Take your pick: the free markets are in their death throes, or we are in the middle of the biggest bull market we’ll ever see.
Opposing views from global free-market bear Ian Bremmer and U.S. equities bull Richard Bernstein kicked off the sold-out Investment Management Consultants Association (IMCA) conference in New York on Monday.
Eurasia Group founder Ian Bremmer started the morning’s events on day one of the two-day conference with his gloomy prediction that the future of the free markets is threatened by state capitalism of the sort used by the political leadership in China, Russia and the Arab monarchies of the Persian Gulf. Such authoritarian states are now successfully using markets to create wealth that helps them achieve political goals, said Bremmer, author of The End of the Free Market: Who Wins the War Between States and Corporations?
How has the United States responded? By investing in state-owned companies’ enormous investment funds, which have become vitally important sources of capital for Western governments and banks weakened by financial crisis, Bremmer said.
As for banks’ position within the U.S., Bremmer pointed out that “bankers don’t look like the rest of the U.S.,” and the forces of globalization are changing the political landscape at home—which explains why President Barack Obama got re-elected.
U.S. Changing as Fast as Rest of World
“The world is changing so much that Americans are much more likely to vote for people who look different from us,” said Bremmer (left), who teaches at Columbia University in New York. He added that the greatest challenge for American society is the growing gap between rich and poor.
As an antidote to Bremmer’s gloom, IMCA board director Tony Davidow introduced Bernstein with the guarantee that he would take a more positive view of the world—“and let’s face it, we can all use some good news here,” Davidow said.
True to his growing glass-half-full reputation, Richard Bernstein countered Bremmer’s argument by asserting that he has good reason to be very bullish.
“We’re in the middle of what is likely to be the biggest bull market of our careers, bigger than the 1982 bull market,” Bernstein said. “Bull markets are not periods of wine and roses. They’re periods of fear and indecision. That word uncertainty is like a billboard screaming at you that there are opportunities in equities.”
‘This Is a Decade of U.S. Equity Outperformance’
Bears now say that stocks are overvalued and that uncertainty is high, but overvaluation can’t exist alongside uncertainty, Bernstein argued.
He then laid out his three essential market views: “This is a decade of U.S. equity outperformance; China is on the downside of a bubble, and Treasuries are the way to hedge a portfolio.”
Yes, Treasuries. Bernstein believes that if anything is overvalued, it’s hedge funds, not stocks. “All you have to do is say ‘hedge’ and the fees go up,” he said. “You don’t have to pay 2 and 20 anymore. All you have to do is hold Treasuries in a portfolio.”
IMCA’s sellout crowd numbered 900, and according to the association’s database, 2013 represents the first time since 2009 that the conference is sold out—perhaps a reflection of IMCA members’ near-term expectations. A total of 79% of members surveyed in January said they believe the economy will grow and 82% believe the stock market will rise in 2013.
IMCA’s largest event of the year, the annual conference, will be held April 28 through May 1 in Seattle. Scheduled speakers include behavioral economist Dan Ariely, former TARP special inspector general Neil Barofsky and controversial analyst Meredith Whitney.