Jean-Marie Eveillard:
Now, let me move to an update to the current investment scene as we see it. I think investing is a matter of trying to balance what I would call circumstances and prices. In terms of circumstances, we have been, for a while, in a financial crisis, probably the worst since the end of World War II, which is a polite way of saying that it’s the worst since the Great Depression. This financial crisis is, to a large extent, I believe, a result, a consequence of the previous 25-year credit boom that was briefly interrupted in 1990. That credit boom, because it went on so long, in the last few years of the boom, the acrobatics by financial types, not us mind you, were extraordinary. Then the credit cycle turned in August of last year, with the sub prime housing crisis, and it has been painful ever since.
Now, I’m sure, of course, that the crisis will find its resolution; all crises do eventually. The key question, I believe, is, “How long and how painful the transition will be towards the resolution of the crisis.”
We are just beginning to see the economic consequences of the crisis. In other words, the economic slow down. We also have to worry, I believe, about the unintended consequences of the very unusual steps taken by the Federal Reserve to prevent the crisis from degenerating. Among those unintended consequences, of course, is the status of the dollar as the world’s reserve currency and the possibility that domestic inflation will accelerate.
Now it’s true that we’ve had, depending upon how one counts, six or seven financial crises over the past 20 years. And it seems to me that most investors take the attitude that in the past six or seven crises, it was all right to start buying equities in the middle of the crisis because those six or seven crises were handled by Mr. Greenspan, the former Chairman of the Federal Reserve. In each instance, he flooded the system with liquidity and after a few uncomfortable months, the crisis was over.
I would not bet the farm on a repeat of that scenario. It may happen that the crisis is over quickly, but again, I wouldn’t bet on it.
If I move to prices, the American equity market is off about 10 or 12% from its high last October. The high came at the end of a five-year bull market between 2002 and 2007.
In Europe, equity prices are also off 10 to 15% from their highs of last year. In Japan, the market is off much more than that. Not to mention China, where up until recently, the market was off about 50% from its high. But then China, and to a lesser extent, India, had been involved in major bubbles.
So what I’m saying about global prices is, hey, stock markets are off from their highs, but at least in the U.S. and in Europe, the decline is, so far, quite moderate. Nevertheless, as equity markets come down, as they did since last October, a few opportunities, to our mind, appeared here and there. We’ve been net buyers since the beginning of 2008, but I must say we may not be looking in the right places for all I know, but we have not come up with a great many opportunities yet.
There is nothing wrong with waiting. As Warren Buffett has said, “One has got to wait for the fat pitch.” -
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Five value-oriented mutual fund managers that might be worth looking into:
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