By John Schmuel
June 18, 2010
When asked whether he expects the North American economy to go into a double-dip recession, Longwave Analytics president Ian Gordon pauses, smiles and then answers:
"Oh, it'll be much worse than a double dip," says the man famous for his bearish market view and bullish position on gold.
Mr. Gordon was the resident bear on Wednesday evening as part of the Horizons BetaPro ETFs Bull and Bear Symposium held in Toronto. His prediction for the future of global markets is nothing short of grim, forecasting an equity crash brought about by mounting government debt.
Jason Todd, global equity strategist at Morgan Stanley, served as the event's bull. Although he countered Mr. Gordon's view, the Australian was introduced as a bit of a bear himself.
"It's hard to be genuinely bullish these days," Mr. Todd admitted to a crowd of investors attending the event.
Although Mr. Todd anticipated a steady range for equity markets in the upcoming months, he looked downright bullish compared to Mr. Gordon's dire predictions.
ON THE MARKETS
Ian Gordon He predicts the Dow Jones Industrial average will hit 1,000 as the current bear market drags on and government debt continues to accumulate. He justified his view based on previous patterns, where markets in the U.S. returned to pre-bull levels after a period of long growth. In the 1920s for example, the Dow started its "Roaring 20s" climb at around 80 points. It eventually hit a high of 381 before collapsing to 41 points during the Great Depression.
He said the Dow's crash will drive gold to a high of US$4,000. He was reluctant to give a date but, after some prompting, pinpointed 2012. That elicited laughs from some in the room, since popular culture has singled out 2012 for a fictional doomsday scenario, according the ancient Mayan calendar.
Jason Todd He shrugged off the possibility the Dow would ever get that low. "We're absolutely not even going into a double-dip recession," he said.
He pointed out global demand is increasing overall, while real disposable income in the United States is picking up. Mr. Todd also said current views aren't necessarily bullish, and that markets, having corrected themselves, were entering the second stage of their rally. He likes some European stocks, recommending U.K., Swiss and Nordic banks. He also recommended emerging markets, pointing out consumption in such markets had no other choice but to grow, presenting investors with numerous opportunities.
A LOST DECADE?
Mr. Gordon "I see much worse than the Lost Decade," Mr. Gordon said, referring to Japan in 1990s. When Japan started heading into the Lost Decade in the early 1990s, Japanese households and the government had comparatively strong savings. The United States meanwhile, is heading into a Lost Decadestyle scenario with US$1.3 trillion in debt.
"Japan has taken on a lot of debt trying to get out of the Lost Decade," said Mr. Gordon, noting Japan's debt-to-GDP ratio is 197%. The U.S. consumer is no position to do the heavy lifting either.
Mr. Todd "I'm not sure," he said when asked if he sees the U.S. economy heading down a similar path. But he said it would be dangerous to count the U.S. consumer out, particularly because the issue in Japan was that credit growth never returned. "I don't think we'll go through that period where credit dries up."
Mr. Gordon "I think China is a big bubble," he said. He believes it will eventually burst, and compared its impending monetary collapse to what the U.S. experienced in the 1920's. But like the emergence of the United States from the Great Depression as the world's foremost superpower, Mr. Gordon expects China's own collapse will give it a similar position.
"It will be their trial by fire."
Mr. Todd "I think the Chinese have done an excellent job in managing their economy," Mr. Todd said.
He discounted any notion that China's growth was underperforming.
"I don't know what people are talking about when they say China's going through a hard landing. What is a hard landing for them? 6%?"