Today I attended Legg Mason Investment Conference 2011 at The Fullerton Hotel. The title of the conference is “Beyond the market turmoil“. I feel some of the insights from the event are worth sharing given the current volatile markets.
The European Crisis
Presented by Michael R Story, the first slide states, “This is not a debt crisis, nor a banking crisis, but a crisis of monetary union design flaw. The line between solvency and liquidity has become blurred“.
Michael sounded quite pessimistic about the current situation as “the tail risks cannot be quantified”. What he meant was although the Greece default is remote (the tail of a normal distribution in statistics), the result can be extremely disastrous. Nobody knows the extend of the damages.
He also highlighted the Four Potential Scenarios of Eurozone Debt Crisis, which was published early this month.
It is also extremely costly for both the weak members (i.e. Greece) and strong members (i.e. Germany) to exit Euro zone now, which will inevidably cause both financial crisis and deep recession for the countries.
Asia Debt : From Emerging Market to Mainstream Asset
Lian Chia-Liang, head of investment management, Western Asset Management (Asia), is more upbeat about Asia’s debt. He showed evidences that Asia debt is no longer peripheral in credit market. The world has become less G7 centric.
Addressing the market’s increasing doubt over the credibility of rating agencies after the global financial crisis, he gave a good metaphor. Rating agencies are like referees of soccer games, they are not essentially always right, but the game cannot continue without these arbitrary roles.
Bill Miller – The Psychology of Investing
Prominent asset manager, Bill Miller, started his speech with a joke that he just saw two “black swans” in Jurong bird park and felt very worried. (2008 financial crisis was referred as a “black swan” event, Bill may be implying Euro debt crisis is another one).
He shared many ideas but I found some of the quotes are worth pondering.
“When we think about the future of the world, we always have in mind its being where it would be if it continued to move as we see it moving now. We do not realize that it moves not in a straight line… and that its direction changes constantly.” — Ludwig Wittgenstein
“Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria” – Legendary investor Sir John Templeton
“We are coming out of this one, I am virtually certain, I see figures on 70-some companies daily. I have a lot of information coming in and basically everything to do with home construction is as bad as it has ever been, and everything else is getting better.” – Said Warren Buffett in a New York Times article
From his speech, I sensed Bill was probably bullish on a housing sector in America, as “House price is at 50 years low, but affordability is at 50 years high… It is cheaper to buy a house than to rent.”