The Dow has been on a tear, but don’t relax. There’s still a lot to worry about.
That was the theme of Tiger 21’s 2013 annual conference. Members of the elite club of ultrawealthy investors gathered to discuss investment strategies, opportunities and other wealth-related issues.
They heard from an illustrious array of financial experts. Bears outnumbered bulls. Hot-button issues sparked discussion: artificially low interest rates, the potential for inflation, unsustainable government debt and potentially disruptive situations around the world.
“There are a host of issues and considerations members focus on when shaping their portfolios,” Tiger 21’s founder, Michael Sonnenfeldt, said in a statement. “Becoming much more deliberate about understanding and analyzing them is often the hidden key to preserving wealth over the long haul.”
Following are comments made by presenters during the meeting, according to Tiger 21.
George Friedman, founder of the global intelligence firm Stratfor, said that from a macro perspective, the world periodically undergoes a spasm—usually a war or some other change in control in a major country—and if you’re prepared for the spasm, you can live through it.
He pointed to global hot spots where disruptions were a possibility: China, where the government is more interested in maintaining employment than growing the economy; Europe, where economic problems are forcing an untenable divide in the EU; and the U.S., where middle-class families increasingly cannot afford to live middle-class lives.
Kyle Bass, founder of Hayman Capital Management, saw problems ahead because of inflation, and suggested that investors needed to protect themselves from it.
“As equity prices keep going higher, it’s easy to lose sight of what’s important in my opinion. If you are so focused on nominal pricing and equities and the monetary base is growing as fast as it is, you have to really focus on the insidious nature of what inflation is and how real returns might be negative in both equities and bonds. You’re losing purchasing power.
“To protect yourself you need to own productive assets such as apartment complexes or an oil well or a global business that sells things in various different currencies. And if you really want to protect yourself, you put long-term fixed-rate debt on these businesses—just don’t put too much debt on these businesses.” Glenn Hutchins, co-founder of Silver Lake and a global technology investor, stressed the need to think about the global macro environment when allocating capital. “If you get the macro picture wrong, you can make the best micro decision and still get killed,” he said.
Hutchins laid out what he saw as a recipe for inflation: slow growth, persistently high unemployment, muted consumption and low interest rates for a long time.
Yet, for all the issues facing investors, he was optimistic that America had the means to reinvent itself and restore international economic pre-eminence.