The interview sessions with Jim Bullard and Charley Plosser occurred right after their formal session, and went on for quite awhile as about six members of the media asked questions. As a result, I missed some of the final session of the day which was directed toward investment strategy. So here are a few cryptic notes:
Martin Barnes on Investment strategies
Bonds aren’t good. Cash isn’t good. Stocks may not do any better unless profit margins continue to grow.
A stunning (though I guess I'd known it) fact: Some institutions require funds to pay out 5%/year. ARGH. Encourages too much risk-taking. Why would anyone require annual payouts higher than the real rate of interest. It has to erode the working capital.
Stockmarkets will be fine if/when/as interest rates go up SO LONG AS at the same time the economy is stronger and growing.
On a return basis alone, it looks as if buying stocks from Japan, Spain, Uk, Italy, might be good, but of course there are greater risks, too. Well, duh. Australian stocks might be a better value over the long term, but he thinks the US still looks like the best bet of bad lot. Near the end, he presented a great graph on long-run real commodity prices, showing constant long-run decline (recalling for me the famous Julian Simon-Paul Ehrlich bet.
Kozo Koide again. Japanese Economy and implications for investment.
Koide's second presentation seemed to be a presentation defending Abenomics, interestingly, Catherine Mann had said she doesn't subscribe to during her morning presentation. Too bad they weren't on the same panel!
Japan has suffered from recession, slow growth, and deflation, but Koide forecasts there will be positive cpi growth, lessening the deflation and eventually moving to a positive rate of inflation of possibly as much as 1.5% in two years.
He presented fairly compelling graphs comparing the purchasing power parity [PPP] exchange rate with the foreign exchange [FX] rate. For the past 20 years, the Yen has been overvalued and Korean currency undervalued when PPP rate is compared with FX rate.
In one of the first mentions of China all day, Koide said China faced rapid CPI (as he constructed it) increase before wage inflation, which has caught up.
In another graph, he showed that real labour earnings in business in Japan are the same today as they were in 1985.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.