acceleration is an ending characteristic Current action for the US stock market is climactic

  16. They are a lead indicator Bank indices are now showing relative strength!

  17. At $100 to $80 – global economy can cope At $80 to $60 – global economy prospers At $140 to $160 – global recession At $200 or above (as Goldman Sachs forecast for yearend 2008) global depression However, the global economy can adjust to gradually rising oil prices over time. Peak Oil?

  18. Commodity prices are falling The US dollar has rebounded Long-term government yields have fallen Conclusion: other than the west’s very serious credit freeze and its implications for GDP growth, other problems have waned. Back to the Future?Other global concerns are in retreat

  19. 1998-2003 – fear of ice over fire 2004-2006 – ‘Goldilocks’ talk 2007-mid-2008 – fire over ice Current period – ice over fire Consequently, all governments will reflate, but which economies and markets will benefit the most? Fire (inflation) vs Ice (deflation)

  20. Capitulating selling in stock markets Capitulation selling in commodities and many other assets Strength of carry currencies such as JPY But…following the deleveraging, people will resume investing as confidence returns. Massive global deleveragingEvidenced by:

  21. US and most other stock markets reach significant medium-term lows this month. Reversion to the mean (200-day MA) rallies to follow, carrying into 1Q 2009. Thereafter, pullbacks for base extension - some risk of new lows, pending events. Gold will remain volatile, but continue to show relative strength versus most other asset classes. Fullermoney forecasts:

  22. Following base formation development in 2009, stock markets should experience 3 to 5 year bull markets, provided: Prices for crude oil and agricultural commodities do not spike higher, as we saw earlier this year. The commodity supercycle has been interrupted by recession but is not over. Fullermoney forecasts:

  23. Asian-led emerging markets Commodities Leading industrial and agricultural shares Global infrastructure development themes Asian currencies, led by Chinese renminbi Precious metals Après le deluge - Fullermoney themes for the next up cycle:

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