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Japan Is Now An Interesting Place To Invest

posted 25 Jan 2013, 13:07 by Mpelembe   [ updated 25 Jan 2013, 13:08 ]

Reuters Market Access  - 


Why did you decide to launch a fund not that long ago?


Look, I think the future of this industry is changing a lot and we're seeing it already in terms of the kinds of investors that are going into funds. The industry is founded along high net worth individuals who gave their money to very smart managers and said, "Please make me some money." That phase of the industry I think is over. We are now a $2 trillion industry and I think that institutions are playing a much bigger role. So pretty soon, I think everybody's going to be invested in hedge funds, they just won't know about it.


So what intrigues you right now? Where are you finding some interesting opportunities?


Look, I think there are some very interesting macro themes, if you will, to invest in and that's what we do. We're a macro hedge fund. And the first thing I think is that for the first time in about 20 years, Japan is an interesting place to invest in because you finally got a government that has decided that it will not tolerate deflation anymore. And if the government is able to execute that policy in a successful way, I think that's going to be very, very important in terms of what happens to Japanese asset prices, both equities as well as the Yen.

The second thing I think that's very, very important here which is happening right here at home for us is what's happening with our entire fiscal picture. The United States has got a very important debt ceiling negotiation. Given how Congress and the President are currently sort of- talk to each other, it's going to be a very cantankerous negotiation. But mark my word, it's going to be very important that this deal is struck and this deal is cut.


Where do you actually invest to play that?


Here's what we think. We think that the deal gets done. We think that it gets done in a suboptimal way which is, the sequestration takes hold and the debt ceiling gets extended. As a result, the Republicans get the spending cuts they want and debt-to-GDP in the United States. Stumblingly, we have managed to solve that issue for at least the next 10 years before the Medicare and Medicaid time bomb hits. If that happens, then theUnited States once again becomes a shining house on the hill. We will have the fastest growth within the G7, we will have low inflation, and we will have a stable debt-to-GDP ratio. And I think for the first time in probably almost 10 years, the equity markets in theUnited States are going to start re-rating themselves.


When you look at equities, are you looking at any specific sectors or areas in the market that are more intriguing whether that's large cap, small cap?


We don't tend to trade market caps. You're doing the macro trade, yeah. We're very macro, we're very focused on which equity markets are likely to outperform. And we think the United States equity market right now, the S&P 500 is trading at about 13.5x forward earnings. We think that's too low.That reflects an enormous amount of risk premium from these fiscal issues and from all the systemic risks we've had in the post-crisis environment. You take that away and we think we go back to a more normalized 15x to 16x earnings which I think is a substantial asset price growth over the next several years. Let me say one other thing. Anybody, anybody who buys US government bonds today is guaranteed of losing money the next 10 years. So when you look at the alternative, equities look very, very interesting.