Bullion, Bond Buying, and Bloodbaths: The Difference a Year Makes
Twelve months ago, the price of gold was still carving out new highs, the full scope of Abenomics had yet to be defined by the Bank of Japan, and a nascent banking crisis in Cyprus was getting ready to metastasize into a full-blown panic.
Last summer, investment professionals were also gathering in Chicago to attend the 57th Financial Analysts Seminar. Sessions at the week-long event addressed a number of investment themes that would be repeated in the months ahead:
- Finance professor Amir Sufi of the University of Chicago Booth School of Business discussed how economic recovery in the developed world was being held back by problems with aggregate demand and leverage. Sufi’s warning that the European debt crisis needed to be resolved by renegotiating sovereign debt — requiring eurozone banks to admit their mistakes and take losses on bad investments — was particularly true for the resolution of the banking crisis in Cyprus.
- Simon Lack warned about hedge funds that had grown too large, offered too little transparency, failed to provide adequate protections for investors, and charged excessive fees. Lack’s warnings seem particularly important in light of Businessweek’s recent report of hedge funds struggling in an environment described as “a bloodbath,” with last year’s top-performing hedge fund manager recording some of its worst losses since 2008.
- John P. Calamos, Sr., of Calamos Asset Management discussed consumerism as a major trend in emerging markets, looking at the ways that investors can focus on strategies and asset classes that will benefit from the trend. In his Take 15 interview with Michael McMillan, CFA, Calamos discussed the difficulty of short-term market timing and the importance of focusing on long-term themes, such as the growth of the middle class around the world, as a way to drive investment returns. Since then, the global middle class has continued to grow, with such regions as Latin America reaching record highs. Likewise, the growing middle class in Africa is fueling consumer demand and economic growth.
- Yale University economics professor Robert Shiller explained to delegates that cynicism about finance is actually misplaced frustration with financial crises, and that criticism of capitalism is really criticism of innovation itself. According to Shiller, society needs financial innovation to solve new problems, which is why it will continue to play an important role in the future. In an interview this month, Shiller pointed to the recent development of social impact bonds as evidence that financial innovation can have a positive impact on society.
Next month in Chicago, the 58th Financial Analysts Seminar will convene, bringing together another roster of expert speakers, including and Richard L. Sandor, to discuss the investment ideas and tools that will be useful in the coming year. Anne Korin will discuss global security, Kent Osband will share his insights on building effective models, and Amir Sufi will return to discuss the global macroeconomic outlook.
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
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