The climb back from the economic crisis has been long and hard. Two market participants believe that much is left to be done in Europe and in the US.
Bob Swarup, principal of Camdor Capital in London who has studied economic crisis dating back to ancient Greece, says Europe isn’t out of trouble, while Charles Johnson, managing director of Tano Capital said the US economy still has some major hurdles in 2014. Jim Kharouf, editor-in-chief of John Lothian News spoke with Swarup and Johnson at the Emerging Manager Forum in Miami last month.
Swarup says he is not a “perma-bear” but he is also not convinced that Europe will be able to post solid growth in the near-term.
“Europe is still very much in the doldrums,” Swarup said. “Where they are at the moment is in the eye of the storm. Things have calmed down. The world is a slightly better place. Growth looks like it’s coming back. But in reality, a lot of the underlying problems haven’t gone away.”
Swarup says the environment in Europe remains the same. Germany still controls the purse strings while Italy, Spain and France among others continue to struggle. With unemployment figures pushing about 50 percent in some areas in Spain, not to mention slow or no-growth figures across much of southern Europe, and Swarup wonders if there may be political changes in the future.
“You don’t expect revolutions but there is something called the ballot box,” Swarup said. “So if you look at some of the political trends emerging in Europe, you have a huge rise in Euro-skepticism, and certainly a lot more political parties that are taking a hard-line domestically focused approach.”
From an investment standpoint, Swarup said he is keeping on eye on trade flows, particularly as they apply to trade agreements. As more trade agreements emerge in a bilateral format, rather than broader multi-country deals, Swarup believes those narrow agreements may stunt commerce in the coming years, not expand it.
“And if you looks across – the United States, Europe and Asia and so on – increasingly more and more countries are implementing their version of protective tariffs,” Swarup said.
In Johnson’s view the Federal Reserve Bank has shot most of its bullets over the past several years to hold up the economy and nurse it back to health. The question is whether policies such as quantitative easing can tapered and replaced with real economic growth this year.
“I think the Fed has pretty much painted itself into a corner,” Johnson said. “So I expect the Fed to start taking the focus off of tapering … and shift the debate away so they don’t even mention tapering.”
Johnson is concerned that tapering, even a little bit, may cause a major market disruption.
“So like a good magician, they’ll change the focus from here to over here,” he said.
Thumbnail photo by Images_of_Money.