Note: This post has been sitting in my drafts for over a week. I’m a little behind on my reading but I’ll try to follow-up with any interesting findings from Part 2 of the roundtable.
I don’t read the annual Barron’s Roundtable for stock tips. Rather, I read it to get a sense of the bigger picture. Here are a few quotes from Part I of this year’s Roundtable.
Bill Gross: When money yields nothing, banks won’t lend it. If a bank can keep money on deposit with the Fed at 25 basis points [a quarter of a percentage point] or lend it at 27 basis points, the yield on a two-year Treasury, why take the two-year risk? The combination of low return and high risk basically freezes the system. The global system is trying to delever and central banks are trying stop that process and pump trillions of dollars in. In a bimodal world, we could have reflation in 2013-14, or deflation in 2012. The probability of both is high.
Then there is this exchange comparing today’s situation to the late-seventies early eighties:
Schafer: Most of us have been in the business long enough to remember when the Aug. 13, 1979, cover of BusinessWeek declared the death of equities. The next year the market was up 13%. In the next five years it was up more than 50%. In the next 10 years it rose more than 250%. There is a lot of pessimism around, and a lot of opportunity.
Witmer: It is astounding that people will trample each other to get a cheap TV, but when shares of great companies get cheap, they sell them. It makes no sense.
Zulauf: People don’t care if the TV gets cheaper later, but they care when their stocks get cheaper.
Black: The U.S. doesn’t have the same financial flexibility today that it had in 1979 and 1980. Government debt is 100% of GDP, compared with 32.6% then. The huge debt overhang is a ticking time bomb.
Gross: The biggest difference is that long-term Treasuries were yielding 14.5% in 1981, and now they yield 3%. The federal funds rate was approaching 20% then, and it is basically zero now. To do well, stocks and other asset classes have to fight a tremendous head wind of overvaluation in the price of money.
That’s all that stood out from Part 1.