- Scott Minerd, the chief investment officer of Guggenheim Partners, says he’s starting to see the World Economic Forum in Davos, Switzerland, as a “contra-indicator.”
- “Euphoria at Davos may be a sign that the market melt-up may soon begin to cool,” he wrote in a letter from the conference.
- Minerd pointed to earlier forecasts on markets and the economy from prior Davos conferences that proved way off the mark.
The mood is cheerful in Davos, Switzerland, as world leaders and the wealthy elite gather for the World Economic Forum, their annual pow-wow, against a backdrop of solid economic growth and record-setting stock markets.
But at least one investor in attendance finds the situation unnerving.
“Euphoria at Davos may be a sign that the market melt-up may soon begin to cool,” Scott Minerd, the chief investment officer at the $US242 billion firm Guggenheim Partners, wrote in a letter from the conference.
His reasoning is fairly simple: The wisdom of the crowd tends to show peak enthusiasm when market bubbles are just about to pop.
And Minerd says his experience at Davos two years ago showed him that many of the investment ideas that dominate the conference could turn out to be dramatically off.
At that time, he said, “a growing consensus saw the global economy at the brink of recession,” as “the spread between credit securities such as bank loans and high-yield bonds had dramatically increased relative to lower-risk assets like US Treasury securities.”
Instead, the world was on the brink of another bull-market run that has since seen the US stock market set records, sometimes daily.
This year, attendees apparently feel quite differently.
“As things kick off here in Davos, the sentiment could not be more radically different from January 2016,” Minerd wrote. “Global growth is accelerating, and risk assets are soaring. Sentiment is so positive, it feels like the discussion will focus on ‘How high is up?'”
He cites newly introduced US tariffs on solar panels and washing machines, as well as the rising global tide of nationalism that has included crackdowns on immigration, as reasons to doubt the rosy outlook.
“I am starting to consider that Davos may be a valuable contra-indicator,” he said, adding: “While I am hesitant to jump to a conclusion, I am troubled by the euphoria undergirding the gathering here … I have seen bull market tsunamis before. They can be both rewarding and destructive. The key is to know when to get out.”
Minerd notes that a few years ago, the big story at Davos was about the emergence of Africa as a key component to global economic growth – a forecast that has yet to materialise.
“While I think that view is ultimately correct, the immediate experience proved very disappointing for investors,” he said. “Rather than a buying opportunity, investors would have done better to go short for the near term.”
Minerd stops just short of implying that investors should be doing the same now with US and global stocks, as well as other high-yielding assets. But he’s sure dropping some major bearish hints.