I always love attending the Morningstar Investment Conference in Chicago each summer. More than 1,000 investors gather to discuss market and investing themes and topics. Trending topics can help to identify investing opportunities and themes for the coming months and years. Here’s what resonated with me this year.
On being different.
GMO’s investing legend Jeremy Grantham spoke on career risk in the investing profession. People never want to be wrong on their own so they follow crowds. Grantham had an overall pessimistic outlook saying, “equities are boring and bonds are disgusting” at current valuations. Grantham has been celebrated for timely calls on technology and housing bubbles. When pressed on his opinion about bonds today and whether we were in a bubble, he called them an anti-bubble. “I like to think of bubbles as inflated by euphoria. Bonds are hopelessly overpriced because they’re manipulated and we’re all nervous,” Grantham said.
Jim Kieffer from Artisan noted that while uncertainty makes people uncomfortable, it’s also an important component for an investor’s success. “Uncertainty intimidates capital,” he said. “We need uncertainty.” IVA’s Charles de Vaulx extended this value investing theme by saying, “Valuation is equally if not more important than outlook.”
On the EuroCrisis.
University of Michigan professor William James Adams provided a keynote lecture “How Fragile is the Euro?” In his discussion, Adams distinguished between the US view on the formation of the Euro which was “I told you so – it wouldn’t work!” and the view from Europe which is more like “we’re on the right track.” His discussion was in the format of a history lesson of the long road to unified currency and policy in the US – which took until the Great Depression to truly come into its own. He compared the US long haul to the European endeavor today which only dates back to the ‘90s.
Since Euro integration is in early stages, Adams suggested that the Euro may not be in as much trouble as it appears to Western observers. He concluded with the words of Raum Emanuel with a tip of the hat to the Chicago crowd, “Never let a good crisis go to waste.” He thinks there may be an opportunity to solidify or step closer to fiscal union in the Euro zone through agreements during these stressed times.
Jeremy Grantham indicated that he believes US debt and European turmoil are obscuring a bigger threat – resource scarcity. He seemed to be in agreement with Michael Hasenstab, Franklin Templeton’s global fixed income guru who believes that there are serious challenges in Europe but that for the most part the Eurozone will muddle through. While Greece may be “fiscally terminal”, he said, Spain and Italy have very different situations.
Echoing Adams, Hasenstab noted that without crisis, politicians will do nothing and there are some key structural issues that need to be addressed. Indeed Hasenstab indicated that he was starting to see opportunities in some of the countries that were the early victims of Euro debt including Ireland. He thought that most fixed income opportunities were in emerging markets and shifting currency valuations.
Lessons from the ‘80s.
There were multiple references to the early 80s in the three days of conference presentations. Susan Byrne of Westwood Holdings spoke on a panel called “The Quarter Century Club” with a panel who had more than 25 years of investment experience. Byrne mentioned that when she was launching her career in the early ‘80s she believed that any rally was a trap designed to humiliate her, scare her, and keep her poor. She likened this to attitudes today about investing. Little did she know in 1982, but an extraordinary bull market was just around the corner.
A changing tax environment.
The jury is out on the outcomes of elections and politicking on the tax environment at the end of the year. There is also debate about the impact of potentially higher taxes on investments such as dividend-paying stocks or municipal bonds. Everyone agreed that they are watching the shifting sands on taxation and spending carefully.
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