David Darst, Managing Director and Chief Investment Strategist of Morgan Stanley spoke at the Harbor Investment Conference yesterday and he laid out a few investment ideas.
He said that gold is overbought here, and showed a chart to see its parabolic run over the past decade or so. He said it could shoot higher in the short run, but it would ultimately plunge, due to it being overbought.
Darst went on to say that the market is fighting the central banks, and the markets are leading the central banks, not the other way around, which is the reason for the run up in gold. He also cited the bailouts of Ireland and Greece as a prime example of this.
Darst continued to say that Morgan Stanley first started buying gold in 2003, and it will eventually fall, as evidenced by its parabolic chart.
Darst also went on to say that the major global companies, like Procter & Gamble, Johnson & Johnson, Coca-Cola, GlaxoSmithKline plc as “global gorillas,” which he believes are under-owned.
He mentioned the oil service sector as a particular sector he likes. He had a specific company he talked about, but could not mention the name, as he did not know if the company had any conflicts of interest, such as being a client of Morgan Stanley. The particular company has over 77,000 employees, 12,000 of which are Russian. It also has $35 billion in revenues, and revenues could grow to $100 billion in the next few years. Some ideas are Schlumberger Limited, Transocean LTD or Diamond Offshore.
On the subject of the U.S. economy, Darst was a little bleak in his assessment. He believes we are in a cyclical bull market, not a true recovery. He believes we are in a long term, flat, boring, bear market, but we will eventually break out of it once everyone has become so disgusted with the market. We are being pumped up by stimulus, not an actual true recovery. He laid out some structural issues in the U.S. that need to be addressed, such as education and infrastructure, savings and investment, the value of money, and societal disparity and conflict. Darst said that not until these issues are addressed will the U.S. truly be on the right track.
Darst proclaimed that buying 10 year U.S. Treasury debt at these levels is not a good idea, and he pointed at the level of Chinese debt holdings as an example. Over the past year, Chinese debt has fallen from $940 billion to $810 billion.
He mentioned that you should own water through filtration and dissemination plays, not through bottled water.
The last thing Darst talked about was the rising threat of inflation and how to play it. Darst recommended buying Inflation-Linked Securities, which can be done through ETF’s, such as SPDR DB Int’l Govt Infl Pro Bond ETF.