Of all those who “saw it coming,” few did so with the clarity of Christopher Wood, who watched it unfold from Asia, where he analyzes markets for the Hong Kong–based CLSA. In his weekly newsletter Greed & Fear, Wood has warned for three years that the massive securitization of debt would lead to disaster, and since the middle of 2007, he has been particularly bearish on “Western financials” —a strategy that morphed into the conventional wisdom. This is where he sees things heading.
It’ll Get Better Soon— and Then Worse
There will be a rally commencing in the next couple of months. But that won’t be the end of it—we’ll retest the lows later. The policy of bailing out companies prevents a precipitous decline but also prevents a V-shaped recovery. When Asia had its crisis in ’97–’98, everything went basically straight down, then went back up almost as fast—a V. But in America, the housing market’s going to remain basically weak. It’s not going to completely implode, because Fannie and Freddie have not collapsed, but it’s certainly not going to pick up. The recovery in the U.S. is going to be L-shaped, which is to say a long period of malaise.
Supersize Me, Says Government
To stimulate the economy next year, you’ll have a fiscal infrastructure package, regardless of who’s elected president. Maybe high-speed trains on both sides of the coast, the equivalent of the shinkansen. If they don’t, that’ll be dumb. The U.S. needs to upgrade its infrastructure, and I think U.S. policy-makers now understand they can’t just cut rates and get consumers to borrow more.
Smartest Guys Leave the Room
Wall Street will become rather boring. As the investment banks become part of the heavily regulated banks, you’ll get a proliferation of boutiques, living off advisory and not big capital. The talent won’t want to sit in these big bureaucracies.
It’ll Be Worse in London
New York’s been playing second fiddle to London for the last five years. But more of the problems have come out of the works in New York because accounting in the U.S. is more transparent. I can tell you for a fact European banks are sitting on all kinds of junk that isn’t marked properly. So all these problems will emerge in Europe with a lag. Commercial real estate in London is already a disaster.
Don’t Plan for a Global Depression
I see China slowing to maybe 8 percent growth next year, India 7, but no worse. I don’t think Brazil’s going to collapse. This whole emerging-market story is still in play. A lot of people don’t agree. They say the rest of the world is going to collapse along with America and the U.K. But the companies and the consumers in China, India, Brazil, Russia, they’re not highly leveraged. They’re not leveraged at all, actually. So there is great opportunity. Everybody who doesn’t own stocks in Asia, emerging markets, should start buying them now.
Go Middle East, Young Man
In the U.K. and the U.S., there’s massive excess capacity in financial services. If I’m a kid coming out of Wharton, I would say the best single opportunity would be to go to the Middle East. No income tax in Dubai, that’s a good point.
Taking the Pain Will Bring the Gains
There are going to be casualties of this, it’s not pleasant, but the less the U.S. bails everybody out, the more bullish it is for the U.S. in the long run. Because it means the system isn’t completely corrupt. You can’t have socialism for rich people, capitalism for everybody else.
— Interview by Hugo Lindgren
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