Rational Advisor

A manager that I respect a great deal is Gerald Cooper Key from Mawer - they are international growth managers. They have also won the award for International Manager of the year for three years.

Here’s the notes on my conference call today with him

- Accomodative money supply is still there, however although the central banks have been accomodative, its the regular banks that are not, and this is causing the liquidity crisis.
- We are negative on Japan. What we have now is both Japan and Us being disappointing. The #1, and the #2 economy of the world.
- Corporate cash flows are high - but these corporations are not putting their cash flows into the economy, just making their balance sheets stronger.
- Cash for Hedge Funds have tightened, and we’ve seen this by hedge and Private Equity Funds having to reverse their trades and try to get out of deals. This has caused a great deal of volatility.
- Infrastructure spending (by governments) is still strong. So, corporations are not providing liquidity but governments are. We need to see both sides provide liquidity to get back to normal.
- There are risks in the collapse of the carry-trade (borrowing from Japan and investing in emerging markets and commodities). This has led to the increase in Risk premiums in the debt markets.
- There is risk in the US$ weakness - we are pretty close to collapse scenario, although we wouldn’t call it that for now.. will it continue down at this pace, we don’t know. But the reasons for it to come down have not been solved 1) twin deficits, 2) growth declining. So, we think it will weaken further.
- The US subprime is nasty and still a red flag. There is more to come out of this yet.
- With regards to the middle east, it looks like there could be about 3 civil wars in that region.
- Rememrgence of inflation is less now.
- Why have we increased our thoughts about US subtrend in growth: houseing slowdown, leading to slow consumer confidence, which means savings rates will go up, becasue consumers are worried and don’t want to spend.
- Chances of a US slowdown in increasing and this time Japan will not bail them out - all countries are not immune to the US slowdown, there will be aftershocks right across the world.
- Our cash position has increased to around 7% this is a recent high, we reduced our positions to some international banks over concerns of sub-prime. We have actually got a soft-moratoriam on banks - becasue we do not know what will happen with them. But we expect the numbers to be reported to be poor. we are erring on the side of caution.
we favour infrastructure and environmental stocks.
- We are conservative going into this volatility, and look for strong balance sheets, strong cash flow - this will be important for corporations as liquidity from other sources dries up, and we love dividends.
- We are too early to be positive - chances of economy and rate of growth of corporate profits will slow - then we could see a reasonable chance of a correction.
We are looking at chances to add to the portfolio.

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