Not everyone is freaking about the sovereign debt meltdown and the PIIGS (Portugal, Ireland, Iceland, Greece, Spain).<\/p>\n
In his latest investor letter, Nigel Hart of Reach Capital (which returned 47.5% last year) says the status quo will remain and that the PIIGS are nothing to freak out about.<\/p>\n
We expect economic rebound; higher inflation should dominate the global markets to create
investment opportunities for us, both long and short. We continue to like Europe given its
operating leverage to recovery in global economies without huge fiscal stimulus boosting
inflation. Good companies with good business models, trustworthy mangers, little or no debt
and strong cash generation can be found at this stage of the cycle. We continue to expect money
to remain cheap — free to certain players, and governments to continue to issue IOUs. We like
Asia also but for different reasons. We continue to feel that if any region in the world can
produce a new “stock market bubble” it will be Asia led by China, India and Indonesia where the
fund has concentrated its exposure. Equities at this stage also provide protection from
governments in that they provide a share of ownership of something tangible and a share of
future profits and assets despite the outlook for inflation.
“Pragmatically bullish” does not mean that all will be good forever. The news flow during this
global recovery will not be all supportive. We will continue to periodically witness sovereign
risk concerns such as we experienced in Dubai during the recent holidays. By now, most
investors should be aware of the difficult economic outlook the PIIGS (Portugal, Ireland, Italy,
Greece and Spain) are facing. We do not believe, however, that any one of these factors is large
enough to disrupt the momentum that has been building in the global economy for the past 9
months. Moreover, these are the building blocks to the market’s “wall of worry”; markets need
such walls to climb to continue an upward course. While we expect stocks to continue an
upward course, we are mindful of the short-term disruptions that the next Dubai or Greece will
cause. Accordingly, expect us to maintain our index short position to protect the portfolio during
market drawdowns. Uncertainty and disagreements about the state of play from country to
country in Europe and Asia creates a landscape of widely varying stock performance records,
valuations and opportunities. This environment suits us well. Stock picking is back and it is our
forte.
<\/p>\n
\n