by Peter Switzer
Last night on my Sky Business program, I hosted the battle of the bears and the bulls. And I think the bulls won the battle but the next question is, will they win the war?
The combatants were the country’s biggest bear — Associate Professor Steve Keen from UWS — while the support bear was Wesley Legrand from Grand Private Equities. In the bulls' corner — that’s distinct from the ‘bull’ corner — was Herston Economics founder, Clifford Bennett, who seemingly is eternally optimistic, and Ron Bewley from Woodhall Investment Research.
Too much debt
Steve maintains that the big problem is that the current recovery is based on too much debt. He said before the GFC Crash in 2008, the Yanks’ debt to GDP ratio got to 300 per cent.
I asked him what it should be and he suggested 100 per cent and he then pointed out that since the post-Lehman Brothers collapse the ratio has dropped to 270 per cent, which he thinks leaves the market vulnerable again to a crash.
The emerging economies
Bennett agrees the Americans are in bad shape from a responsible economics perspective but he focuses on the growth potential of China, India, Brazil and the other emerging economies as well as developing countries.
He thinks we’re living through an extraordinary period where countries that most of us would never have imagined would have become major economic forces, are becoming exactly that.
Who would have thought India would be our third most important export customer behind China and then Japan? Who would have thought they would have businesses buying out Aussie companies and a cricket team that not only beats us, but gets in our face as they do it?
Legrand is doubtful that growth based on debt — too much debt — can be sustainable and therefore he goes for what he calls real currency — gold and other metals — as a hedge against what he thinks will be a market surge that will end in tears.
US comeback in 2011
Bewley, who was a Professor of Econometrics at UNSW and then chief investment officer for CBA’s private clients thinks the market is heading up. Bewley is driven by his research and if he thought we were heading down he would say it.
He believes in the US economic growth comeback story for 2011 and this should underpin higher stock prices. He noted the big call merchant and one time big bear — Nouriel Roubini — has turned less negative and was reported to have paid over $5 million for a New York apartment recently.
This isn’t a guy expecting economic and market Armageddon any time soon.
Personally, I believe the growth story and I know the excess money supply in the US will create growth in production, jobs and share prices. Right now money market money is heading for shares in the USA and that will send the market up.
Debt to GDP relevant?
I also wonder whether in a globalised world, looking at debt to GDP in say the USA is as relevant when the Yanks are now greater exporters and derive growth out of countries such as China?
I posed the question to Steve Keen and he did acknowledge that it was not something you can easily rule out. I don’t think the share price experience in 2011 will be a walk in the park but I do believe we’re heading up for the time being and nothing I heard in the bulls versus the bears debate on my program has changed that view.
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Published on: Thursday, February 03, 2011blog comments powered by Disqus