The following is an excerpt from a piece by Byron Wien posted on the Blackstone website last week. Wien has an unnamed friend in Europe who he refers to as “the smartest man in Europe”. He meets with him on occasion to pick his brain. His most recent outlook was particularly gloomy:
“It’s very hard to make money in stocks. Earnings growth is the key to equity market performance and with the heavy debt burdens of the developed economies of the United States and Europe, growth is likely to be slow….
Ironically, the big beneficiary of the financial problems in the weaker European countries has been Germany….
Over the next few years the banks in the stronger countries – Germany, France and the Netherlands – will try to become less exposed to the sovereign debt of the weaker countries. In a few years, if the situation has not improved, the European Union may have to be restructured….
Right now my portfolio is invested in gold and Swiss francs….
The central bankers throughout the world have lost touch with reality….
The biggest bubble in history was the financial crisis of 2008. It was much bigger than the Internet bubble of 2000 or the housing bubble that preceded it….
The present level of debt is like a cancer and it is deadly. It makes it hard to know what will happen in the future and how to invest under these circumstances….
I remain positive on China. It is the new world power. It is on an upturn now and it will have setbacks from time to time, but they are headed toward being an increasingly important part of world gross domestic product over the long term….
I am also positive on India. Everything is going forward there also. They are a low-cost producer with plenty of momentum, but that doesn’t mean that the stock market will rise….”
Wien’s conclusion is the real kicker:
While there have been times in the past decade when The Smartest Man has sounded gloomy, I thought he seemed especially somber in these discussions. I mentioned that to him and he responded, “It’s true that I am somewhat anxious, but you should talk to some of my friends. They think the situation is cataclysmic.”
Very interesting thoughts overall. I generally disagree with his discussion about debt at the Federal level in the USA (so that disagreement makes me possibly the dumbest man not in Europe), but the whole piece is a great look at the world today and why we face so many high hurdles.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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