Given the roaring Australian dollar (A$), institutional investors should be buying good-value companies in the US, UK and Europe while they can and giving the so-called PIGS countries – Portugal, Ireland, Greece and Spain – a wide berth, said Wingate Asset Management’s CIO, Chad Padowitz. But, at the same time, the A$ was in a precarious place, he warned. “It has no enemies, and when someone has no enemies, that itself is the enemy. The A$ is loved by everyone, but they’re fairweather friends. They’re not here for the long-term story. “It’s the Dutch-tulip disease – the longer [the A$] stays up, the worse the crash will be,” Padowitz said.

“The average rate of the A$ has been $0.75, and the idea that there’s suddenly been a new average of $0.95 to $1 in the past few weeks is an exceptionally big call to make.” Turning to the US market, Padowitz said it was a mixed story. He said that Wingate was “very uneasy with the level of risk reduction globally, especially with the Quantitative Easing 2 (QE2) approach in the US”. Banks were hoarding capital to strengthen balance their sheets, but not lending to businesses and consumers because “they’re scared of defaults and regulation”, and this caution was constraining growth in the world’s largest economy. On the other hand, however, US consumers were better off with lower mortgage rates and inflation, and they were saving more of their wages.

Padowitz cited reports from US freight rail operator, CSX Rail, which opined that many parts of the US economy were strengthening. The CEO of the nation-wide rail operator, Michael Ward, said increased US automobile production was helping drive a gradual economic recovery. The Wingate CIO also expressed concern about the level of fiscal retraction in the developed world – especially the US and the UK – through the removal of stimulus measures. “We’re talking 1 per cent to 1.5 per cent of GDP through the public sector pulling back, but the private sector is not stepping forward.” Europe’s sovereign debt malaise had not finished, and would not for many years, he said. Wingate had no investments in the Ireland, Greece or Portugal by choice, and the US is “a lot better off than the PIGS”. He warned that social and economic conditions were ripe for the rise of political parties which were effectively promising to default on loans. “There’s a limit to how long you can tell Germans they have to work till 65 so that Greeks can retire at 52,” he said.

Leave a comment