[IMGCAP(1)]Our friend Glenn Cohen of Cohen Investment Strategies hosted a private webinar this week for accredited investors, where he and special guest Rick Campagna of 300 North Capital each shared their 2012 economic and financial market outlooks. Glenn was very kind to extend an invite my way, and especially kind to allow me to take notes so that I can share them with you here!
The webinar was great. Rick’s fund has absolutely killed it over the last 18 months; in fact, returning +30 percent before fees (and the returns are quite smooth; he rarely had a down month).
Rick Campagna sees significant headwinds that will dampen global economic activity. The developed economies are over-leveraged, and upcoming spending reductions will serve to reduce global growth.
Monetary policy has had a limited economic impact (more on this below).
In the larger context, stock markets appear to be in 11th year of a 15-20 year secular bear market. So Campagna believes investors should stick with capital preservation and tactical asset allocation.
Things are looking better in the near term—a narrow window of improving economic activity in the US has opened, Campagna believes. But he sees this upside cycle likely to be limited in both duration (three to nine months) and scope (1-3 percent GDP growth).
There are no shortage of outside factors that could derail this cyclical rally, though—the European sovereign debt crisis, to name one. Though he concedes that a “kick-the-can” solution may prolong the cycle’s upswing into early/mid 2012.
Debt throughout the developed world will be a perpetual overhand to growth, Campagna believes. Increased consumer and government debt drove growth over the past few decades, and that party is now over. U.S. consumers are still highly levered, but these debt levels are (finally) starting to decline.
More areas of concern:
● Campagna says excess US government deficits must reverse, as current deficit levels are unsustainable.
● He thinks another 10 percent decline in the housing market is likely, as that would return to housing prices to trendline levels of “the old normal.”
● The periphery in Europe has serious structural economic issues; their labor costs are too high for them to be competitive.
● Interest rates on most of Europe’s sovereign debt are unsustainable; the debt levels are too high to support these levels of interest rates.
The QE conundrum
Campagna says the reason QE3 has been jawboned not enacted is that QE2 was not effective. It pushed commodity prices up, which then slowed the economy—opposite the intended effect!
QE2 also signifcantly weakened the dollar, and he believes a strong dollar would be better for U.S. growth (more on this below).
China’s capex binge winding down?
China’s current capex boom breaks all records in terms of duration and intensity, Campagna showed (via a graphical comparison with other historical examples such as Japan and Thailand).
Over the next five to 10 years, he says, at minimum they will need to steady this level of capex investment, and possibly shrink it.
A potential China slowdown is bad for commodities, of course, as they are the marginal buyers of many commodities (and regular readers know well that commodity prices are made at the margins).
Summary of Campagna’s outlook:
● He expects high volatility moving forward.
● Possibly a slight cyclical uptick in the economy.
● Because hedge funds are under-invested (close to early ’09 levels), and institituional investors are also highly under-invested, we have a possible setup for a near-term rally.
● In the longer term, he sees gold as the winner: as an inflation hedge if central banks try to inflate their way out, or as crisis hedge if things get worse. Near term he believes it’s a bit overbought, and would look to buy more at a lower point, like near its 200-day moving average.
Rick Campagna is the lead portfolio manager for 300 North Capital’s long/short strategy and global macro strategy. He joined 300 North Capital, LLC in 2005 and has been in the investment industry since 1989.
To learn more about investing with Rick and his 300 North Capital fund, contact Glenn Cohen via email at Glenn@cohenwealth.com or direct by phone at (561) 799-1980.
Brett Owens is chief executive and co-founder of Chrometa, a Sacramento, Calif.-based provider of time-tracking software that records activity in real time. Previously marketed to the legal community, Chrometa is branching out to accounting prospects. Gains include the ability to discover previously undocumented billable time, saving time on billing reconciliation and improving personal productivity. Brett can be reached at 916-254-0260 and firstname.lastname@example.org.