Emma Wall: Hi, I'm Emma Wall. Investors are often warned against panic selling and panic buying assets. I was recently joined at the Morningstar Investment Conference by Tim Bond of Odey Asset Management to find out exactly what are the three biggest threats to your portfolio.
So, I wanted to ask you what you think the three biggest macro threats are for investors today.
Tim Bond: Okay. Well, in my book, I think, threats are uncertainty. When you're certain of things, then at least you can do something about it. So it's about where are we most uncertain.
I think the first one; everybody would agree would be China. In the – there's a reform process going on; very positive implications; long run; lots of potential damage in the short run; is the government willing and able to contain those damages, the sort of the negative fallout, and are they capable of doing it or not, I think that has a tremendous implication for global growth patterns.
And you can interpret it in a couple of different ways. It could have a perfectly benign outcome by keeping global inflation much lower for much longer than we are expecting in a recovery, or it could have malign one because it could be deflationary, you could have pressure on competitors' profit margins, and you can have slower growth. So that’s the first one.
The second one is a lot of uncertainty, I think, about the speed and pace of monetary tightening, notably, in the U.S. I think things are much clear in the U.K., but in the U.S., we are seeing a typical relationship between wage inflation and the unemployment rate.
And there is an awful lot of debate being generated about exactly how much slack there is left in the labour market and that makes a big difference in whether you think rates are going up early next year or the end of next year or the start of the next year. And that's a debate that is really – no one's really got a very good handle on that. History is not an accurate guide. So lots of uncertainty around that.
And then I suspect the largest, the largest threat, I would say to investors is that they think everything is finished and done with because the markets have done very well for an extended period of time.
Wall: There is a very positive feeling about it at the moment, isn't there?
Bond: Yes, there is, and I think people are worried that this is classically what you see at the tops of markets and then everything is going to get horrible from hereon when we priced it all in. But I think if you stand back and think pragmatically, we are coming out – from a financial crisis, it's been a very slow recovery. Equities have hardly had an uninterrupted rally. I mean they have had plenty of vicious sell-offs all the way through. And the recovery is being very slow and it's only now really starting to broaden out globally.
There are a lot of factors that imply that the sort of the problems that you hit during a recovery, namely, a change in monetary policy or inflation going up, overheating or something like that, everything tells you that those things are going to happen much, much later in this cycle than they normally have.
So I think the big risk investors face is sort of concluding that we're much further advanced along the cycle than actually we are. And, therefore, getting rid of potentially productive investments are too early (indiscernible).
Wall: Tim, thank you very much.
Bond: Thank you.
