FYI | Jun 05 2006
By Rudi Filapek-Vandyck
Tim Price, the former Chief Investment Officer for wealth manager Ansbacher & Co in London, is back. Tim recently switched Ansbacher for the position of Chief Investment Officer Global Strategies at Union Bancaire Privée, still in London.
Tim has developed the habit of writing long and eloquent commentaries on what’s happening in the contemporary world of finance, and he has continued the habit at his new employer.
In his first commentary, sent out today, Tim looks back at what has happened since he left Ansbacher a few weeks ago: the markets have corrected.
Is this good? Is it bad? It is with an amusing smile, no doubt, that he has read many of the reputed market commentators that have tried to put an explanation behind the event.
Tim, himself, seeks no absolute factor behind the May scare, referring to Stephen Hawking instead: "one cannot predict future events exactly if one cannot even measure the present state of the universe precisely!"
He is, however, firmly in the inflation-will-push-Fed-funds-higher camp. With economic data robust and inflation risk rising, the Fed looks suspiciously behind the curve, muses the newest employee at Union Bancaire Privée.
UBP’s inhouse view is that US headline inflation could easily re-test 4% year-on-year and so investors should regard any pause in the monetary tightening process as a temporary one.
In Europe as well as in Japan fundamentals put less pressure on central bankers for dramatic tightening, but UBP nevertheless believes more tightening lies ahead. It is difficult to get overly enthused about bonds in such an environment, says Tim.
The search for a possible explanation for the May events was not just something undertaken by outsiders, with UBP strategist Barry Ritholtz pointing out that bull markets don’t typically end until the last bears throw in the towel.
And, Tim acknowledges amused, in early May the bearishly inclined Richard Bernstein of Merrill Lynch and Stephen Roach of Morgan Stanley did exactly that.
So are both well regarded market commentators to blame for May’s shake out?
Tim Price prefers to stick to the solution offered by Agatha Christie in Murder on the Orient Express: they all did it.
No need to seek for scapegoats, he believes, offering it’s probably a much better exercise for investors to re-examine how best to protect their investment portfolios and prepare for the future.
In Tim’s view, this means don’t try to fight hostile central banks. In a global environment of enhanced trade competition and generally subdued inflation outside the commodity sector, he believes there will come a time to increase bond duration, but that time has probably not come yet.
Secondly, as investors have re-found their sensitivity, Price believes it makes sense to pare back equity exposure to more defensive themes – particularly in the US.
He also believes that unnecessary foreign currency risks should be avoided from here on. This means reducing one’s exposure to the US dollar. UBP itself will take an upbeat view of emerging currencies and the yen – a theme already touched upon by many other experts previously quoted by FN Arena News.
UBP is bullish EUR/USD with a medium term target of 1.36. Regarding equity markets in Europe, UBP has a neutral view, though it is positive on the FTSE from a technical perspective.
Whether the recent correction remains relatively benign or turns into something altogether worse, one should bear in mind that it has made all sorts of assets cheaper, Price points out.
Buyer beware, however, as some of those assets will undoubtedly turn out to be "falling knives". Others, however, will turn out to be shrewd purchases in coming months.
No need to panic thus. Price: "Lower prices in isolation – particularly if one struggles to find a compelling smoking gun – are no reason to flee the market."