My Interview with Addison Wiggin
'Markets may not rise or fall in a linear fashion'
Link
http://www.smartinvestor.in/market/expt-exptspks-18235-exptspksdet.htm
Addison Wiggin, executive publisher of US-based Agora Financial, which is into financial forecasting and advising speaks with Jitendra Gupta about the market trend and liquidity among other things.
Addison Wiggin is a well-known figure in the financial markets who had warned investors about the impending credit crisis in the US. He has authored books such as “The Demise of the Dollar&" and co-authored books “Financial Reckoning Day Fallout&" and “The New Empire of Debt&".
You had recently said that the Indian markets might correct by 8-10 per cent. After the recent decline what is your view on the Indian market?
The markets are not expected to go up or down in a linear fashion. The Indian market has been rising consistently for some time but it has a tendency to get ahead of fundamentals and then a correction is inevitable. At present, valuations look expensive. As you'll recall, we talked about the markets being jittery. They're due for a correction. I suggested 8-10% because I think there's a lot of optimism in the Indian market. But if traders continue to get spooked like they did on Friday, a fall of 15-20% is possible. I don't think that's going to happen though. I'm sticking with 8-10%.
Why did refer to the recent market rally as "sucker's rally"?
Markets have gone up in the hope of recovery in economies and corporate profitability. But that is fictitious. Corporate profitability is up on account of the stimulus packages and the governments’ efforts to keep the interest rates down. This might not last for long.
What could put a spanner to this "sucker's rally"?
It will collapse on its own. The best example to look at is what happened with the Japan in the nineties. Every time they had rally between 30-50 per cent, they ran out of steam and hit new lows. The Japanese markets did so five times in the nineties. I think we are in the same trajectory right now.
Do you think that by providing liquidity, we have postponed the crisis? Do you think that the next crisis could be bigger?
The next wave of crisis will be worse. Generally, people think that the problem has been solved and they start investing again in the market leading to a rally for a period of time. But ultimately, they have to pay a heavy price.
How do you assess global risks related to countries? Like, some of the recent case of Dubai, Greece and Venezuela devaluing its currency recently?
Iceland, Ireland, Greece and Dubai all did the same thing. Their growth was dependent on the low interest rates and speculation. A whole lot speculation, which was encouraged with easy credit and low interest rates, just ended. Dubai was the latest example. Unfortunately, the bigger economies are also susceptible to this. China and the US are still at risk because of the massive stimulus they have put out and increasing speculation in the markets.
What is your view on China, especially after the recent tightening of liquidity?
There are legitimate concerns of the economic stimulus in China causing the economy to overheat, and hence the plan to increase capital reserves in Chinese banks. But the overall challenge remains.
The Chinese need to develop domestic demand for their products, not just in China but across the ASEAN countries, in order to decrease their dependency on consumers in the West. I think China is a much bigger problem example than Dubai, but Dubai is representative of what could happen. Just like Dubai, China has benefited from this era of low interest rates in the US. Today, the official interest rates are low in the US due to the problems in the mortgage markets. But this has resulted in speculation overseas in places like China, Dubai and even in Greece.
But I think, today, China probably represents the largest threat because of the massive stimulus and also because of its dependence on the US consumer and its low interest rate.
You have been saying that the dollar will revert to its intrinsic value, which is zero. Why?
We have never been in such a situation where the government is just printing money as fast as it can to get out of the financial crisis. At the same time, the dollar is the reserve currency of the world. So we have China, Russia, Brazil, India, South Korea etc holding massive amounts of dollars wondering what the next step will be. They also wonder if those dollars are going to be worth anything tomorrow. So part of the reason why the dollar stays strong is because it is in nobody’s interest to see the dollar fall.
You have been of the view that the multi-bagger investment opportunities will come from countries like India, China and Brazil why is that so?
These countries have to grow. Today developing countries like China, Brazil and India have far greater opportunities. I think the time has came, the kind of optimism that many Indians show and their capabilities to grasp and execute the ideas in way that Americans did 100 years ago.
You seem to be very bullish on gold. Why?
Until the dollar reserve question is resolved and that is going to take some time, I think gold is a good investment for at least the next decade. Even when we first forecasted gold at $2,000 per ounce, people laughed, but even $2500 is not a crazy forecast today, which is achievable within the next couple of years. That’s because the investment community is now showing their interest in gold and the supply of gold is limited.
What are the themes one can play in India?
In India, the infrastructure sector and companies that provide services to the emerging middle class are two themes. If the rising middle class reaches a critical mass and real demand emerges, we could see high growth.
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